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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NETMED, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Ohio 5047 31-1282391
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number Identification Number)
</TABLE>
6189 Memorial Drive
Dublin, OH 43017
(614) 793-9356
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
David J. Richards, President
NetMed, Inc.
6189 Memorial Drive
Dublin, OH 43017
(614) 793-9356
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
William J. Kelly, Jr.
Vice President and General Counsel
NetMed, Inc.
6189 Memorial Drive
Dublin, OH 43017
(614) 793-9356
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE PRICE PER AMOUNT OF OFFERING REGISTRATION FEE
REGISTERED SHARE (1) PRICE (1) (1)
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<S> <C> <C> <C> <C>
Common Shares, without 1,500,000 $4.375 $6,562,500 $21,656.25
par value
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<FN>
(1) Calculated in accordance with Rule 457(c) based on the average of the high
and low sales prices of the Common Shares as reported on the American Stock
Exchange on September 11, 1997 solely for the purpose of calculating the
amount of the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
1,500,000 SHARES
NETMED, INC.
COMMON SHARES
(without par value)
The shares offered hereby (the "Shares") consist of up to 1,500,000
common shares, without par value (the "Common Stock") of NetMed, Inc., an Ohio
corporation ("NetMed" or the "Company") which are issuable by the Company to
certain persons ("Selling Shareholders") upon conversion of the 6% Convertible
Subordinated Debentures of the Company ("Debentures"), and upon exercise by the
Selling Shareholders of certain warrants to purchase Common Stock ("Warrants").
For further information regarding the Selling Shareholders, see "Selling
Shareholders." The number of shares registered for sale by this Prospectus
equals approximately 150% of the number of shares into which the Debentures are
convertible on September 10, 1997, assuming the Debentures were fully
convertible on such date, plus the number of Shares issuable upon exercise of
the Warrants. For a further description of the terms of the Debentures and the
Warrants, see "Selling Shareholders."
This Prospectus covers the sale of the Shares from time to time by the
Selling Shareholders. The issuance of Shares upon conversion of the Debentures
and exercise of the Warrants is not covered by this Prospectus, but rather only
the resale of such Shares. The Shares may be offered from time to time by the
Selling Shareholders. All expenses of the registration incurred in connection
herewith are being borne by the Company, but any brokers' or underwriters' fees
or commissions will be borne by the Selling Shareholders. The Company will not
receive any proceeds from the sale of the Shares by the Selling Shareholders.
The Selling Shareholders have not advised the Company of any specific
plans for the distribution of the Shares covered by this Prospectus, but it is
anticipated that the Shares will be sold from time to time primarily in
transactions (which may include block transactions) on the American Stock
Exchange at the market price then prevailing, although sales may also be made in
negotiated transactions or otherwise. The Selling Shareholders and the brokers
and dealers through whom sale of the Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and their commissions or discounts and other compensation may
be regarded as underwriters' compensation. See "Plan of Distribution."
The Common Stock is currently listed on the American Stock Exchange
under the symbol "NMD." On September 11, 1997, the last reported sale price of
the Common Stock on the American Stock Exchange was $4.50 per share.
Application has been made to list the Shares on the American Stock Exchange.
THERE ARE CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BEFORE
PURCHASING SHARES IN THIS OFFERING. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is September __, 1997.
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AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement
on Form S-1 (the "Registration Statement") filed by the Company with the
Securities and Exchange Commission (the "Commission") under the Securities Act,
omits certain of the information set forth in the Registration Statement.
Reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company and the securities
offered hereby. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment of
the prescribed fee or may be examined without charge at the public reference
facilities of the Commission described below.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
regional offices of the Commission: Midwest Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, IL 60661-2511, and Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, NY 10048. Copies of
such material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Such reports and other information filed with the Commission may also be
available at the Commission's site on the World Wide Web at http:www.sec.gov.
The Company's Common Stock is listed on the American Stock Exchange,
and copies of its reports, proxy statements and other information filed with the
Commission under the Exchange Act, and other information concerning the Company,
can be inspected at the American Stock Exchange.
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SUMMARY OF THE PROSPECTUS
This summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in the Prospectus.
THE COMPANY
NetMed, Inc., formerly known as Papnet of Ohio, Inc., is an Ohio
corporation engaged in the business of acquiring, developing and marketing
medical and health-related technologies. The Company's revenues are currently
derived principally from the marketing of the PAPNET(R) Testing System and
Service, which are proprietary products of Neuromedical Systems, Inc. ("NSI").
The Company is also currently engaged in the development of an oxygen
concentration device that it plans to manufacture and sell in the home
healthcare market.
The PAPNET(R) Testing System is a semi-automated cancer detection
system for the review of cell, tissue or body fluid specimens, including but not
limited to cervical cytology specimens. The PAPNET(R) Service permits
laboratories to submit slides containing such specimens ("Slides") to one of
NSI's central facilities for image processing employing NSI's patented neural
network technology. NSI returns the Slides and digital tape or CD-ROM containing
processed images for evaluation by NSI-trained cytotechnologists. See "Business
- - The PAPNET(R) Testing System."
The FDA approved the PAPNET(R) Testing System for commercial use in the
United States on November 8, 1995. Prior to that time, it was permitted to be
utilized in the United States on an investigational basis only, and NSI was
permitted to derive revenue with respect thereto only to recover certain of its
costs. Beginning January 1, 1996, the Company and NSI began the task of building
a sales force and familiarizing doctors and laboratories with the benefits of
the PAPNET(R) Testing System and Service. Beginning in September of 1996, NSI
began the commercial launch of the product with a national advertising campaign.
On December 5, 1996, the Company's shareholders approved an Agreement
and Plan of Merger (the "Merger Agreement") whereby Cytology Indiana, Inc.,
Indiana Cytology Review Company, ER Group, Inc., CCWP Partners, Inc., and
Carolina Cytology, Inc. (the "Predecessor Companies") were merged with and into
Papnet of Ohio, Inc. (the "Merger"). The Merger was effective on December 16,
1996, and the Company issued 4,849,988 common shares, without par value, in
exchange for the issued and outstanding shares of the Predecessor Companies.
Pursuant to the Merger Agreement, the Company changed its name to NetMed, Inc.,
and its common shares began trading on the American Stock Exchange on December
18, 1996 under the symbol "NMD". See "Business - The Merger."
As a result of the Merger, the Company has the marketing rights to the
PAPNET(R) Testing System and Service in Ohio, Kentucky, Missouri, Georgia, North
Carolina and the Consolidated Statistical Area of Chicago. The Company's
marketing rights are exclusive within these territories, subject to the right of
NSI to conduct marketing and sales activities therein. However, because the
royalties paid to the Company by NSI are based on revenues recognized by NSI
from activities (including any sales by NSI) in the licensed territories, NSI's
sales activities therein benefit the Company. See "Business - The NSI License."
While the Company's primary focus has been, and will continue to be,
exploiting its rights under the NSI license, the Company will also consider the
acquisition of other healthcare related technologies in the future. In February
1997 the Company entered an agreement with CeramPhysics, Inc. of Westerville,
Ohio ("Ceram"), pursuant to which the Company has the right to acquire control
of a newly-organized corporation holding a world-wide license to Ceram's
patented oxygen generation technology, which is exclusive as to all applications
except oxygen sensors and fuel cells. The Company is currently engaged in the
development of an oxygen concentration device based on this technology, which it
plans to sell in the home healthcare market.
The Company's principal offices are located at 6189 Memorial Drive,
Dublin, Ohio 43017, and its telephone number at that address is (614) 793-9356.
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THE OFFERING
The shares offered hereby (the "Shares") consist of up to 1,500,000
common shares, without par value (the "Common Stock") of the Company which are
issuable by the Company to certain persons ("Selling Shareholders") upon
conversion of the 6% Convertible Subordinated Debentures of the Company
("Debentures"), and upon exercise by the Selling Shareholders of certain
warrants to purchase Common Stock ("Warrants"). The number of shares registered
for sale by this Prospectus equals approximately 150% of the number of Shares
into which the Debentures are convertible on September 10, 1997, assuming the
Debentures were fully convertible on such date, plus the number of Shares
issuable upon exercise of the Warrants.
THE DEBENTURES AND WARRANTS
The Debentures are due August 13, 2000, bear interest at a rate of 6%
per annum, and are redeemable by the Company. The Company issued the Debentures
to the Selling Shareholders on August 13, 1997 pursuant to the terms of
Convertible Debenture Purchase Agreements with the Selling Shareholders (the
"Purchase Agreements"). The Debentures and any interest accrued thereon may be
converted into Shares at any time. However, no sales of Shares may be made prior
to November 11, 1997, and during the period from November 11, 1997 through May
10, 1998 (the 91st through 270th day after the closing) the maximum aggregate
number of Shares which can be sold is 500,000. After May 10, 1998 (the 270th day
after the closing), 100% of the Shares may be sold. The Company can prohibit
sales during the period from December 14, 1997 to February 1, 1998 (the
"Blackout Period"). The Debentures are convertible into shares of the Company's
Common Stock based on the "Conversion Price" at the time of conversion, which
varies based on the date when the Debentures are converted. For the period
through March 31, 1998, the Conversion Price is an amount equal to 80% of the
average closing bid price of the Common Stock on the American Stock Exchange for
the previous three business days ending on the day before the conversion date.
For the period beginning April 1, 1998, the Conversion Price is an amount equal
to 75% of the average closing bid price of the Common Stock on the American
Stock Exchange for the previous three business days ending on the day before the
conversion date. The Warrants are exercisable at any time prior to August 13,
2000 at exercise prices of $7.79 per Share (for up to 150,000 Shares) and $9.35
per Share (for up to 65,000 Shares).
The Debentures are secured by 475,000 shares of common stock of
Neuromedical Systems, Inc. (Nasdaq: NSIX) owned by the Company (the "NSI
Shares"). If at any time prior to March 31, 1998, the conversion price is $3.00
or less, the holders of the Debentures may elect to exercise their conversion
rights for NSI Shares, rather than Common Stock of the Company, at a 20%
discount from the market price at the time of conversion. If the Company
prohibits sales during the Blackout Period, and the trading volume in the Common
Stock prior to December 15, 1997 does not meet defined minimums, the holders may
convert into the NSI Shares at a discount from the market price which would
produce a 25% return on an annualized basis. The NSI Shares may be released from
the pledge ratably as the outstanding principal amount of Debentures is reduced.
For a further description of the terms of the Debentures and the
Warrants see "Selling Shareholders."
SHARES OUTSTANDING
Common Stock Outstanding .......... 10,947,114 shares
American Stock Exchange Symbol .... NMD
Use of Proceeds ................... The Company will not receive any
proceeds from the sale of Shares by
the Selling Shareholders.
RISK FACTORS
Before making an investment in the Common Stock, prospective purchasers
should carefully consider the factors set forth in this Prospectus under "Risk
Factors."
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RISK FACTORS
Investment in the securities being offered hereby involves a high
degree of risk, including, but not limited to, the risk factors described below.
Prospective investors should carefully consider the following risk factors, in
addition to the other information in this Prospectus, in evaluating an
investment in the securities offered hereby.
HISTORY OF LOSSES; PROFITABILITY UNCERTAIN; RELIANCE ON A SINGLE PRODUCT
The Company is in the early stage of its operations, and is therefore
subject to risks incident to any new business, including the absence of
earnings. The Company has to date had limited income from operations, and as of
June 30, 1997 has an accumulated deficit of $1,386,496. While the Company
intends to complete development and commercialization of its oxygen
concentration device, it has to date concentrated its efforts primarily on the
marketing of the PAPNET(R) Testing System and will be dependent for the
foreseeable future upon the successful marketing of that product to generate
revenues.
The Company cannot accurately predict the extent of its future capital
needs, but anticipates that expenditures will increase significantly during the
remainder of 1997 and through 1998 due to marketing costs for the PAPNET(R)
Testing System and completion of development and commercialization of the oxygen
concentrator. A significant amount of the Company's assets are represented by
its investment in NSI common stock, the liquidation of which will provide a
supplemental source of financing for the Company's activities. There can be no
assurance regarding the market value of the NSI common stock and any decrease in
its market value may adversely impact the Company's total assets and its ability
to fund its business plan. In addition, there can be no assurance that other
funds will be available on terms favorable to the Company, or at all. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the then current shareholders of the Company may be
reduced and such equity securities may have rights, preferences or privileges
senior to those of the holders of the Company's common shares. See "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON NSI; NO OWNERSHIP OF PAPNET(R) TECHNOLOGY
The Company obtains all of the information relating to the PAPNET(R)
Testing System and Service from NSI, and in most cases cannot independently
verify this information. Therefore, the Company is dependent on NSI to
accurately report the results of clinical studies and other data relating to the
capabilities and performance of the PAPNET(R) Testing System.
The Company has no ownership rights in the PAPNET(R) technology. NSI
has granted the Company exclusive rights with respect to the marketing of the
PAPNET(R) Testing System and Service in certain geographic territories.
Therefore, the business of the Company is dependent upon a number of factors,
many of which are controlled by NSI. These factors include maintaining the
PAPNET(R) Testing System's compliance with FDA and other regulatory
requirements, maintenance of the technological advantages of the PAPNET(R)
Testing System, maintenance of product liability insurance, and the ability to
manufacture and deliver the equipment required to operate the PAPNET(R) Testing
System. Further, NSI is in a stage of development that may require additional
funding for its internal operations. In the event that NSI should fail to
perform in any of these areas, or in any others which could affect its
licensees, such failure could have an adverse effect on the Company and its
business. See "Business - NSI - Licensor of the PAPNET(R) System."
Additional risks relating to the business of NSI which may have an
impact on the Company are set forth in NSI's periodic reports filed with the
Commission, including its Annual Report on Form 10-K.
NSI LICENSE AGREEMENT AND PATENTS
The Company's marketing rights and the revenues generated by these
activities, are governed by the terms of its license from NSI (the "License").
The License imposes significant territorial and other restrictions on the
Company's marketing rights, and places certain limitations on the amounts of
royalty revenues which the Company can generate through the marketing of the
PAPNET(R) Testing System and Service. The terms of the License are set
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forth in the form of license agreement incorporated into the Settlement
Agreement, but to date the Company and NSI have not executed a definitive
license agreement. See "Business - The NSI License."
The technology underlying the PAPNET(R) Testing System is protected by
broad patent protection granted to NSI with respect to the use of neural
networks in automated and semi-automated cytology. There can be no assurance
that the NSI patents will afford protection from material infringement or that
such patents will not be challenged. NSI and the Company will also rely on trade
secrets and proprietary know-how, which they will seek to protect, in part,
through confidentiality agreements with employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that there will be adequate remedies for any breach or that trade secrets of NSI
or the Company will not otherwise become known to, or independently developed
by, competitors.
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights. Although
patent and intellectual property disputes in the medical device area have often
been settled through licensing or similar arrangements, costs associated with
such arrangements may be substantial and there can be no assurance that
necessary licenses would be available to NSI or the Company on satisfactory
terms or at all. Adverse determinations could limit the value of NSI's issued
patents or result in invalidation of those patents, subject NSI or the Company
to significant liabilities to third parties, require NSI or the Company to seek
licenses from third parties or prevent NSI from manufacturing its products or
prevent NSI or the Company from selling NSI's products, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company's operations is highly dependent upon David
J. Richards, its founder and President, as well as its other key executive
officers. The loss of any of these persons could have an materially adverse
effect on the Company. See "Management."
GOVERNMENT REGULATION
The services, products and manufacturing activities of NSI and the
Company are subject to extensive and rigorous government regulation, including
the provisions of the Medical Device Amendment to the Federal Food, Drug and
Cosmetic Act. Commercial distribution in certain foreign countries is also
subject to government regulations. The process of obtaining required regulatory
approvals can be lengthy, expensive and uncertain. Moreover, regulatory
approvals, if granted, may include significant limitations on the indicated uses
for which a product may be marketed. The FDA actively enforces regulations
prohibiting marketing without compliance with the premarket approval provisions
of products and conducts periodic inspections to determine compliance with Good
Manufacturing Practice regulations.
Failure to comply with applicable regulatory requirements can result in,
among other things, fines, suspensions of approvals, seizures or recalls of
products, operating restrictions and criminal prosecutions. Furthermore, changes
in existing regulations or adoption of new regulations could prevent NSI or the
Company from obtaining, or affect the timing of, future regulatory approvals.
The effect of governmental regulation may be to delay for a considerable period
of time or to prevent the marketing and/or full commercialization of future
products or services that NSI or the Company may develop and/or impose costly
requirements on NSI or the Company. There can be no assurance that NSI or the
Company will be able to obtain regulatory approvals of any products on a timely
basis or at all. Delays in receipt of or failure to receive such approvals or
loss of previously received approvals would adversely affect the marketing of
NSI's and the Company's proposed products. There can also be no assurance that
additional regulations will not be adopted or current regulations amended in
such a manner as will materially adversely effect NSI or the Company.
LIMITED THIRD PARTY REIMBURSEMENT
In the United States, many Pap smears are currently paid for by the
patient, and the level of reimbursement by third-party payers that do provide
reimbursement differ considerably. Third-party payers (Medicare/Medicaid,
private health insurance, health maintenance organizations, health
administration authorities in foreign countries and
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other organizations) may affect the pricing or relative attractiveness of the
Company's and NSI's products and services by regulating the maximum amount of
reimbursement for products or services provided by the Company and NSI or by not
providing any reimbursement at all. Restrictions on reimbursement may limit the
price which the Company can charge for its products and services or reduce the
demand for them, or, in the case of PAPNET(R) testing, if the level of such
reimbursement is significantly below what laboratories charge patients to
perform the test, the size of the potential market available to the Company may
be reduced. There can be no assurance of the extent to which costs of PAPNET(R)
testing will become reimbursable or that the level of reimbursement will be
sufficient to permit the Company to generate substantial revenues. See "Business
- - Third Party Reimbursement."
MARKETABILITY AND COMPETITION
The Company's future performance will depend to a substantial degree
upon market acceptance of the PAPNET(R) Testing System. The extent of, and rate
at which, market acceptance and penetration are achieved are functions of many
variables including, but not limited to, price, effectiveness, acceptance by
patients, physicians and laboratories (including the ability of laboratories to
hire additional cytotechnologists), manufacturing, slide processing and training
capacity, reimbursement practice and marketing and sales efforts. There can be
no assurance that the PAPNET(R) Testing System will achieve or maintain
acceptance in its target markets.
The Company is aware of several companies that either have developed or
are developing systems that are competitive with the PAPNET(R) Testing System or
other technologies targeted for development by the Company. Commercial
availability of such products could have a material adverse effect on the
Company's business, financial condition and results of operations. Competitors
may have substantially greater financial, manufacturing, marketing and technical
resources, and represent significant potential long-term competition.
Competitors may succeed in developing products that are more effective or less
costly than any that may be developed by NSI or the Company. New developments
are expected to continue at a rapid pace in both industry and academia. There
can be no assurance that research and development by others will not render
NSI's or the Company's current and contemplated products obsolete. Competition
may increase further as a result of advances that may be made in the commercial
applicability of technologies and greater availability of capital for investment
in these fields. See "Business - Competition in the Cervical Cytology Market."
PRODUCT LIABILITY
The business of the Company could expose it to the risks inherent in the
production and distribution of medical diagnostic and treatment equipment.
Although NSI has attempted to reduce the exposure to product liability risk by
disclosing the demonstrated range of accuracy of the PAPNET(R) Testing System,
there can be no assurance that the Company will not be exposed to liability
resulting from the failure or inaccuracy of the PAPNET(R) System. The Company
currently carries no product liability insurance. However, NSI is required,
under the terms of the License, to name the Company as an additional insured on
its product liability policies. There can be no assurance that NSI will have the
resources necessary to purchase and maintain the insurance, that such insurance
will be sufficient to cover potential claims, or that NSI will have adequate
resources to indemnify the Company from any uninsured loss.
DIVIDEND POLICY
The Company does not contemplate the payment of dividends for the
foreseeable future. The Company has accumulated substantial losses since its
inception and there can be no assurance that the Company's operations will
result in sufficient revenues to enable the Company to operate at profitable
levels or to generate positive cash flow. Any earnings generated from the
operations of the Company will be used to finance the business and growth of the
Company. See "Price Range of Common Stock and Dividend Policy."
CONTROL BY AFFILIATES
The directors, executive officers and principal shareholders (5% or
greater) of the Company collectively own approximately 30% of the outstanding
Common Stock. As a result, these shareholders will be able to exercise
significant influence over matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a
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change in control of the Company. See "Ownership of Common Stock by Management
and Principal Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE
The Company had 10,947,114 common shares outstanding as of August 31,
1997. Approximately 2,650,000 shares are held by affiliates of the Company who
will be entitled to resell them only pursuant to a registration statement under
the Securities Act or an applicable exemption from registration thereunder such
as provided by Rule 144 under the Securities Act. Approximately an additional
3,637,000 are currently subject to certain restrictions on transfer as a result
of the Merger, all of which will expire on December 16, 1997, whereupon such
shares will become freely tradable without any restriction.
Sales of substantial amounts of the Company's shares in the public
market or the prospect of such sales could adversely affect the market price of
its shares.
LIQUIDITY; POSSIBLE VOLATILITY OF STOCK PRICE
Although the Common Stock is currently listed for trading on the
American Stock Exchange, trading volume has been limited. There can be no
assurance that there will continue to be an active and liquid trading market.
The stock market has experienced extreme price and volume fluctuations and
volatility that has particularly affected the market prices of many technology,
emerging growth and developmental stage companies. Such fluctuations and
volatility have often been unrelated or disproportionate to the operating
performance of such companies. Factors such as announcements of the introduction
of new or enhanced services or related products by the Company or its
competitors may have a significant impact on the market price of the Common
Stock. Sales by the Selling Shareholders of the Shares which are the subject of
this Prospectus may also adversely affect the pricing and volatility of trading
in the Common Stock. See "Price Range of Common Stock and Dividend Policy."
Market prices of securities of medical technology companies, including
the Common Stock, have experienced significant volatility from time to time.
There may be volatility in the market price of the Common Stock due to factors
that may or may not relate to the Company's performance. Various factors and
events, such as announcements by the Company or its competitors concerning new
product developments, governmental approvals, regulations or actions,
developments or disputes relating to patent or proprietary rights and public
concern over product liability may have a significant impact on the market price
of the Common Stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Since the completion of the Merger, the Common Stock has been listed on
the American Stock Exchange and trades under the symbol "NMD."
The Common Stock is listed for trading on the American Stock Exchange
under the symbol "NMD." Prior to December 18, 1996, the Company's Common Shares
were traded in the over the counter market on the NASDAQ Bulletin Board. The
following table sets forth, for the periods indicated, the high and low last
sales prices per share, as reported on the NASDAQ Bulletin Board, and
subsequently on the American Stock Exchange. The figures have been adjusted to
reflect 2-for-1 stock splits in May and December 1995. The prices shown through
December 17, 1996 represent inter-dealer prices, without adjustments for retail
markups, markdowns or commissions and may not represent actual transactions.
First Quarter 1995 ........... $ 5.398 $ 3.75
Second Quarter 1995 .......... 8.094 7.875
Third Quarter 1995 ........... 17.688 10.75
Fourth Quarter 1995 .......... 15.688 13.375
First Quarter 1996 ........... 13.00 9.375
Second Quarter 1996 .......... 10.75 8.375
Third Quarter 1996 ........... 9.00 7.125
Fourth Quarter 1996 .......... 8.875 6.25
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First Quarter 1997 ........... 9.625 6.625
Second Quarter 1997 .......... 7.875 5.00
On September __, 1997, the last reported sale price of the Common Stock
was $___ per share. On September __, 1997, there were ____ holders of record of
the Common Stock.
The Company has not paid and does not anticipate paying any cash
dividends in the foreseeable future and intends to retain future earnings for
the development and expansion of its business. Any future determination to pay
dividends will be at the discretion of the Board and subject to certain
limitations under the Ohio General Corporation Law and will depend upon the
Company's results of operations, financial condition, contractual restrictions
and other factors deemed relevant by the Board.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholders.
SELECTED FINANCIAL DATA
The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Prospectus. The selected
financial data for the years ended December 31, 1993, 1994, 1995 and 1996 are
derived from the Company's audited financial statements for those years. The
selected financial data for the year ended December 31, 1992 and for the
six-month periods ended June 30, 1996 and 1997 are derived from unaudited
financial statements of the Company. The unaudited financial statements included
elsewhere in this Prospectus and, in the opinion of the Company, include all
adjustments, consisting of normal recurring accruals considered necessary for a
fair and consistent presentation of such information.
<TABLE>
<CAPTION>
Year ended December 31, Six Months Ended June 30,
----------------------- -------------------------
1992 1993 1994 1995 1996 1997 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 27,989 $ 4,322 $ 24,765 $ 48,000 $ 102,813 $ 339,608 $ 27,099
Loss from operations (210,148) (285,591) (302,596) (525,149) (1,677,312) (1,210,046) (364,358)
Net income (loss) (202,702) (277,068) (283,537) 1,324,945 (592,822) (585,194) (235,577)
Net Income (loss) per share - - (0.05) 0.21 (0.09) (0.05) (0.04)
BALANCE SHEET DATA:
Total assets 833,074 962,492 768,934 9,225,744 10,379,590 4,403,611 6,724,648
Total Stockholders' equity 412,257 923,828 738,600 6,253,679 7,035,067 3,179,293 4,778,179
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is an Ohio corporation engaged in the business of
acquiring, developing and marketing medical and health-related technologies. The
Company's revenues are currently derived principally from the marketing of the
PAPNET(R) Testing System and Service, which are proprietary products of NSI. The
Company is also currently engaged in the development of an oxygen concentration
device which it plans to manufacture and sell in the home healthcare market.
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<PAGE> 11
The PAPNET(R) Testing System is a semi-automated cancer detection
system for the review of cell, tissue or body fluid specimens, including but not
limited to cervical cytology specimens. The PAPNET(R) Service permits
laboratories to submit slides containing such specimens to one of NSI's central
facilities for image processing employing NSI's patented neural network
technology. NSI returns the Slides and digital tape or CD-ROM containing
processed images for evaluation by NSI-trained cytotechnologists.
The PAPNET(R) Testing System was approved by the FDA for commercial use
in the United States on November 8, 1995. Prior to that time, it was permitted
to be utilized in the United States on an investigational basis only, and NSI
was permitted to derive revenue with respect thereto only to recover certain of
its costs. Beginning January 1, 1996, the Company and NSI began the task of
building a sales force and familiarizing doctors and laboratories with the
benefits of the PAPNET(R) Testing System and service. Beginning in September of
1996, the commercial launch of the product was initiated with a national
advertising campaign.
On December 5, 1996, the Company's shareholders approved the Merger
with the Predecessor Companies. The Merger was effective on December 16, 1996,
and the Company issued 4,849,988 common shares, without par value, in exchange
for the issued and outstanding shares of the Predecessor Companies. Pursuant to
the Merger Agreement, the Company changed its name to NetMed, Inc., and its
common shares began trading on the American Stock Exchange on December 18, 1996
under the symbol "NMD".
As a result of the Merger, the Company has the marketing rights to the
PAPNET(R) Testing System and Service in Ohio, Kentucky, Missouri, Georgia, North
Carolina and the Consolidated Statistical Area of Chicago. The Company's
marketing rights are exclusive within these territories, subject to the right of
NSI to conduct marketing and sales activities therein. However, because the
royalties paid to the Company by NSI are based on revenues recognized by NSI
from activities (including any sales by NSI) in the licensed territories, NSI's
sales activities therein benefit the Company.
While the Company's primary focus has been, and will continue to be,
exploiting its rights under the NSI license, the Company will also consider the
acquisition of other healthcare related technologies in the future. In February,
1997 the Company announced that it had entered an agreement with CeramPhysics,
Inc. of Westerville, Ohio, pursuant to which the Company has the right to
acquire control of a newly-organized corporation holding a world-wide license to
Ceram's patented oxygen generation technology, which is exclusive as to all
applications except oxygen sensors and fuel cells.
For accounting purposes, the financial statements of the Company for
1996 and prior years are those of Papnet of Ohio, Inc. The results of operations
for the merged entities are reported on a prospective basis commencing December
16, 1996. The following discussion therefore includes the operations of Papnet
of Ohio, Inc. from January 1, 1996 through June 30, 1996, and the consolidated
operations of all entities from January 1, 1997 through June 30, 1997.
RESULTS OF OPERATIONS
For the Six Months ended June 30, 1997 and 1996
As a result of the FDA approval mentioned above, the commercial launch
of the product in September 1996 and an increase in the number of sales
representatives, the number of Slides processed in the Company's territories
increased to 41,302 Slides for the six months ended June 30, 1997 from 4,216
Slides for the six months ended June 30, 1996. On a proforma basis, 6,469 Slides
were processed for the Company and the Predecessor Companies for the six months
ended June 30, 1996. Royalty revenue was $339,608 for the six months ended June
30, 1997, an increase from $27,099 for the six months ended June 30, 1996.
In February 1997, the Company entered into an agreement with Blue Cross
Blue Shield Mutual of Ohio, now known as Medical Mutual of Ohio ("MMO"), whereby
MMO agreed to cover the cost of the PAPNET(R) test for all members. In addition,
MMO has agreed to strongly recommend to its clinicians and laboratories that all
negative Pap smears covered by its benefit plans be examined using PAPNET(R)
testing. MMO is one of the largest third party payers for health care in the
State of Ohio, with approximately 1.5 million covered members. While management
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<PAGE> 12
believes that this agreement will eventually increase the number of Slides
processed during 1997, the Company is unable to quantify the impact of the
agreement on Slide volume for the six months ended June 30, 1997, although it
believes such impact was minimal.
The number of employees of the Company increased to 15 during the six
months ended June 30, 1997, an increase of 10 employees from the same period the
previous year. The increase consisted of an additional six sales representatives
and four administrative employees. As a result of granting options to certain
employees and directors during the six months ended June 30, 1997, the Company
incurred compensation expense of $131,275. This amount has been included in
salaries and benefits. As a result of the headcount increases mentioned above
and the expense for the grant of options, salary and benefit expense increased
to $762,557 for the six months ended June 30, 1997 from $146,733 for the six
months ended June 30, 1996.
Sales and marketing expense other than salaries and benefits increased
to $376,657 for the six months ended June 30, 1997 from $52,533 for the six
months ended June 30, 1996. In addition to the direct expenses of the sales
representatives in developing their respective sales territories, the Company
incurred expenses for advertising, promotional materials and sales literature of
$183,182. The Company incurred a total of $47,500 for professional services in
its efforts to expand the reimbursement of the cost of the PAPNET(R) test by
healthcare providers and for employment agency fees for the additional sales
representatives hired during the six months ended June 30, 1997.
General and administrative expenses increased to $351,095 for the six
months ended June 30, 1997 compared to $57,741 for the six months ended June 30,
1996. The increase in general and administrative expense is primarily due to an
increase in accounting, legal and stock exchange costs as well as the increase
in headcount from two to six administrative employees.
Consistent with the Company's plan to acquire compatible business
technologies, the Company incurred costs of $59,345 for the six months ended
June 30, 1997 in the negotiation and evaluation of additional opportunities in
medical technology. In February 1997, the Company announced that it had entered
an agreement with CeramPhysics, Inc. of Westerville, Ohio, pursuant to which the
Company has the right to acquire control of a newly-organized corporation
holding a world-wide license to Ceram's patented oxygen generation technology,
which is exclusive as to all applications except oxygen sensors and fuel cells.
During 1995, the Company began discussions with the Predecessor
Companies that resulted in the Merger that was effective December 16, 1996. For
the six months ended June 30, 1996, the Company incurred one time merger
expenses of $134,450. No expenses related to this transaction were incurred in
the six months ended June 30, 1997.
The Company recognized a gain on available-for-sale securities of
$745,056 for the six months ended June 30, 1997. There were no sales of
securities during the six months ended June 30, 1996. The increase is due to the
gain on the sale of 125,000 shares of NSI common stock held by the Company at
net prices ranging from $5.07 to $10.13 per share.
Interest income for the six months ended June 30, 1997 was $2,099
compared to $10,871 for the same period the prior year. The decrease was a
result of lower available cash balances to invest, as cash balances have been
utilized to fund the negative cash flow from operations.
The Company incurred loans payable of $140,913 as of June 30, 1997. The
loans are the result of opening margin accounts utilizing NSI common stock for
collateral. Interest expense as a result of these loans was $4,884 for the six
months ended June 30, 1997.
The Company recognized income tax expense of $117,419 for the six
months ended June 30, 1997, compared to an income tax benefit of $122,001 for
the six months ended June 30, 1996. The expense for the first half of 1997 is
the result of recording a valuation allowance against the deferred tax asset of
$288,000. The deferred tax liability was reduced during the period as a result
of the decline in market value of the NSI common stock. Since the deferred tax
liability is subject to the fluctuations in market price of the NSI common
stock, the Company may recognize additional expense or benefit in future
periods.
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<PAGE> 13
The equity in income or loss in partnerships reported for the six
months ended June 30, 1996 is the Company's percentage of income or loss in
Carolina Cytology Licensing Company and Carolina Cytology Warrant Partnership.
Both entities were Predecessor Companies and were merged into the Company on the
effective date of the Merger, and consequently no similar item is reported for
the same period in 1997.
For the Years Ended December 31, 1994, 1995 and 1996
The PAPNET(R) Testing System was approved by the FDA for commercial use
in the United States on November 8, 1995. Prior to that time, it was permitted
to be utilized in the United States on an investigational basis only, and NSI
was permitted to derive revenue with respect thereto only to recover certain of
its costs. Therefore, the Company was able to generate only a minimal amount of
revenue from the PAPNET(R) Testing System during 1994 and 1995. During the first
eight months of 1996, the Company and NSI spent time and effort building a sales
force and familiarizing doctors and laboratories with the benefits of the
PAPNET(R) Testing System and Service. Beginning in September of 1996, the
commercial launch of the product was initiated with a national advertising
campaign.
As a result of the FDA approval mentioned above and the commercial
launch of the product in September 1996, the number of Slides processed
increased to 13,820 Slides for the year ended December 31, 1996 from 1,529
Slides for the year ended December 31, 1995. There were no Slides processed
during 1994. Royalty revenue was $102,813, $48,000 and $24,765 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Revenue for the year ended December 31, 1996 has been accrued according
to a formula in the Company's license agreement with NSI which calculates
royalties based upon the number of Slides processed in the Company's territory.
Revenue for the years ended December 31, 1995 and 1994 was accrued using an
alternative royalty formula based upon a percentage of NSI's worldwide revenue.
In anticipation of FDA approval for the PAPNET(R) test, the Company
began hiring additional sales representatives beginning in the third quarter of
1995 bringing the total to three by December 31, 1995 from one at December 31,
1994. At December 31, 1996 the Company employed a total of six sales
representatives. An additional two sales representatives and a Sales Director
were hired during the first quarter of 1997. In addition, the Company increased
the administrative staff from two during 1994 and 1995 to a total of five by
December 31, 1996. As a result of the headcount increases mentioned above,
salary and benefit expense increased to $441,762 for the year ended December 31,
1996 from $303,105 and $196,825 for the years ended December 31, 1995 and 1994
respectively.
While the Company had incurred costs to market and promote the
PAPNET(R) Testing System in the years ended December 31, 1994 and 1995, the
amount of expenditure increased significantly during 1996. Sales and marketing
expense other than salaries and benefits was $250,389 for the year ended
December 31, 1996 an increase from $74,329 and $26,433 for the years ended
December 31, 1995 and 1994, respectively. In addition to the direct expenses of
the sales representatives in developing their respective sales territories, the
Company incurred additional expenses for advertising, promotional materials and
sales literature. The Company incurred expense of $80,000 for professional
services in its efforts to expand the reimbursement of the cost of the PAPNET(R)
test by healthcare providers for the year ended December 31, 1996.
General and administrative expenses increased to $240,562 for the year
ended December 31, 1996 compared to $89,299 and $104,103 for the years ended
December 31, 1995 and 1994, respectively. The Company incurred one time costs
for registering with the American Stock Exchange and state securities fees
associated with increasing the number of authorized shares of the Company of
approximately $74,000 for the year ended December 31, 1996. In addition, general
and administrative expense increased due to the increase in headcount as well as
the cost of additional office space beginning in the fourth quarter of 1996.
During 1995, the Company began discussions with the Predecessor
Companies that resulted in the Merger that was effective December 16, 1996. For
the year ended December 31, 1996, the Company incurred one time merger expenses
of $364,852 compared to $106,415 in the year ended December 31, 1995.
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<PAGE> 14
While the Company's primary focus has been, and will continue to be,
exploiting its rights under the NSI license, the Company will also consider the
acquisition of compatible business technologies in the future. Consistent with
that plan, the Company incurred costs of $85,476 for the year ended December 31,
1996 in the negotiation and evaluation of additional opportunities in medical
technology.
On December 5, 1995 the Company and the Predecessor Companies entered
into a Settlement Agreement with NSI (the "Settlement Agreement"). The purpose
of the Settlement Agreement was to resolve and clarify certain issues relating
to the license agreements which NSI had with its regional licensees, and issues
relating to warrants to purchase shares of NSI common stock which were held by
the Company and certain of the Predecessor Companies. As a result of exercising
NSI warrants, settling claims with NSI and buying and selling NSI stock from
NSI's initial public offering, the Company recorded other income of $1,715,399
in the year ended December 31, 1995. The Company has reported a gain on the sale
of securities available-for-sale of $664,057 in the year ended December 31,1996
which has been recorded as other income.
The equity in income or loss in partnerships is the Company's
percentage of income or loss in Carolina Cytology Licensing Company and Carolina
Cytology Warrant Partnership. Both entities were Predecessor Companies and were
merged into the Company on the effective date of the Merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily by the sale
of NSI common stock owned by the Company, the sale of Common Stock, and the sale
of the Debentures. Including the net proceeds of the sale of the Debentures in
August 1997 of $2,805,000, the Company's combined cash and cash equivalents
totaled $2,525,000 at August 31, 1997, an increase of $2,383,000 from December
31, 1996. The Company owns 572,246 unrestricted shares of NSI common stock which
can be liquidated in an orderly fashion to fund future operations. NSI common
stock closed trading at $3.50 per share on August 31, 1997.
While the Company anticipates that its cash requirements will be
substantial for the immediate future, it believes its existing investments will
be adequate to meet those requirements. The cash requirements relate
specifically to the accounts and loan payable and accrued expenses at August 31,
1997 of approximately $300,000, the continuing negative cash flow generated from
operations on a monthly basis and the costs associated with the sales and
marketing efforts to healthcare providers, doctors, laboratories and direct to
the consumer during 1997 and potentially 1998. The sales and marketing expenses
include, but are not limited to, the cost of expanding the sales force, direct
advertising to consumers, advertising and promotion expense associated with the
implementation of the MMO contract and professional fees associated with
marketing to healthcare providers. The professional fees associated with
marketing to healthcare providers are necessary as the current sales force is
responsible for marketing primarily to doctors and laboratories. While
management believes that the above strategies will increase Slide volume, there
can be no guarantee as to the timing and the amount of increase, if any.
In addition to exploiting its rights under the license agreement with
NSI, the corporate mission of the Company is to become a well diversified health
care technology company founded upon proprietary products that offer a distinct
market advantage. The Company's intention is to follow the example of the
initial investment, the PAPNET(R) technology, in pursuing other opportunities in
healthcare technology. Specifically, the Company intends to make early
investments and applying the management and marketing resources of the Company
to develop and implement strategies which will substantially increase the value
of the investment over a period of two to four years. As opportunities become
available, the Company will require substantial funds in making the initial
investment and/or commercializing new healthcare products.
In pursuit of that strategy, the Company has recently embarked upon the
development of an oxygen generation/concentration device for use in home
healthcare, based upon technology acquired from Ceram. Pursuant to the
agreement, the Company will work with and loan up to $200,000 to Ceram to
complete the fabrication and testing of a ceramic element incorporating the
licensed technology, which will be capable of generating oxygen of a purity and
in quantities suitable for medical use. As of August 31, 1997, advances to Ceram
have totaled $151,510. It is the Company's intention to incorporate the element
into an oxygen generation device which the Company will manufacture and market
for the home health care market. If the device is acceptable to the Company, it
has the right
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<PAGE> 15
to acquire 95% of the capital stock of the licensee for an additional $200,000
investment, with the remaining 5% to be held by Ceram.
Thereafter, the Company would complete the development of a commercial
version of the device, proceed with obtaining appropriate regulatory approvals,
and commence manufacturing, marketing and distribution of the product. Such
activities are likely to require substantial expenditures in late 1997 and
during 1998, and depending upon the ultimate methods of manufacture, marketing
and distribution chosen by the Company, may require it to seek additional
capital in 1998.
BUSINESS
GENERAL
The Company is an Ohio corporation engaged in the business of
acquiring, developing and marketing medical and health-related technologies. The
principal business activity of the Company is the marketing of the PAPNET(R)
Testing System, which is a proprietary product of NSI. The PAPNET(R) Testing
System is a semi-automated cancer detection system for the review of cell,
tissue or body fluid specimens, including but not limited to, cervical cytology
specimens. Clinical laboratories submit slides containing cytology specimens to
one of NSI's central facilities for image processing using the PAPNET(R) Testing
System, which produces processed images for evaluation by NSI-trained
cytotechnologists.
The Company was originally organized in 1989 for the purpose of
acquiring the exclusive territorial rights to market NSI's proprietary products.
The Company organized two limited partnerships for this purpose, one of which
acquired the marketing rights in the State of Ohio, and the other which acquired
territorial rights for Kentucky and the Chicago, Illinois metropolitan area. In
1993 the Company acquired all of the issued and outstanding limited partnership
interests in both partnerships and thereby acquired all of the rights to market
the PAPNET(R) Testing System in Ohio, Kentucky and the Chicago metropolitan
area.
On December 16, 1996, the Company completed the Merger with the
Predecessor Companies, which had held the rights to market the PAPNET(R) Testing
System and Service in the states of Missouri, Georgia and North Carolina. The
Company was the surviving corporation in the Merger. Upon completion of the
Merger, the Company changed its name from Papnet of Ohio, Inc. to NetMed, Inc.
In addition to exploiting its rights under the license agreement with
NSI, the corporate mission of NetMed is to become a well diversified health care
technology company founded upon proprietary products that offer a distinct
market advantage. The Company's intention is to follow the example of its
initial investment, the PAPNET(R) technology, in pursuing other opportunities in
healthcare technology. Specifically, it intends to make early investments in
selected healthcare technologies and apply the management and marketing
resources of the Company to develop and implement strategies designed to
significantly increase the value of the investment over a period of two to four
years.
NSI - LICENSOR OF THE PAPNET(R) TESTING SYSTEM
NSI, founded in 1988, is a healthcare technology company focused on
diagnostic screening applications to aid in the early detection of certain
cancers. NSI's first product, the PAPNET(R) Testing System, is a supplemental
test to aid laboratories in the detection of abnormal cells on cervical
Papanicolaou ("Pap") smears which were not detected by the standard manual
microscopic inspection. When used to supplement manual screening of Pap smears,
PAPNET(R) testing has been shown to increase the detection of cervical
abnormality by up to 30% when compared to manual screening. The Company believes
that this improved detection can result in more effective and less costly early
treatment, reduced possibility of morbidity and mortality for patients, and
reduced possibility of malpractice litigation for the patient's doctor and
laboratory. The PAPNET(R) Testing System can achieve these improvements without
requiring a modification of the standard Pap smear sample due to its use of a
patented combination of algorithmic and adaptive pattern recognition technology,
a form of artificial intelligence.
The PAPNET(R) Testing System was approved for commercial use in the
United States by FDA on November 8, 1995. Thereafter, NSI commenced marketing to
laboratories and clinicians, and as of December 31,
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1996, the Papnet(R) test was available through 201 laboratories in the United
States, and was available in 23 countries worldwide. The PAPNET(R) Testing
System is a medical device subject to extensive regulation in the United States
by the FDA and other federal, state and local authorities. The FDA regulates the
research, development, clinical studies, manufacturing, processing, packaging,
labeling, distribution, promotion and post-market surveillance of medical
devices in the United States. The Company relies entirely upon NSI to assure
that all of these activities, as they relate to the PAPNET(R) Testing System,
comply with all applicable regulatory requirements.
THE CERVICAL CYTOLOGY MARKET
Pap smears are widely used in North America, Europe and other developed
areas to aid in the early detection of cervical cancer with over 50 million
tests performed annually in the U.S. alone. Pap smears can reveal early changes
in cervical cells that precede or indicate the development of cancer, thereby
facilitating timely medical intervention. When cervical cancer or precancerous
conditions are detected early on a Pap smear, the disease is almost always
completely curable using a simple outpatient procedure. However, if abnormal
cells on the Pap smear are not noticed by the laboratory, the patient may be
falsely told that her Pap smear is negative (a "false negative"), with
significant morbidity or mortality occurring as a result. Failure to diagnose
cervical cancer is a significant and rapidly growing source of malpractice
litigation against laboratories and clinicians in both the U.S. and abroad.
Manual searching of routine Pap smears to spot abnormal cells is an
unavoidably tedious and error-prone task. This is primarily because a seriously
abnormal Pap smear can contain fewer than a dozen abnormal cells scattered among
hundreds of thousands of normal cells and other objects. The cytotechnologist's
job is thus very similar to proofreading a very long document to try to detect a
few misspelled words. Regardless of how conscientious and careful the laboratory
is, many of these "needles in a haystack" may be missed, and the patient falsely
informed that her Pap smear was negative. Manual screening false-negative rates
ranging from 10% to 40% have been reported in numerous published studies. The
PAPNET(R) Testing System has been shown in several domestic and international
clinical studies published in peer-reviewed journals to detect abnormal cells on
Pap smears that were falsely diagnosed as "negative" by conventional manual
inspection. Indeed, in a number of such cases the PAPNET(R) Testing System
detected abnormal cells on archived, supposedly "negative" Pap smears of women
who were ultimately diagnosed with advanced cervical cancer. A published review
of six such studies which in the aggregate evaluated 513 Pap smears known to
contain precancerous or cancerous abnormality reported a pooled average
PAPNET(R) false negative rate of 3%. These results compare extremely favorably
to manual screening's false negative rate, typically reported to be many times
higher (10% to 40%).
THE PAPNET(R) TESTING SYSTEM
The PAPNET(R) Testing System is a computerized image processing
service provided to laboratories. The laboratory performs PAPNET(R) testing when
specifically requested by clinicians, patients or third-party payers who wish to
minimize the probability of false negatives and their attendant medical and
legal consequences. Slides first diagnosed by a laboratory as "negative" using
manual inspection are sent to designated NSI facilities ("Scanning Centers") for
imaging on a PAPNET(R) Scanning Station, which is designed to inspect the
hundreds of thousands of cells and other objects on the slide. The PAPNET(R)
Scanning Stations' proprietary neural network computers are designed to select
color images of 128 potentially abnormal cells and cell clusters from each slide
for detailed video review (whether or not they are, in fact, abnormal). These
128 images from each slide are recorded on a digital tape cassette or CD-ROM
which is returned to the client laboratory within two to four working days along
with the referred Pap smear slides.
At the laboratory, a certified cytotechnologist specially trained in
the use of the PAPNET(R) Testing System evaluates the 128 color images from each
slide on the PAPNET(R) Review Station. The PAPNET(R) Review Station's software
ensures that the cytotechnologist displays each image at 200x magnification
(twice normal screening power) and permits the user to expand any image to 400x
magnification. If all of the images appear normal, the cytotechnologist
classifies the slide as "negative," and no further examination is required. NSI
has found that cytotechnologists experienced in the use of the PAPNET(R) Review
Station can review negative cases in substantially less time than it takes to
perform a conventional manual re-examination.
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<PAGE> 17
If any one of the 128 images appears to the cytotechnologist to be
abnormal, the cytotechnologist classifies the slide as "review." The
cytotechnologist then refers to the "x, y" coordinates provided with each
PAPNET(R) image and uses the coordinates as a reference point to re-examine the
slide directly through the microscope. If, after direct inspection, the
cytotechnologist continues to believe that the slide contains abnormal cells, he
or she refers the slide to the laboratory's pathologist for a final diagnosis.
In no case does NSI, the Company, nor the PAPNET(R) Testing System make a
diagnosis of a slide or smear.
The PAPNET(R) Testing System is used as a supplement to current
practice and does not alter the clinician's procedure for the taking of smears
or the laboratory's method of staining or applying the coverslip. It provides an
additional and complementary level of screening for the purpose of decreasing
false negative Pap smear diagnoses.
COMPETITION IN THE CERVICAL CYTOLOGY MARKET
The Company is currently aware of three principal competitors which are
engaged in efforts to automate one or more aspects of cervical smear screening.
Two competitors, Cytyc and Autocyte, have focused on the development of devices
for the production, and, in the case of Autocyte, automated analysis, of
monolayer slides, a potential alternative to the conventional Pap smear method
of specimen collection and preparation. Cytyc received approval from the FDA in
May 1996 to market its ThinPrep(R) preparation to laboratories, for the purpose
of filtering out blood, mucus and other material from Pap smears. Autocyte has
submitted an application to the FDA for premarketing approval of its method, but
to date has not received FDA approval. With monolayer techniques, clinicians are
required to prepare special slides, and only a fraction of the cells and
background information displayed on the conventional slide is retained for
analysis. Because the PAPNET(R) Testing System uses the well-established method
of sample collection, it does not require clinicians to deviate from standard
practice in the preparation or visual screening of Pap smears. In July 1997,
several persons (including Carl Genberg, a shareholder of the Company and a
director of NSI) filed a citizen's petition with the FDA requesting that the FDA
reexamine its earlier approval of the ThinPrep(R) technology as a replacement
for the conventional Pap smear.
The other competitor, NeoPath, has received FDA approval for the use of
its AutoPap(R) System as part of a laboratory's quality control procedure.
According to NeoPath, the AutoPap(R) System is designed to sort purportedly
"negative" Pap smear slides into two groups, one classified as "negative" and
one classified for "review." The group of slides classified for review, which
constitutes a specified percentage of the whole, is again reviewed manually by
the cytotechnologist through a conventional microscope. NeoPath has stated that
it is developing a device for the fully automated primary screening (as opposed
to rescreening) of conventional Pap smears, and has submitted to the FDA a
pre-market approval supplemental application. On September 27, 1996, an FDA
Advisory Panel recommended that the FDA not approve the supplemental
application, pending completion of additional studies. NeoPath recently
announced that it has submitted an amendment to its supplemental application to
incorporate the results of such studies. NSI is currently engaged in litigation
with NeoPath alleging patent infringement, unfair competition and other tortious
conduct concerning the development and marketing of the AutoPap(R) System.
NeoPath has denied these allegations and has asserted counterclaims to the
effect that NSI has made false and misleading representations concerning the
AutoPap(R) System. NSI has stated that it believes NeoPath's assertions are
without merit.
These or other competitors may develop new products and technologies
that prove to be more effective than the PAPNET(R) Testing System or that may be
viewed by clinical laboratories as reducing operating costs (for example, by
reducing the number of cytotechnologists used in screening). In addition,
competitive products and technologies may be manufactured and marketed more
successfully than the PAPNET(R) Testing System. Such developments could render
the PAPNET(R) Testing System less competitive or possibly obsolete, and could
have a material adverse effect on NSI and the Company. NSI and the Company will
be required to compete with respect to product effectiveness, price,
manufacturing and slide processing efficiency, marketing capabilities and
customer service and support, areas in which they currently have limited
experience.
In addition to competitors attempting to develop fully automated or
semi-automated systems for the screening or rescreening of cervical samples,
there may in the future be alternate techniques or technologies for the
detection or prevention of cervical cancer. Although no such technique has been
demonstrated to be useful as a substitute for the Pap smear, there can be no
assurance that new techniques or technologies will not one day supplant or
replace the Pap smear in medical practice.
15
<PAGE> 18
POTENTIAL FUTURE NSI PRODUCTS
NSI has stated the belief that its technology can be adapted for use in
the early detection of cancers occurring at body sites in addition to the
uterine cervix, including the bladder, breast, esophagus, lung, oral cavity and
thyroid. Not all such cancers are commonly the subject of cytological analysis,
and NSI has not yet determined which of these applications, if any, it will be
able to commercialize. However, NSI has announced that a study reported at a
recent meeting of the U.S. and Canadian Academy of Pathology showed that the
PAPNET(R) Testing System could detect cancerous and precancerous cells of the
esophagus on conventionally prepared smears. NSI's patents cover applications of
its technology to cytological screening for cancers occurring at all body sites,
and the Company's license of NSI's technology (described below) would extend to
these applications.
The foregoing information concerning NSI and the PAPNET(R) Testing
System was obtained either directlY from NSI or from filings that NSI has made
with the Commission. While the Company believes that the foregoing information
is accurate and a fair summary of publicly available information concerning NSI
and the PAPNET(R) Testing System, readers are encouraged to review NSI's filings
with the Commission for additional and more detailed information.
THE NSI LICENSE
On December 5, 1995 the Company, the Predecessor Companies, Cytology
West, Inc. and Papnet Utah, Inc. (other NSI regional licensees who were not
parties to the Merger), entered into the Settlement Agreement with NSI. The
purpose of the Settlement Agreement was to resolve and clarify certain issues
relating to the license agreements that NSI had with its regional licensees
(relating to, among other things, calculation of royalties, control of marketing
and sales activities, use of NSI's trademarks, and rights to market other
technologies developed by NSI), and issues relating to warrants to purchase
shares of NSI common stock which were held by the Company and certain of the
Predecessor Companies. Pursuant to the Settlement Agreement, NSI and the
regional licensees agreed to the form of a license agreement, under which the
Company and the other regional licensees will continue to have the rights to
market the PAPNET(R) Testing System, as well as certain other medicaL
technologies which may be developed by NSI ("NSI Technology").
While the Company and NSI have agreed on the form of a license
agreement, which the Company has agreed to execute with certain modifications,
no final agreement had been executed by the parties as of September 15, 1997.
The modifications requested by the Company deal principally with the
determination of the amount of royalties that should be paid to the Company with
respect to slides originating in its licensed territory but that are processed
by laboratories located outside of the territory. Although no final license
agreement has been executed, since the execution of the Settlement Agreement the
Company and NSI have in all material respects operated under the terms contained
in the form of license agreement incorporated in the Settlement Agreement.
The Company has the right and license to sell the PAPNET(R) Testing
System service and NSI Technology iN the states of Ohio, Georgia, Kentucky,
Missouri, North Carolina and in the Consolidated Metropolitan Statistical Area
of Chicago, Illinois. The Company's rights are exclusive within the described
territory, subject to the right of NSI to conduct marketing and sales activities
therein. However, because the royalties paid to the Company are based on
"Territory Gross Revenues" recognized by NSI from activities (including any
sales by NSI) in the licensed territory, any sales activities in the Company's
territory by NSI will inure to the benefit of the Company.
The form of license agreement incorporated in the Settlement Agreement
provides that the regional licensees (as a group) will be paid royalties as
follows: (a) monthly royalties equal to 50% of the amount by which NSI's gross
revenues from sales in the licensed territories exceed the cost of processing
slides originating in the licensed territories (for purposes of which
calculation costs per slide may not exceed $1.00 per slide) and the cost of
transporting such slides, with the maximum amount of such monthly royalties in
any fiscal year capped at an amount derived by applying the royalty formula to
12,175,000 slides; (b) annual royalties equal to the difference, if any, by
which aggregate monthly royalties in any fiscal year are less than 4.15% of
NSI's worldwide gross revenues for such fiscal year, with the maximum annual
royalty amount in any fiscal year capped at $23,000,000, less the amount of
monthly royalties paid in such fiscal year calculated as described in clause
(a). For the purposes of calculating the numbers of slides attributable to a
licensee's territory which are submitted by certain large laboratories operating
in
16
<PAGE> 19
multiple states ("Multistate National Laboratories"), there will be attributed
to each territory a proportionate number of slides submitted to NSI for
processing from all Multistate National Laboratories equal to the ratio that the
population of such territory bears to the population of the United States
(determined according to census data). These provisions may, in some
circumstances, have the effect of limiting the potential revenues which the
Company can realize from its sales activities.
The royalty calculations described in the foregoing paragraph are
aggregate calculations for all of the territorial licensees. Based upon the
aggregation of the applicable amounts contained in the original license
agreements of the Company and the Predecessor Companies and recent census data,
the Company believes that its share of the number of slides for the slide
royalty cap described in clause (a) in the foregoing paragraph will be
approximately 10,000,000 slides, the worldwide revenue percentage described in
clause (b) will be 3.5 percent, and the royalty cap described in the same clause
will be approximately $18.8 million.
The Company's license has an initial term that expires on December 31,
2025. The Company has the right to extend the license for an additional 20 year
term upon written notice to NSI within six months preceding the expiration of
the initial term and upon payment of a renewal fee, which is based on the net
present value at the time of such notice of 20 years of royalties at the average
monthly rate payable in the 12 months preceding the date of the notice. The
license may not be terminated or cancelled except upon expiration of its initial
or renewal term or by written agreement of the parties.
THIRD-PARTY REIMBURSEMENT
Reimbursement of laboratory charges for PAPNET(R) testing by
third-party medical insurance payers, manageD care organizations, and government
agencies (such as Medicare/Medicaid, private health insurance, health
maintenance organizations and self-insured employers) is a key factor in the
rate of growth of the revenues which NSI and the Company will be able to realize
from this technology. Currently, some third-party payers reimburse some or all
of the charges to patients for the PAPNET(R) test, others (including Medicare
and Medicaid) provide nO reimbursement. To the extent that third-party payers do
not provide for reimbursement of PAPNET(R) testing, or, iF the level of
reimbursement is significantly below the amount laboratories charge patients to
perform PAPNET(R) testing, the size of the potential market available to NSI and
the Company may be reduced. Based upon a study recently published in the
international journal Acta Cytologica finding that PAPNET(R) testing for
cervical canceR detection decreases the incidence of cervical cancer at a cost
which is within the range of tests and other procedures commonly reimbursed by
managed care organizations, the Company anticipates that it will eventually be
successful in convincing most third-party payers in its licensed territory to
reimburse for the PAPNET(R) test.
Consequently, the Company and NSI are directing their marketing efforts
to obtaining third-party reimbursement for the PAPNET(R) test. In February 1997,
the Company entered into an agreement with Medical MutuaL of Ohio, Inc. (MMO)
(formerly Blue Cross and Blue Shield of Ohio, Inc.) whereby MMO agreed to cover
the cost of the PAPNET(R) test for all members. In addition, MMO has agreed to
strongly recommend to its clinicians anD laboratories that all negative Pap
smears covered by its benefit plans are to be examined using PAPNET(R) testing.
MMO was the largest health care provider in the State of Ohio in 1996, with
approximately 1.5 million covered members. While the Company believes that its
agreement with MMO will increase the number of Pap smears from its licensed
territory which are processed using the PAPNET(R) System during 1997 and
subsequent years, there can be nO guarantee as to the amount or timing of any
increase.
OTHER COMPANY TECHNOLOGIES
The Company recently entered into an agreement with CeramPhysics, Inc.
of Westerville, Ohio ("Ceram"), pursuant to which the Company has the right to
acquire control of a newly-organized corporation holding a world-wide license to
Ceram's patented oxygen generation technology, which is exclusive as to all
applications of the technology except oxygen sensors and fuel cells. Pursuant to
the agreement, the Company will work with and loan up to $200,000 to Ceram to
complete the fabrication and testing of a ceramic element incorporating the
licensed technology, which will be capable of generating oxygen of a purity and
in quantities suitable for medical use. It is the Company's intention to
incorporate the element into an oxygen generation device that the Company will
manufacture and market for the home health care market. If the device is
acceptable to the Company, it has the right to acquire a 95% interest in the
licensee for an additional $200,000 investment, with the remaining 5% to be held
by
17
<PAGE> 20
Ceram. This new subsidiary would manufacture and market the device, as well as
pursue additional applications for the licensed technology.
The Company is currently negotiating for the rights in other medical
technologies, but has not concluded any binding agreements to date.
THE MERGER
On December 16, 1996, the Company completed the Merger with the
Predecessor Companies, which had collectively acquired the rights to market the
PAPNET(R) Testing System and service in the states of Missouri, Georgia, and
North Carolina. The Company was the surviving corporation in the Merger. Upon
completion of the Merger, the Company changed its name from Papnet of Ohio, Inc.
to NetMed, Inc.
Each of the Predecessor Companies, other than CCWP, Inc. was organized
to acquire and exercise the right to market the PAPNET(R) Testing System and
PAPNET(R) Service within its licensed territory. However, until November 8,
1995, when the United States Food and Drug Administration ("FDA") finally
approved the marketing of the Papnet(R) technology, the technology could be used
in the United States only for investigational purposes in connection with the
FDA approval process. Consequently, the Predecessor Companies had only limited
operations prior to November 1995. CCWP, Inc. was an affiliate of Carolina
Cytology, Inc. and was organized for the purpose of holding certain warrants for
the purchase of NSI common stock.
Cytology Indiana, Inc. ("CIN") was an Ohio corporation formed on
September 7, 1990. CIN owned an approximate 65% interest in the rights to market
the PAPNET(R) Testing System and service in Missouri. Indiana Cytology Review
Company ("INC") was an Ohio corporation formed on December 1, 1995, and owned an
approximate 35% interest in the PAPNET(R) marketing rights for Missouri. ER
Group, Inc. ("ERG") was an Ohio corporation formed oN May 13, 1991 for the
purpose of acquiring PAPNET(R) marketing rights for Georgia. Carolina Cytology,
Inc. ("CCI") was an Ohio corporation formed on December 10, 1992 for the purpose
of acquiring PAPNET(R) marketing rights foR North Carolina. CCWP Partners, Inc.
("CCWP") was an Ohio corporation formed on December 1, to hold certain warrants
to acquire NSI common stock acquired by a predecessor partnership in connection
with the acquisition of the PAPNET(R) marketing rights for North Carolina by
CCI.
In the Merger, all outstanding common shares of the Predecessor
Companies, including shares issuable upon the exercise of outstanding warrants
and options, were converted into the right to receive fully paid and
nonassessable common shares of the Company. Shares of outstanding common stock
of the Predecessor Companies were converted into Company shares based on a ratio
of one Predecessor Company share for the following number of shares of the
Company: CIN (1,121.6652); INC (4,491.7064); ERG (3,237.2643); CCWP (37.3971);
and CCI (1,487.6186). Immediately following the Merger, the shareholders of each
of the Predecessor Companies owned, in the aggregate, the following percentage
of the issued and outstanding stock of the Company: CIN (7.70%); INC (4.11%);
ERG (17.13%); CCWP (3.13%); and CCI (12.32%). Certain restrictions were imposed
on the resale of shares issued in the Merger, to be released over the one year
period following the Merger, which period may be accelerated by the Company. As
of the date of this Prospectus, such restrictions have expired as to 425,000
shares.
The merger of the Company and the Predecessor Companies was accounted
for at historical cost. For accounting purposes, Papnet of Ohio, Inc. is treated
as the predecessor of the merged entity and its historical financial statements
are included in this report as the historical financial statements of the
Company.
PERSONNEL
As of August 31, 1997, the Company employed sixteen (16) full time
employees. None of the Company's employees are subject to a collective
bargaining agreement, and the Company considers its relationship with its
employees to be good.
18
<PAGE> 21
FACILITIES
The Company's executive offices are located in Dublin, Ohio, in
approximately 4,900 square feet of space. The Company leases such space at an
annual net rent of $53,900. See "Certain Relationships and Related
Transactions."
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
---- --- --------
David J. Richards 46 Chairman, President and Chief Executive
Officer; Class I Director
John P. Kennedy 44 Vice President - Business Development;
Class II Director
Kenneth B. Leachman 44 Vice President - Finance; Chief Financial
Officer
William J. Kelly, Jr. 46 Vice President, General Counsel and
Secretary
Michael S. Blue, M.D. 41 Class I Director
S. Trevor Ferger 42 Class I Director
Robert J. Massey 51 Class II Director
Cecil J. Petitti 42 Class I Director
James F. Zid 63 Class II Director
The Company's Regulations provide for a classified board of directors
consisting of two classes, unless there are nine (9) or more directors, in which
case the Board will be divided into three classes. There are currently seven (7)
directors, therefore there are two classes of directors. Each class of directors
consists, as nearly as practical, of one-half of the total number of directors.
The term of office of the Class I directors will expire at the 1999 Annual
Meeting of Shareholders, and the term of the Class II directors will expire at
the 1998 Annual Meeting of Shareholders.
David J. Richards, a founder of the Company, has served as President
and director of the Company since its inception. From 1981 until commencing
employment with the Company, Mr. Richards was a practicing attorney and, from
1983, a partner, in the law firm of Crabbe, Brown, Jones, Potts & Schmidt in
Columbus, Ohio. From 1985 through 1994, Mr. Richards was engaged in real estate
development as President of Sunset Development, a multi-family housing
developer.
Mr. Richards has an accounting degree from Wright State University, and
earned his Juris Doctor degree from The Ohio State University College of Law in
1977.
John P. Kennedy is also a founder of the Company and has served as an
officer and director since its inception. Mr. Kennedy is currently Vice
President - Business Development. Until December 31, 1996, Mr. Kennedy was of
counsel with the law firm of Crabbe, Brown, Jones, Potts & Schmidt in Columbus,
Ohio, where he was a partner from 1986 to 1994. Mr. Kennedy has been a Columbus,
Ohio City Councilman since 1988, was President of Council from 1994 to 1996 and
is a director of Pugh Shows, Inc.
Mr. Kennedy has a Bachelor of Arts in Finance from the University of
Bridgeport, Bridgeport, Connecticut and earned his Juris Doctor from The Ohio
Northern University College of Law in 1978.
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<PAGE> 22
Kenneth B. Leachman was elected as Vice President of Finance in October
1996. Mr. Leachman has held various financial management positions with several
technology based companies, including Corporate Controller for Goal Systems
International from 1989 to 1991 and as Chief Financial Officer of Sarcom, Inc.
from 1992 to 1994.
Mr. Leachman has a Bachelor of Science degree in accounting from The
Ohio State University in 1975 and earned his CPA certificate from the State of
Ohio in 1977.
William J. Kelly, Jr. was elected as Vice President, General Counsel
and Secretary in July 1997. Prior to joining the Company, he practiced law with
the firm of Porter, Wright, Morris & Arthur in Columbus, Ohio, where he was a
partner since 1983. Mr. Kelly earned a Bachelor of Arts degree from The Ohio
State University in 1973, and a Juris Doctor degree from The Ohio State
University College of Law in 1976.
Michael S. Blue, M.D. has been a practicing physician since 1980. Dr.
Blue graduated from Miami University of Ohio in 1976 with a Bachelor of Science
in Zoology and graduated from The Ohio State University with a Doctor of
Medicine in 1979. Dr. Blue has been President of Phoenix Group International,
Ltd. and North American International Trade Group, Inc. since 1994 and 1992,
respectively. He has also been Secretary/Treasurer and member of the Board of
Directors of Columbus Oilfield Exploration, Inc. since 1987. Dr. Blue has been a
director of the Company since December 1996.
Robert J. Massey has served on the Board of Directors of the Company
since January, 1997. He is the past President and Chief Executive Officer of
CompuServe Corporation, an office he retained for one and a half years. Prior to
serving as CompuServe's CEO, Mr. Massey held numerous executive positions with
the firm over a twenty year period in various sales, marketing and general
management areas of responsibility, plus served on the company's Board of
Directors during the period 1991 through 1997. Mr. Massey also was a sales
manager with RIM and Control Data Corporation. He is a graduate of Holy Cross
College, Worchester, Massachusetts and received an MBA in Finance from Syracuse
University. He is currently President of RJM & Associates, a Columbus, Ohio
based consulting firm.
S. Trevor Ferger is President of Ferger & Associates, a master broker
specializing in the sales and marketing of consumer goods to grocery stores. He
also serves as Director of Sales for Acosta Sales Company, a marketer of
consumer products. Mr. Ferger has been active with Ferger & Associates since
1979. Prior to that time he was a sales manager with Procter & Gamble. Mr.
Ferger has a Bachelor of Arts degree from Wake Forest University and a M.B.A.
degree from Xavier University. Mr. Ferger has been a director of the Company
since June, 1994.
Cecil J. Petitti has been co-owner of Chaney & Petitti Insurance Agency
located in Dublin, Ohio since 1984. Chaney & Petitti specialize in multiple
insurance products, including medical insurance. Prior to merging with the
Chaney Group, Mr. Petitti was associated with the Burke, Kendall & Petitti
Insurance Agency. Mr. Petitti is also President of NetWalk, Inc., a
Columbus-based Internet service provider. Mr. Petitti earned a Bachelor of Arts
degree in Education from The Ohio State University. Mr. Petitti has been a
director of the Company since June, 1994.
James F. Zid has served on the Board of Directors of the Company since
February, 1997. Mr. Zid retired as the managing partner of the Columbus office
of Ernst & Young LLP in 1993. While at Ernst & Young Mr. Zid worked with clients
in the banking, health care, insurance, and manufacturing industries. Mr. Zid
has served on the Board of Directors of the Greater Columbus Chamber of
Commerce, the Health Coalition of Central Ohio, the Franklin County Academy of
Medicine Foundation, and the Columbus Museum of Art. Mr. Zid currently serves on
the Board of Directors of Neoprobe Corporation and Central Benefits Insurance
Company.
COMMITTEES OF THE BOARD
Prior to December 1996, the Board of Directors had no standing
committees, and all corporate decisions were made by the entire Board. Following
the Merger, the Board appointed an Audit Committee consisting of Messrs.
Richards, Blue and Ferger and a Compensation Committee consisting Messrs. Blue,
Petitti, and Massey. The Audit Committee is charged with reviewing the Company's
annual audit and meeting with the Company's independent accountants to review
the Company's internal controls and financial management practices.
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<PAGE> 23
The Compensation Committee has the authority and responsibility to determine and
administer the Company's officer compensation policies and to establish the
salaries for executive officers, the formula for bonus awards to executive
officers, and the grant of stock options to executive officers and other key
employees under the Company's 1995 Amended and Restated Stock Option Plan (the
"Option Plan").
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid during fiscal 1996 to the Company's President, who was the
only executive officer whose annual salary and bonus exceeded $100,000 for each
of the Company's last three fiscal years ended December 31, 1996 (the "Named
Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ------------
AWARDS
------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SECURITIES COMPENSATION
($) ($) UNDERLYING ($)(1)
OPTIONS
(#)
- --------------------------------- ---- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
David J. Richards, President 1996 $125,000 $100,000(2) 0 $9,338
1995 $125,000 0 0 $12,228
1994 $108,333 0 0 $8,900
<FN>
(1) Includes matching contribution to the Company's 401(k) Plan and car
allowance.
(2) Consists of a $50,000 cash bonus for 1995, which was paid in 1996 and
$50,000 represented by the forgiveness of indebtedness to the Company,
which was approved by the Board of Directors in 1995 and conditioned on
completion of the Merger.
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
There were no options granted to the Named Executive Officer during the
fiscal year ended 1996.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information regarding the number and
value of stock options held by the Named Executive Officer at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
---------------------------- ----------------------------
SHARES VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ACQUIRED REALIZED
ON ($)
EXERCISE
(#)
- ------------------ --------- --------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Richards -- -- 287,020 -- $2,028,395 --
</TABLE>
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<PAGE> 24
(1) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the per share fair market value at year end
($8.125 on December 31, 1996). An option is in-the-money if the fair market
value of the underlying shares exceeds the exercise price of the option.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive no cash
compensation or expense reimbursement for their services, but receive stock
options as compensation for their services. The exercise price for options
granted in 1996 and prior years ranges from $3.25 to $11.00 per share. In
February 1997, each non-employee director received options to purchase 2,000
common shares, exercisable at $8.40 per share for their services in 1996. Such
options are currently exercisable and will terminate 10 years from the date of
grant. Subsequently, Messrs. Ferger, Petitti and Blue were each granted options
for 20,000 shares (exercisable at $7.54 per share), and Messrs. Massey and Zid
were each granted options for 25,000 shares (exercisable at $6.16 per share in
the case of Mr. Massey and at $6.20 per share in the case of Mr. Zid). The
latter options were granted in consideration for service during 1997, 1998, and
1999, will vest at the rate of one-third of the shares at the end of each year,
and will terminate 10 years from the date of grant.
EMPLOYMENT AGREEMENTS
Effective April 1, 1997, the Company entered into an employment
agreement with Mr. Richards, its President and Chief Executive Officer. The
Agreement is for a term of three years, and provides for annual base salary of
$225,000 during the term. In addition to the base salary, the agreement provides
that Mr. Richards will receive an annual incentive bonus of up to 100% of his
base salary, to be determined according to performance criteria established by
the Board or its Compensation Committee, as well as an automobile allowance,
Company-provided term insurance in a minimum face amount of $1,000,000, and
other benefits.
The agreement also provides for the grant, pursuant to the Option Plan,
of options to purchase 150,000 common shares, vesting at the rate of 50,000
shares per employment year during the term, with exercise prices ranging from
$6.94 per share to $12.00 per share. The agreement provides that, in the event
that Mr. Richards' employment is terminated other than for good cause (as
defined in the agreement), or is constructively terminated, the Company will
continue his base salary and health insurance coverage for a period of 18 months
after termination and pay any earned but unpaid incentive bonus, and that the
options granted pursuant to the agreement will become immediately exercisable.
For purposes of the agreement, a constructive termination is defined as removal
of Mr. Richards as President, Chief Executive Officer or a Director of the
Company, or a substantial change in his duties or reporting responsibility to
the Board. In the event of a "Change of Control" (as defined in the Agreement),
Mr. Richards may voluntarily terminate his employment at any time within one
year thereafter, if (i) he determines in good faith that as a result of the
Change of Control he can no longer adequately exercise the authority, powers,
functions or duties of a chief executive officer, or can no longer perform such
duties by reason of a substantial diminution in his responsibilities, status,
perquisites or position, or (ii) the Company materially breaches or fails to
assume any material obligation under the agreement. In the event of such
termination, the Company will pay Mr. Richards 18 months of base salary in a
lump sum, reimbursement of any previously unreimbursed business expenses, and an
amount equal to the greater of (A) the full incentive bonus for which he could
receive under any bonus criteria established by the Board of Directors for the
employment year in which termination occurs (regardless of whether such criteria
are actually satisfied), or (B) the incentive bonus actually paid to him during
the previous employment year. In addition, the Company must continue his health
insurance benefits for a period of 18 months, and the options granted pursuant
to the agreement will become immediately exercisable. The foregoing obligations
of the Company also apply in the event that Mr. Richards' employment is
terminated by the Company other than for cause within one (1) year following a
Change of Control.
In the event of Mr. Richards' death during the employment term, in
addition to the payment of salary and bonus earned to the date of death, and the
immediate exercisability of stock options, the agreement provides that the
Company will purchase from his estate of up to $2 million in market value of
common shares of the Company owned by Mr. Richards on the date of death. The
agreement requires the Company to purchase and pay the premiums on a policy of
key man life insurance sufficient to fund such obligation. Finally, the
agreement imposes
22
<PAGE> 25
confidentiality and noncompetition obligations on Mr. Richards, and requires
that he assign to the Company any intellectual property (inventions, trade
secrets, works of authorship, and the like) created by him during his employment
which is useful in the Company's business.
Effective July 1997, the Company entered into an employment agreement
with Mr. Kelly, employing him as Vice President, General Counsel and Secretary
for a term of three years. The material terms of the agreement with Mr. Kelly
are comparable to those contained in the agreement with Mr. Richards, except
that the annual base salary is $170,000, the grant of stock options is for
75,000 shares at prices ranging from $8.00 to $12.00 per share, no term life
insurance (except pursuant to Company plans applicable to all executives) or
automobile allowance is provided, no provisions are included which would impose
obligations on the Company in the event of a constructive termination of Mr.
Kelly's employment, and the Company has no obligation to repurchase any common
shares of the Company owned by Mr. Kelly upon his death.
STOCK OPTION PLAN
The Option Plan was adopted by the Board of Directors and approved by
the shareholders in September 1995. The Option Plan was later amended to make
changes to facilitate compliance with Section 16 of the Securities Act of 1934,
and was most recently amended in May 1997 by the shareholders to increase the
number of shares for which options could be granted under the Option Plan.
Options granted under the Option Plan may either meet the requirements of
Section 422 ("Incentive Options") of the Internal Revenue Code of 1986, as
amended (the "Code") or not meet such requirements ("Nonqualified Options"). Key
employees, officers, and directors of, and consultants and advisors who render
services to, the Company are eligible to receive options under the Option Plan.
The Option Plan may be administered by the Board of Directors or a
Stock Option and Compensation Committee (the "Committee") consisting of
directors who are not employees of the Company. The Board or Committee
determines the number of shares subject to option, the duration of the option,
the per share exercise price, the rate and manner of exercise, and whether the
option is intended to be a Nonqualified Option or an Incentive Option. An
incentive Option may not have an exercise price less than fair market value of
the Company's common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant and is subject to certain other
limitations which allow the option holder to qualify for favorable tax
treatment. None of these restrictions applies to the grant of Nonqualified
Options, which may have an exercise price less than the fair market value of the
underlying common stock on the date of grant and may be exercisable for an
indeterminate period of time. The Board or Committee also has the discretion
under the Option Plan to make cash grants to option holders that are intended to
offset a portion of the taxes payable upon exercise of Nonqualified Options or
on certain dispositions of shares acquired under Incentive Options.
To date, the criteria applied by the Board of Directors and its
Compensation Committee in determining the eligibility, amount, exercise price,
and the vesting of stock options awarded under the Option Plan have been
determined on a case-by-case basis. While no specific formula has been adopted,
the Board and Committee have considered performance, overall contribution to the
Company, the number of vested and unvested stock options already held and other
similar factors in awarding stock options.
The exercise price of the option may be paid in cash or, with the
consent of the Board or Committee, (i) with previously acquired shares of common
stock valued at their fair market value on the date they are tendered, (ii)
delivery of a full recourse promissory note, the terms and conditions of which
will be determined by the Board, or (iii) by delivery of written instructions to
forward the notice of exercise to a broker or dealer and to deliver to a
specified account a certificate for the shares purchased upon exercise of the
option and a copy of irrevocable instructions to the broker or dealer to deliver
the purchase price of the shares to the Company.
Any option granted under the Option Plan will terminate automatically
(i) 30 days after an employee's termination of employment with the Company
(other than by reason of death or disability or for cause), and (ii) one year
after the employee's death or termination of employment by reason of disability,
unless the option expires earlier by its terms. Options not exercisable as of
the date of a change in control of the Company will become exercisable
immediately as of such date. Options granted under the Plan are not transferable
except by will or the laws of descent and distribution.
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<PAGE> 26
The Board may amend or modify the Plan at any time provided that (a) no
amendment may be made to the Plan which would cause the Incentive Options
granted thereunder to fail to qualify as incentive stock options under the Code;
and (b) any amendment which requires the approval of the shareholders of the
Company under the Code or Section 16 of the Securities Exchange Act of 1934, as
amended, or the regulations promulgated thereunder, will be subject to such
approval in accordance with the applicable law or regulations. No amendment,
modification or termination of the Plan may in any manner adversely affect any
option previously granted under the Plan without the consent of the option
holder or a permitted transferee of such option holder.
As of August 31, 1997, the following current directors and executive
officers had been granted options under the Plan:
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS GRANTED AVERAGE EXERCISE PRICE PER SHARE
---- ------------------------- --------------------------------
<S> <C> <C>
David J. Richards 150,000 $ 9.65
Kenneth B. Leachman 50,000 $ 5.95
William J. Kelly, Jr 75,000 $ 10.00
Robert J. Massey 25,000 $ 6.16
John P. Kennedy 102,000 $ 7.04
S. Trevor Ferger 22,000 $ 7.62
Cecil J. Petitti 22,000 $ 7.62
James F. Zid 25,000 $ 6.20
Michael S. Blue 20,000 $ 7.54
</TABLE>
OWNERSHIP OF COMMON STOCK BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial
ownership of the Common Stock by each director and executive officer, each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock, and the directors and executive officers of the Company as a group
as of August 31, 1997:
24
<PAGE> 27
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ----------------------------------------- ------------- -----------
<S> <C> <C>
David J. Richards(2) 1,520,000 13.5
John P. Kennedy(3) 662,244 6.0
Kenneth B. Leachman 1,000 *
William J. Kelly, Jr 2,000 *
S. Trevor Ferger(4) 293,825 2.7
Cecil J. Petitti(5) 165,976 1.5
Michael S. Blue 286,717 2.6
Robert J. Massey 48,922 *
James F. Zid 3,800 *
Rodney M. Kinsey(6) 617,085 5.5
Carl Genberg(7) 695,000 6.2
All directors and executive officers as a group
(9 persons) 2,987,036 26.5
<FN>
- ----------
* Represents beneficial ownership of less than 1% of the Company's
outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission which generally attribute beneficial ownership of securities to
persons who possess sole or shared voting power and/or investment power or
as to which the person has the right to acquire the beneficial ownership
within 60 days of August 31, 1997. Unless otherwise indicated, voting power
and investment power are exercised solely by the person named above or
shared with members of his household.
(2) Includes 287,020 shares that may be purchased under stock options
exercisable within 60 days of August 31, 1997.
(3) Includes 26,000 shares that may be purchased under stock option exercisable
within 60 days of August 31, 1997.
(4) Includes 10,000 shares that may be purchased under stock options
exercisable within 60 days of August 31, 1997, and 99,849 shares held in
trust for the benefit of Mr. Ferger's children.
(5) Includes 10,000 shares that may be purchased under stock options
exercisable within 60 days of August 31, 1997.
(6) Includes 494,385 held of record by Mr. Kinsey, 80,331 shares held by Mr.
Kinsey's wife, and 35,702 shares held by his children. Mr. Kinsey resigned
from the board of directors effective February 26, 1997. Mr.
</TABLE>
25
<PAGE> 28
Kinsey's address is 8651 Gairloch Ct., Dublin, Ohio 43017. Also
includes 6,667 shares that may be purchased under stock options exercisable
within 60 days of August 31, 1997.
(7) Mr. Genberg's address is 101 Convention Center Drive, Suite 1001, Las
Vegas, Nevada 89109.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1996 the Company completed the Merger with the Predecessor
Companies, which had acquired the rights to market the PAPNET(R) System in the
states of Missouri, Georgia, and North Carolina. The Company was the surviving
corporation in the Merger. Upon completion of the Merger, the Company changed
its name from Papnet of Ohio, Inc. to NetMed, Inc.
The Company entered into a loan agreement, dated March 14, 1996 with
Cytology West, Inc. ("CWI") and Papnet Utah, Inc. ("PUI"). CWI is licensed to
sell the PAPNET(R) Testing System and the PAPNET(R) service in Arizona, Nevada
and San Diego County California. PUI is licensed to sell PAPNET(R) Testing
System and the PAPNET(R) Service in Utah. Carl Genberg, President of CWI, owns
695,000 shares of the Company's common stock. CWI and PUI were originally to
have been parties to a merger with the Company and the Predecessor Companies,
but that transaction was abandoned by the parties. CWI and PUI abandoned the
transaction in order to pursue other technologies that the Company and the
Predecessor Companies were not ready to pursue without assurances of the ability
to obtain the financing necessary to commercialize them. The loan agreement
provided for advances to CWI of up to $585,000 to cover certain operating
expenses, expenses associated with the abandoned merger, and the acquisition of
new technology. No specific amount was established for advances to PUI. The
advances bear interest at the rate of 7% per annum. No further advances will be
made under the loan agreement and as of December 31, 1996, the balance due was
$130,143. CWI has agreed to transfer 16,331 shares of NetMed common stock to the
Company in exchange for the cancellation of the outstanding balance.
In September 1997, the Company entered into a net lease with Muirfield
Square, Ltd. for 4,900 square feet of office space in which the Company's
principal offices are located. The lease term is for 5 years at an annual rent
of $53,900 for the first year, escalating annually at the rate of 3% over the
term, and renewable for an additional 5-year term at an annual net rental of
$60,660. Messrs. Richards, Ferger, and Massey own a majority of the membership
interests in Muirfield Square, Ltd. The Company believes that the lease is on
terms at least as favorable to the Company as available for office space of a
similar size and quality in the locality.
SELLING SHAREHOLDERS
The 1,500,000 shares of the Company's Common Stock described in this
Prospectus equal approximately 150% of the number of shares which would be
issuable upon conversion of the Debentures if the entire principal amount of the
Debentures was converted on the date of this Prospectus, plus the number of
Shares which would be issuable if the all of the Warrants were exercised on the
date of this Prospectus. Except for the ownership of the Debentures and Warrants
(and any Shares on conversion or exercise thereof), the Selling Shareholders
have not had any material relationship within the past three years with the
Company. The Shares are being registered to permit public secondary trading of
the Shares, and the Selling Shareholders may offer the Shares for resale from
time to time. See "Plan of Distribution."
The Shares being offered by the Selling Shareholders hereby are
issuable by the Company to the Selling Shareholders upon conversion of the
Debentures and exercise of the Warrants. The Debentures and Warrants were issued
by the Company on August 13, 1997 to the Selling Shareholders pursuant the
Purchase Agreements. The Debentures and any interest accrued thereon may be
converted into Shares at any time. However, no sales of Shares may be made prior
to November 11, 1997, and during the period from November 11, 1997 through May
10, 1998 (the 91st through 270th day after the closing) the maximum aggregate
number of Shares which can be sold is 500,000. After May 10, 1998 (the 270th day
after the closing), 100% of the Shares may be sold. The Company can prohibit
sales during the "Blackout Period. The Debentures bear interest at 6% per annum,
payable in Common Stock of the Company at the time of each conversion, and are
convertible into shares of the Company's Common Stock based on the "Conversion
Price" at the time of conversion. The "Conversion Price" varies based on the
date when the Debentures are converted. For the period through March 31, 1998,
the Conversion Price is an amount
26
<PAGE> 29
equal to 80% of the average closing bid price of the Common Stock on the
American Stock Exchange for the previous three business days ending on the day
before the conversion date. For the period beginning April 1, 1998, the
Conversion Price is an amount equal to 75% of the average closing bid price of
the Common Stock on the American Stock Exchange for the previous three business
days ending on the day before the conversion date. The Conversion Price is
subject to equitable adjustment upon the occurrence of certain events, such as
stock splits, stock dividends, reclassifications or combinations.
If not previously converted, the entire outstanding principal and
interest on the Debentures will be automatically converted to Common Stock on
August 13, 2000 (the third anniversary of the closing). Notwithstanding the
foregoing, a Selling Shareholder is prohibited from converting any portion of
the Debentures which would result in the Selling Shareholder being deemed the
beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, of 4.99% or more of the then issued
and outstanding Common Stock of the Company.
The Warrants are exercisable at any time prior to August 13, 2000 at
exercise prices of $7.79 per Share (for up to 150,000 Shares) and $9.35 per
Share (for up to 65,000 Shares).
The Debentures are secured by 475,000 shares of common stock of
Neuromedical Systems, Inc. (Nasdaq: NSIX) owned by the Company (the "NSI
Shares"). If at any time prior to March 31, 1998, the conversion price is $3.00
or less, the holders of the Debentures may elect to exercise their conversion
rights for NSI Shares, rather than Common Stock of the Company, at a 20%
discount from the market price at the time of conversion.. If the Company
prohibits conversions during the Blackout Period, and the trading volume in the
Common Stock prior to December 15, 1997 does not meet defined minimums, the
holders may convert into the NSI Shares at a discount from the market price
which would produce a 25% return on an annualized basis. The NSI Shares may be
released from the pledge ratably as the outstanding principal amount of
Debentures is reduced.
As required by the Purchase Agreements and related Registration Rights
Agreements, in recognition of the fact that Selling Shareholders may wish to be
legally permitted to sell any Shares acquired upon conversion of the Debentures
and exercise of the Warrants when they deem appropriate, the Company has filed
with the Commission under the Act a Registration Statement on Form S-1, of which
this Prospectus forms a part, with respect to the resale of the Shares by the
Selling Shareholders from time to time on the American Stock Exchange or in
privately-negotiated transactions.
<TABLE>
<CAPTION>
NAME OF SELLING SHAREHOLDER NUMBER OF SHARES BENEFICIALLY NUMBER OF SHARES BEING NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING* OFFERED HEREBY OWNED AFTER OFFERING
<S> <C> <C> <C>
CPR (USA), Inc. 1,015,667 1,015,667 0
LibertyView Fund, LLC 277,333 277,333 0
LibertyView Plus Fund 91,999 91,999 0
Goodbody International, Inc. 100,000 100,000 0
Clarco Holdings, Inc. 15,000 15,000 0
<FN>
*Represents approximately 150% of the aggregate number of shares of the
Company's Common Stock which the Selling Shareholders would be entitled to
acquire upon conversion of the Debentures assuming the entire principal and
interest on the Debentures was converted on the date of this Prospectus, plus
the number of shares issuable assuming the Warrants are fully exercised. The
Selling Shareholders do not currently own any shares and the actual number of
shares which will be beneficially owned by the Selling Shareholders after
conversion of the Debentures will depend on the conversion price on the date the
debentures are converted.
</TABLE>
PLAN OF DISTRIBUTION
The Shares being offered by the Selling Shareholders will be sold in
one or more transactions (which may involve block transactions) on the American
Stock Exchange or in privately-negotiated transactions. The sale price to the
public may be the market price prevailing at the time of sale, a price related
to such prevailing market price or such other price as each Selling Shareholder
determines from time to time. A Selling Shareholder shall have the sole and
absolute discretion not to accept any purchase offer or make any sale of Shares
if it deems the purchase price to be unsatisfactory at any particular time.
27
<PAGE> 30
The Selling Shareholders may also sell the Shares of Common Stock
directly to market makers acting as principals and/or to broker-dealers acting
as agents for themselves or their customers. Brokers acting as agents for the
Selling Shareholders will receive usual and customary commissions for brokerage
transactions, and market makers and block purchasers purchasing the Shares will
do so for their own account and at their own risk. It is possible that the
Selling Shareholders will attempt to sell Shares of Common Stock in block
transactions to market makers or other purchasers at a price per share which may
be below the then market price. There can be no assurance that all or any of the
Shares offered hereby will be issued to, or sold by, the Selling Shareholders.
The Selling Shareholders and any brokers, dealers or agents, upon effecting the
sale of any of the Shares offered hereby, may be deemed "underwriters" as that
term is defined in the Securities Act.
The Selling Shareholders have agreed that they will not pay more than
the normal brokerage compensation and that they will not enter into arrangements
for special selling efforts without first advising the Company and cooperating
in the disclosure of the same in a revised or supplemental prospectus.
The Selling Shareholders, alternatively, may sell all or any part of
the Shares offered hereby through an underwriter. The Selling Shareholders have
not entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into. If the Selling
Shareholders enters into such an agreement or agreements, the relevant details
will be set forth in a supplement or revisions to this Prospectus.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000
Common Shares, without par value, 250,000 shares of Voting Preferred Stock, and
250,000 Shares of Nonvoting Preferred Stock. There are currently outstanding
10,947,114 shares of Common Stock, and no shares of preferred stock. All
outstanding shares of Common Stock are fully paid and non-assessable.
COMMON STOCK
Holders of validly issued and outstanding shares of Common Stock are
entitled to one vote per share of record on all matters to be voted upon by
shareholders. At a meeting of shareholders at which a quorum is present, a
majority of the votes cast decides all questions, unless the matter is one upon
which a different vote is required by express provision of law or the Company's
Articles of Incorporation ("Articles") or Code of Regulations ("Regulations").
The Company's Articles eliminate the right of shareholders to cumulate their
votes in the election of directors. Shareholders have no preemptive or other
rights to subscribe for additional shares nor any other rights to convert their
Company common stock into any other securities.
Subject to the preferences that may be applicable to the holders of any
outstanding shares of Preferred Stock, holders of common stock are entitled to
such dividends as may be declared by the Board of Directors out of funds legally
available therefor. The payment by the Company of dividends, if any, rests
within the discretion of its Board of Directors and will depend upon the
Company's operating results, financial condition and capital expenditure plans,
as well as other factors considered relevant by the Board of Directors. The
Company may enter into bank credit agreements which include financial covenants
restricting the payment of dividends. See "Dividend Policy."
Upon liquidation, dissolution or winding-up of the Company, the assets
legally available for distribution to shareholders are distributable ratably
among the holders of Company common stock at that time outstanding, subject to
prior distribution rights of creditors of the Company and preferential rights of
any outstanding shares of Preferred Stock.
PREFERRED STOCK
The Articles authorize the Board of Directors to issue up to 250,000
shares of Voting Preferred Stock and up to 250,000 shares of Nonvoting Preferred
Stock in one or more series and to establish such relative dividend, redemption,
liquidation, conversion and other powers, preferences, rights, qualifications,
limitations and restrictions as the Board of Directors may determine without
further approval of the shareholders of the Company. The issuance of Preferred
Stock by the Board of Directors could be used, under certain circumstances, as a
method of delaying or
28
<PAGE> 31
preventing a change in control of the Company and could permit the Board of
Directors, without any action by holders of Common Stock, to issue Preferred
Stock which could have a detrimental effect on the rights of holders of Common
Stock, including loss of voting control. In certain circumstances, this could
have the effect of decreasing the market price of the Common Stock.
The issuance of any series of Preferred Stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Company Board of Directors, might
warrant the issuance of Preferred Stock. At the date of this Prospectus, there
are no plans, agreements or understandings relative to the issuance of any
shares of Preferred Stock.
CERTAIN PROVISIONS OF ARTICLES AND REGULATIONS
The following brief description of certain provisions of the Company's
Articles and Regulations does not purport to be complete and is subject in all
respects to the provisions of the Articles and Regulations, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
CLASSIFIED BOARD OF DIRECTORS
The Company's Regulations provide for the Board of Directors to be
divided into three classes (unless there are fewer than 9 directors in which
case there will be two classes) of directors serving staggered three-year terms.
As a result, approximately one-third of the Board of Directors will be elected
each year. Classification of the Board of Directors expands the time required to
change the composition of a majority of directors and may tend to discourage a
proxy contest or other takeover bid for the Company.
DIRECTORS' RESPONSE TO ACQUISITION PROPOSALS
The Company's Articles provide that the Company Board of Directors must
base the response of the Company to any "Acquisition Proposal" on the Company
Board of Directors' evaluation of what is in the best interest of the Company.
In evaluating what is in the best interest of the Company, the Board of
Directors must consider all relevant factors including, without limitation, the
best interest of the shareholders which, for this purpose, requires the Board of
Directors to consider, among other factors, not only the consideration offered
in the Acquisition Proposal in relation to the then current market price of the
Company's stock, but also in relation to the current value of the Company in a
freely negotiated transaction and in relation to the Board of Directors' then
estimate of the future value of the Company as an independent entity or as the
subject of a future Acquisition Proposal; and such other factors as the Board of
Directors determines to be relevant, including, among other factors, the
long-term and short-term interests of the Company and its subsidiaries and their
businesses and properties and the social, legal and economic effects upon the
employees, suppliers, customers, creditors and other affected persons, firms and
corporations and on the communities and geographical areas in which the Company
and its subsidiaries operate or are located. "Acquisition Proposal" is defined
in the Articles as any proposal for the consolidation or merger of the Company
with another corporation, any share exchange involving the Company's outstanding
capital stock, any liquidation or dissolution of the Company, any transfer of
all or a material portion of the assets of the Company and any tender offer or
exchange offer for any of the Company's outstanding stock.
DIRECTOR AND OFFICER INDEMNIFICATION
The Articles provide that the Company may indemnify any director,
officer, or any former director or officer, and any person who is or has served
at the request of the Company as a director, officer or trustee of another
corporation, partnership, joint venture, trust or other enterprise (and his or
hers heirs, executors and administrators) against expenses, including attorney
fees, judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him by reason of the fact that he is or was such director, officer,
incorporator or trustee in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, to the full extent and according to the procedures and
requirements set forth in the Ohio General Corporation Law as the same may be in
effect from time to time. The indemnification provided shall not be deemed to
restrict the right of the Company to (i) indemnify employees, agents and others
as permitted by law, (ii) purchase and maintain insurance or provide similar
protection on behalf of the directors, officers or such other persons against
29
<PAGE> 32
liabilities asserted against them or expenses incurred by them arising out of
their service to the Company, and (iii) enter into agreements with such
directors, officers, employees, agents or others indemnifying them against any
and all liabilities asserted against them or incurred by them arising out of
their service to the Company as contemplated herein.
REMOVAL OF DIRECTORS
The Company's Regulations provide that any director or the entire Board
of Directors may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80% of all of the outstanding
shares of capital stock of the Company entitled to vote on the election of
directors at a meeting of shareholders called for that purpose, except that if
the Board of Directors, by an affirmative vote of at least 66 2/3% of the entire
Board, recommends removal of a director to the shareholders, such removal may be
effected by the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock of the Company present in person or
represented by proxy and entitled to vote on the election of directors at a
meeting of shareholders called for that purpose. These provisions, when coupled
with provisions of the Regulations authorizing only the Board of Directors to
fill vacant directorships, will preclude shareholders of the Company from
removing incumbent directors without cause, and simultaneously gaining control
of the Board of Directors by filling the vacancies with their own nominees.
The term "cause" is not defined in the Articles or the Ohio General
Corporation Law. Consequently, any question concerning the legal standard for
"cause" would have to be judicially determined and such a determination could be
difficult, expensive and time consuming.
MEETINGS OF SHAREHOLDERS
The Regulations provide that annual meetings of shareholders shall be
held at such time and on such business day as the Board of Directors may
determine. Except as otherwise provided by law or by the Articles, a quorum for
any meeting of the shareholders is a majority of the capital stock issued and
outstanding and entitled to vote at the meeting. Special meetings of
shareholders may be called by the Chairman of the Board, President or Chief
Executive Officer or by the Board of Directors by action at a meeting or a
majority of the directors without a meeting or by shareholders holding 50% or
more of the voting power entitled to elect directors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The Regulations provide that shareholders seeking to bring business
before a meeting of shareholders, or to nominate candidates for election as
directors at a meeting of shareholders, must provide timely notice thereof in
writing. To be timely, a shareholder's notice must be delivered to, or mailed
and received at, the principal executive office of the Company, not less than 30
days nor more than 60 days prior to the scheduled meeting (or, if less than 40
days' notice of the meeting is given to shareholders not later than the close of
business on the tenth day following the earlier of (i) the day on which such
notice of the date of the meeting was mailed, or (ii) the day on which public
disclosure of the date of the special meeting was made). The Regulations also
specify certain requirements pertaining to the form and substance of a
shareholder's notice. These provisions may preclude some shareholders from
making nominations for directors at an annual or special meeting or from
bringing other matters before the shareholders at a meeting.
VOTING REQUIREMENTS
The Regulations provide that certain provisions in the Regulations may
not be altered, amended or repealed in any respect, and new provisions
inconsistent therewith may not be adopted unless such action is approved by the
affirmative vote of the holders of at least 80% of all of the outstanding shares
of capital stock of the Company entitled to vote on such matter at a meeting of
shareholders called for that purpose.
30
<PAGE> 33
SHAREHOLDER NOMINATIONS AND PROPOSALS
The Regulations also specify certain requirements pertaining to the
form and substance of a shareholder's notice. These provisions may preclude some
shareholders from making nominations for directors at an annual or special
meeting or from bringing other matters before the shareholders at a meeting.
Although the Articles and Regulations do not give the Board of
Directors any power to approve or disapprove shareholder nominations for the
election of directors or proposals for action, the foregoing provisions may have
the effect of precluding a contest for the election of directors or the
consideration of shareholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its shareholders. On
the other hand, by requiring advance notice of nominations by shareholders,
these shareholder notice procedures afford the Board an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed necessary
or desirable by the Board, to inform shareholders about such qualifications. By
requiring advance notice of other proposed business, the shareholder notice
procedures provide a more orderly procedure for conducting annual meetings of
shareholders and, to the extent deemed necessary or desirable by the Board,
provide the Board with an opportunity to inform shareholders, prior to such
meeting, of any business proposed to be conducted at the meeting, together with
any recommendations by the Board or statements as to the Board's position
regarding action to be taken with respect to such business, so that shareholders
can better decide whether to attend the meeting or to grant a proxy regarding
the disposition of any such business.
OHIO GENERAL CORPORATION LAW
Certain provisions of the General Corporation Law of Ohio and of the
Company's Articles and Regulations, summarized in the following paragraphs, may
be considered to have an anti-takeover effect and may delay, deter or prevent a
tender offer, proxy contest or other takeover attempt that a shareholder might
consider to be in such shareholder's best interest, including such an attempt as
might result in payment of a premium over the market price for shares held by
shareholders.
Section 1701.59 of the Ohio General Corporation Law provides that a
director shall not be found to have violated his duties under the Ohio General
Corporation Law unless it is proved by clear and convincing evidence that the
director has not acted in good faith, in a manner he reasonably believes to be
in or not opposed to the best interests of the corporation, or with the care
that an ordinary prudent person in a like position would use under similar
circumstances. Further, such section provides that a director shall be liable in
damages for any action he takes or fails to take as a director only if it is
proved by clear and convincing evidence that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or with reckless disregard for the best interests of the
corporation.
Chapter 1704 of the Ohio General Corporation Law prohibits certain
transactions between a Ohio corporation and an "interested shareholder" Chapter
1704 allows for a corporation to exclude itself from Chapter 1704 by exempting
itself in its articles of incorporation. The Company has not included such an
exemptive provision in the Articles.
EXPERTS
The financial statements of the Company as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and the Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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<PAGE> 34
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon
for the Company by Porter, Wright, Morris & Arthur, 41 South High Street,
Columbus, Ohio 43215.
32
<PAGE> 35
INDEX TO FINANCIAL STATEMENTS
NETMED, INC.
Page
----
Report of Independent Auditors ...................................... 33
Balance Sheets at December 31, 1994, 1995, and 1996 ................. 34
Statements of Operations for the Years
ended December 31, 1994, 1995 and 1996
and for the Six Months Ended June 30, 1997 (unaudited) .......... 36
Statements of Cash Flows for the Years
ended December 31, 1994, 1995 and 1996
and for the Six Months Ended June 30, 1997 (unaudited) .......... 37
Statements of Stockholders' Equity for the Years
ended December 31, 1994, 1995 and 1996
and for the Six Months Ended June 30, 1997 (unaudited) .......... 38
Notes to Financial Statements ....................................... 39
33
<PAGE> 36
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NetMed, Inc.
We have audited the accompanying balance sheets of NetMed, Inc. (the Company) as
of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Columbus, Ohio
March 14, 1997 ERNST & YOUNG LLP
34
<PAGE> 37
NETMED, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
1995 1996 1997
----------------------------- -----------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 811,359 $ 142,074 $ 213,948
Accounts receivable 75,993 175,512 319,526
Investment in NSI-available for sale 7,696,296 9,238,503 3,165,138
Note receivable from stockholder 50,000 0 0
Prepaid assets 1,021 28,394 20,766
----------------------------- -----------
Total current assets 8,634,669 9,584,483 3,719,378
Notes receivable-NSI 51,080 21,443 21,443
Investment in partnerships 172,679 0 0
Furniture & Equipment (net of 0
accumulated depreciation) 17,316 28,034 27,620
Deferred taxes 348,670 744,162 628,703
Deposits and other assets 1,330 1,468 6,467
----------------------------- -----------
Total assets $ 9,225,744 $ 10,379,590 $ 4,403,611
============================= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,931 $ 97,625 $ 120,365
Accrued expenses 81,630 223,536 294,847
Other liabilities 42,831 29,844 39,490
Loan Payable 0 96,909 140,913
Total current liabilities 174,392 447,914 595,615
----------------------------- -----------
Deferred taxes 2,797,673 2,896,609 628,703
Stockholders' equity:
Common stock no par value, 20,000,000
shares authorized, 6,072,936,
10,940,524, and 10,947,114 issued and
outstanding at December 31, 1995 and
1996, and June 30, 1997 2,562,542 3,881,605 4,012,884
Retained deficit (208,480) (801,302) (1,386,496)
Unrealized gain on available-for-sale
securities net of deferred taxes 3,899,617 3,954,764 552,905
----------------------------- -----------
Total stockholders' equity 6,253,679 7,035,067 3,179,293
----------------------------- -----------
----------------------------- -----------
Total liabilities and stockholders' equity $ 9,225,744 $ 10,379,590 $ 4,403,611
============================= ===========
</TABLE>
See accompanying notes.
35
<PAGE> 38
NETMED, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30
--------------------------------
1994 1995 1996 1996 1997
--------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Royalty Revenue $ 24,765 $ 48,000 $ 102,813 $ 27,099 $ 339,608
Operating expenses:
Salaries and benefits 196,825 303,105 838,846 146,733 762,557
Sales and marketing 26,433 74,329 250,389 52,533 376,657
General and administrative 104,103 89,299 240,562 57,741 351,095
Business Development 0 0 85,476 - 59,345
Merger 0 106,416 364,852 134,450 -
----------- ----------- ----------------------------------------------
Total Operating Expenses 327,361 573,149 1,780,125 391,457 1,549,654
----------- ----------- ----------------------------------------------
Operating Loss (302,596) (525,149) (1,677,312) (364,358) (1,210,046)
Other income (expense):
Interest income 19,059 16,606 13,743 10,871 2,099
Interest expense -- (264) (872) -- (4,884)
Gain on sale of available-
for-sale securities -- -- 664,057 -- 745,056
NSI settlement and common
stock transactions -- 1,715,399 -- -- --
Equity income(loss) in
partnerships -- 49,638 (13,451) (4,091) --
----------- ----------- ----------------------------------------------
Total other income 19,059 1,781,379 663,477 6,780 742,271
----------- ----------- ----------------------------------------------
Income(loss) before income tax (283,537) 1,256,230 (1,013,835) (357,578) (467,775)
Income tax (benefit) expense 0 (68,715) (421,013) (122,001) 117,419
----------- ----------- ----------------------------------------------
Net (loss) income $ (283,537) $ 1,324,945 $ (592,822) $ (235,577) $ (585,194)
----------- ---------------------------------------------------------------
Net (loss) income per share $ (0.05) $ 0.21 $ (0.09) $ (0.04) $ (0.05)
=========== =========== ==============================================
Shares used in computation 5,860,336 6,439,594 6,263,924 6,072,936 10,946,316
=========== =========== ==============================================
</TABLE>
See accompanying notes.
36
<PAGE> 39
NETMED, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996 1996 1997
------------------------------------------------- ----------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (283,537) $ 1,324,945 $(592,822) $ (235,577) $ (585,194)
Adjustments to reconcile net loss to
net cash provided (used in) operating
activities:
Depreciation and amortization 8,152 7,496 7,776 3,000 7,200
Recognition of deferred tax assets - (68,715) (421,013) (122,001) 115,459
Equity (income)/loss in partnership - (49,638) 13,451 4,091 -
Gain on available-for-sale securities - - (664,057) - (745,056)
Gain on settlement and exercise of
warrants with NSI - (1,402,002) - - -
Deferred compensation - - 410,000 - 131,279
Changes in operating assets and liabilities:
Accounts receivable (24,765) (42,548) (55,727) (95,638) (144,014)
Note receivable from stockholder 50,000 - 50,000 - -
Prepaid assets - - (27,373) - 7,628
Deposits and other assets - - - - (4,999)
Accounts payable (23,905) 49,931 47,694 159,741 22,740
Accrued expenses and other
liabilities 15,574 94,127 101,398 (334,453) 81,467
----------- ----------- ---------- ----------------------------
Net cash used in operating activities (358,481) (86,404) (1,130,673) (620,837) (1,113,490)
INVESTING ACTIVITIES
Sale of NSI stock - - 750,057 - 1,148,102
Net cash advances to predecessor companies
in contemplation of Merger - - (400,183) - -
Notes receivable-NSI 70,717 74,961 29,637 29,637 -
Purchase of furniture and equipment (7,200) (4,260) (18,494) - (6,742)
Other assets (172) 1,000 (138) - -
----------- ---------- --------- ----------------------------
Net cash provided by investing
activities 63,345 71,701 360,879 29,637 1,141,360
FINANCING ACTIVITIES
Proceeds from stock subscription
receivable 290,975 - - - -
Issuance of common stock and options
exercised 98,309 290,517 3,600 - -
Proceeds from note payable - - 96,909 - 44,004
----------- ---------- --------- ----------------------------
Net cash provided by financing activities 389,284 290,517 100,509 - 44,004
----------- ---------- --------- ----------------------------
Net increase (decrease) in cash 94,148 275,814 (669,285) (591,200) 71,874
Cash and cash equivalents at beginning
of period 441,397 535,545 811,359 811,359 142,074
----------- ---------- --------- ----------------------------
Cash and cash equivalents
at end of period $ 535,545 $ 811,359 $ 142,074 $ 220,159 $ 213,948
=========== ========== ========= ============================
</TABLE>
See accompanying notes.
37
<PAGE> 40
NETMED, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADJUSTMENTS
TO UNREALIZED RETAINED
COMMON GAINS EARNINGS
STOCK (LOSSES) (DEFICIT) TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 2,173,716 $ - $(1,249,888) $ 923,828
Stock issued and warrants exercised 98,309 - -- 98,309
Net loss - - (283,537) (283,537)
-------------------------------------------------------------
Balance December 31, 1994 2,272,025 - (1,533,425) 738,600
Stock issued and warrants exercised 290,517 - - 290,517
Adjustment to unrealized gains net
of tax - 3,899,617 - 3,899,617
Net Income - - 1,324,945 1,324,945
-------------------------------------------------------------
Balance, December 31, 1995 2,562,542 3,899,617 (208,480) 6,253,679
Stock options exercised 3,600 - - 3,600
Net assets acquired via merger 905,463 1,765,838 - 2,671,301
Adjustment to unrealized gains net
of tax - (1,710,691) - (1,710,691)
Deferred compensation stock options 410,000 - - 410,000
Net loss - - (592,822) (592,822)
-------------------------------------------------------------
Balance, December 31, 1996 3,881,605 3,954,764 (801,302) 7,035,067
Net Loss (unaudited) - - (585,194) (585,194)
Adjustment to unrealized gains net
of tax (unaudited) - (3,401,859) - (3,401,859)
Deferred compensation stock options
(unaudited) 131,279 - - 131,279
-------------------------------------------------------------
Balance, June 30, 1997 (unaudited) $ 4,012,884 $ 552,905 $(1,386,496) $ 3,179,293
=============================================================
</TABLE>
See accompanying notes.
38
<PAGE> 41
NETMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
On December 5, 1996, the Company's shareholders approved an
Agreement and Plan of Merger (the "Merger Agreement") whereby Cytology Indiana,
Inc., Indiana Cytology Review Company, ER Group, Inc., CCWP Partners, Inc.
("CCWP"), and Carolina Cytology, Inc. (the "Predecessor Companies") were merged
with and into the Company (the "Merger"). The Merger was effective on December
16, 1996 and the Company issued, in the aggregate, 4,849,988 shares of its
common stock, without par value, in exchange for the issued and outstanding
shares of the Predecessor Companies. Under terms of the Merger Agreement, the
Company changed its name from Papnet of Ohio, Inc. to NetMed, Inc
Prior to the Merger, Papnet of Ohio, Inc. and each of the Predecessor Companies
(except for CCWP) held long-term territorial license agreements ("License
Agreement") issued by Neuromedical Systems, Inc. (NSI). The License Agreements
provide the right to sell the "PAPNET(R) System" and the "PAPNET(R) Service" as
described below, in Ohio, Kentucky, Missouri, Georgia, North Carolina and the
Standard Metropolitan Area of Chicago. As a result of the Merger, and in
accordance with an agreement with NSI, the individual License Agreements held by
Papnet of Ohio, Inc. and the Predecessor Companies will be exchanged for a
single License Agreement that encompasses the same territories covered by the
individual License Agreements.
NSI, founded in 1988, is a healthcare technology company focused on diagnostic
screening applications to aid in the early detection of certain cancers. NSI's
first and to date only product, the PAPNET(R) System, was approved for
commercial use in the United States by the Food and Drug Administration (the
"FDA") on November 8, 1995. The PAPNET(R) Service permits laboratories to submit
Pap smear slides to one of NSI's central facilities for processing by the
PAPNET(R) System. NSI's objective is to establish the use of its PAPNET(R)
System as the new standard of care in cervical cancer screening.
The Merger of the Company and the Predecessor Companies occurred in connection
with the initial registration of the Company's common stock with the Securities
and Exchange Commission (SEC) which resulted in the public trading of the
Company's common stock. The Merger was accounted for at historical cost based on
the guidance in SEC Staff Accounting Bulletins 48 and 97. The results of
operations of the Predecessor Companies have been combined with those of the
Company on a prospective basis commencing at the date of Merger. The following
displays summarized pro forma results of operations assuming the Merger
transaction occurred on January 1, 1995:
39
<PAGE> 42
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
<TABLE>
<CAPTION>
Pro Forma
Year ended December 31
1995 1996
---------------------------------
<S> <C> <C>
Royalty revenue $ 84,000 $ 222,002
Operating loss (641,788) (2,153,257)
Net (loss) income 2,484,546 (1,032,865)
Net (loss) income per share .23 (.10)
</TABLE>
The Company received the following assets and assumed the following liabilities
at the Merger date:
<TABLE>
<S> <C>
Cash $ 41,000
Accounts receivable 44,000
NSI common stock 4,457,000
----------
Totals assets $4,542,000
Payable to NetMed, Inc. $ 441,000
Accrued liabilities 27,000
Deferred taxes 1,256,000
Minority interest 146,000
----------
1,870,000
==========
Net equity at Merger $2,672,000
==========
</TABLE>
The payable to the Company was offset against a related receivable from the
Predecessor Companies recorded on the books of the Company at the date of
Merger. In addition, the minority interest represented Net Med's interest in two
partnerships controlled by certain Predecessor Companies (see Note 2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from these estimates.
Cash Equivalents
The Company considers all short-term deposits and highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Investment in Partnerships
Prior to the Merger described in Note 1, the Company owned minority interests
in two partnerships which were accounted for by the equity method. The majority
owners of these partnerships were parties to the Merger Agreement, so the
partnerships were merged into the Company at the effective date of the Merger.
Furniture and Equipment
Furniture and equipment consists of office furniture and computer equipment
recorded at cost which is being depreciated on an accelerated method over
estimated useful lives ranging from five to seven years.
40
<PAGE> 43
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
License Agreement
The License Agreement expires in 2025, but provides for a 20 year renewal
option. Amounts paid by the Company to NSI in exchange for the License Agreement
have been expensed in the years paid. This accounting reflects the uncertainty
as to the recoverability of amounts paid for the License Agreement, which was
contingent on FDA approval of the PAPNET(R) System and the ability of NSI and
the Company to develop a profitable market for the technology.
Royalty Revenue
Pursuant to the License Agreement, the Company is entitled to receive a
calculated royalty or a specified percentage of NSI's annual slide processing
revenues less certain expenses, up to specific annual monetary limits for each
licensee. Royalty revenue is recognized as earned based on the License
Agreement.
Income Taxes
The Company accounts for income taxes using the liability method under Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes."
Deferred items are determined based on differences between the financial
reporting and tax basis of assets and liabilities, and are measured using the
enacted rates and laws that will be in effect when the differences are expected
to reverse.
Stock-Based Compensation
The Company accounts for stock compensation arrangements in accordance with APB
Opinion No. 25, "Accounting for Stock issued to Employees." The pro forma
information regarding net (loss) income and net (loss) income per share as
required by Statement of Financial Accounting Standards No.123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") is disclosed in "Note 4 - Stock
Options and Warrants."
Reclassification
Certain amounts presented for 1994 and 1995 have been reclassified to conform to
the 1996 presentation.
Net (Loss) Income Per Share
Net (loss) income per share amounts are based on the weighted average common and
common equivalent shares outstanding during the respective periods (including
4,849,988 shares issued in connection with the Merger on December 16, 1996).
Common stock equivalents were antidilutive in 1996 and 1994; therefore, they
were excluded from the calculation of net loss per share.
3. INVESTMENT IN NSI
The Company owns stock in NSI as a result of the exercise of warrants and
settlement of certain claims with NSI. The investment is classified as
available-for-sale and is carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
NSI trades publicly on the NASDAQ NMS under the symbol "NSIX." During 1996, the
Company sold 43,000 shares of NSI stock which resulted in a gain of $664,057
which was reported as other income.
As of December 31, 1996, the Company owned 697,246 shares of NSI stock at a cost
of $2,647,237. The NSI common stock has been recorded in the accompanying
balance sheet based on its $13.25 closing price on December 31, 1996. On March
14, 1997, NSI common stock closed trading at $9.625 per share.
The exercise of the warrants in NSI was completed in 1995 utilizing a cashless
exercise provision in the warrant agreement. This resulted in a gain of
$652,250 which has been reported as other income. As a result of settling
certain claims with NSI in December 1995, the Company received 53,939 shares of
NSI stock resulting in a gain of
41
<PAGE> 44
$749,752 which is recorded in other income. In addition, the Company was
allocated the right to purchase 65,000 shares of NSI stock at NSI's initial
public offering. The Company purchased and sold the entire 65,000 shares for
$1,292,363 during 1995 resulting in a realized gain of $313,397 which has been
recorded as other income.
During the six-month period ended June 30, 1997, the Company sold 125,000
shares of NSI stock which resulted in a gain of $745,056 which was reported as
other income. As of June 30, 1997, the Company owned 572,246 shares of NSI
stock at a cost of $2,243,584. The NSI common stock has been recorded in the
accompanying balance sheet based upon its $5.53 closing price on June 30, 1997.
On August 31, 1997, the NSI common stock closed trading at $3.50 per share.
4. STOCK OPTIONS AND WARRANTS
The Company's 1995 Stock Option Plan (the "Stock Option Plan") provides for the
granting of options that may either meet the requirements of Section 422
("Incentive Options") of the Internal Revenue Code, as amended (the "Code") or
not meet such requirements ("Nonqualified Options"). Key employees, officers,
and directors of, and consultants and advisors who render services to, the
Company are eligible to receive options under the Stock Option Plan. The number
of shares available for grants under the Stock Option Plan was 300,000 at
December 31, 1995 and 1996.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996: risk-free interest rate of 6.0%; no dividend yield; volatility factor
of the expected market price of the Company's common stock of .62; and expected
lives ranging from 2 to 5 years.
If the Company had elected to recognize compensation cost based on the fair
value of options at the grant date as prescribed by SFAS No. 123, the following
displays what reported net income (loss) and per share amounts would have been:
<TABLE>
<CAPTION>
Pro Forma Years Ended
December 31,
1995 1996
---------------------------------
<S> <C> <C>
Net (loss) income $ 1,257,467 $(873,876)
Net (loss) income per share $ .20 $ (.14)
</TABLE>
The pro forma financial effects of applying SFAS No. 123 are not likely to be
representative of the pro forma effects on reported results of operations for
future years.
The following is a summary of the stock option activity for a prior
non-qualified plan (no additional options may be granted under this plan):
42
<PAGE> 45
4. STOCK OPTIONS AND WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
-------------------------------
<S> <C> <C>
Non-Qualified Plan
Outstanding at December 31, 1993 397,600 $ 1.21
Issued 32,000 $ 2.75
Expired 24,000 $ 1.38
---------
Outstanding at December 31, 1994 405,600 $ 1.32
Issued 16,000 $ 11.00
Expired 56,000 $ 1.38
---------
Outstanding at December 31, 1995 365,600 $ 1.74
Issued 56,000 $ 1.55
Exercised 21,200 $ 1.53
Expired 64,000 $ 1.53
---------
Outstanding at December 31, 1996 336,400 $ 1.76
=========
Exercisable at December 31, 1994 197,600 $ 1.22
Exercisable at December 31, 1995 349,600 $ 1.31
Exercisable at December 31, 1996 336,400 $ 1.76
</TABLE>
During 1996, the Company extended the expiration date of 56,000 options due to
expire near the end of the year. Accounting Principles Board Opinion No. 25
requires that extended options be treated as if they were a new grant. The
exercise price set for these options was below the market price at the date of
grant and resulted in $410,000 in compensation expense. These options had a
weighted-average fair value and a weighted-average exercise price of $7.60 and
$1.55, respectively. During 1995, the Company issued 16,000 options with an
exercise price equal to the market price at the grant date. The weighted average
fair value of these options was $6.39. Exercise prices for options outstanding
at December 31, 1996 ranged from $1.09 to $11.00 and had a weighted-average
remaining contractual life of 6.57 years.
As of December 31, 1996, there were outstanding 47,020 warrants for the
President of the Company and 24,000 for a former consultant to purchase stock at
exercise prices of $.875 per share and $1.25 per share, respectively.
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
-------------------------------
<S> <C> <C>
Outstanding at December 31, 1993 339,040 $ 1.01
Exercised (84,000) $ 1.25
--------
Outstanding at December 31, 1994 255,040 $ .93
Exercised during 1995 (184,020) $ .90
--------
Outstanding at December 31, 1995
and December 31, 1996 71,020 $ 1.25
=======
</TABLE>
43
<PAGE> 46
5. INCOME TAXES
Significant components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1995 1996
---------------------------------
<S> <C> <C>
Loss carryforwards $ 348,670 $ 580,162
Unrealized gains on investments (2,517,718) (2,636,509)
Gain on NSI warrants (260,100) (260,100)
Income from Equity Investee (19,855) -
Stock options issued - 164,000
---------------------------------
Net deferred tax liability $(2,449,003) $(2,152,447)
=================================
</TABLE>
At December 31, 1996, the Company had unused NOL carryforwards for tax purposes
of approximately $329,000, $320,000, $211,000, and $251,000 which expire in
2007, 2008, 2009 and 2010, respectively.
At December 31, 1994, a full valuation allowance was recorded due to the lack of
deferred tax liabilities, historical income and tax planning strategies. For
1995 and 1996, due to the existence of a significant deferred tax liability, a
valuation allowance was not required.
The reconciliation of income tax computed at the statutory rate to the recorded
tax provision (benefit) is:
<TABLE>
<CAPTION>
1994 1995 1996
---------------------------------------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate $ (96,402) $ 427,118 $(344,704)
Benefit of state loss carryforward - - (76,309)
Recognition of previously reserved tax
assets - (495,833) -
Valuation allowance provided 96,402 - -
========= ========= =========
Total tax provision (benefit) $ - $ (68,715) $(421,013)
========= ========= =========
</TABLE>
6. NOTE RECEIVABLE FROM STOCKHOLDER
On October 14, 1994, the Company loaned one of its officers and stockholders
$50,000, at prime plus 1/2% interest. Under the loan agreement, effective with
the Merger described in Note 1, the loan was deemed a bonus and converted into
compensation during the year ended December 31,1996.
7. LEASES
The Company leases facilities and equipment under operating leases. Commitments
for these leases approximate $21,000 per year through August 14, 2001. Rent
expense for the years ended December 31, 1994, 1995 and 1996 was $15,526,
$19,537 and $41,677, respectively.
8. UNAUDITED FINANCIAL STATEMENTS
The financial statements as of June 30, 1997 and for the six months ended June
30, 1996 and 1997 are unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial statements for these interim periods have been
included. The results for the interim period ended June 30, 1997 are not
necessarily indicative of the results to be obtained for the full fiscal year
ending December 31, 1997.
9. SUBSEQUENT EVENT (UNAUDITED)
On August 13, 1997, the Company issued $3,000,000 in principal amount of 6%
Secured Convertible Subordinated Debentures (the "Debentures") to certain
investors in a private placement. The Debentures are due August 13, 2000, bear
interest at a rate of 6% per annum, and are redeemable by the Company. The
Debentures and any interest accrued thereon may be converted into common stock
of the Company at any time. However, no sales of conversion shares may be made
prior to November 11, 1997, and during the period from November 11, 1997 through
May 10, 1998 (the 91st through 270th day after the closing) the maximum
aggregate number of conversion shares which can be sold is 500,000. After May
10, 1998 (the 270th day after the closing), 100% of the conversion shares may be
sold. The Company can prohibit sales during the period from December 14, 1997 to
February 1, 1998 (the "Blackout Period"). The Debentures are convertible into
shares of the Company's common stock based on the "Conversion Price" at the time
of conversion, which varies based on the date when the Debentures are converted.
For the period through March 31, 1998, the Conversion Price is an amount equal
to 80% of the average closing bid price of the common stock on the American
Stock Exchange for the previous three business days ending on the day before the
conversion date. For the period beginning April 1, 1998, the Conversion Price is
an amount equal to 75% of the average closing bid price of the common stock on
the American Stock Exchange for the previous three business days ending on the
day before the conversion date.
The Debentures are secured by 475,000 shares of common stock of Neuromedical
Systems, Inc. owned by the Company (the "NSI Shares"). If at any time prior to
March 31, 1998, the conversion price is $3.00 or less, the holders of the
Debentures may elect to exercise their conversion rights for NSI Shares, rather
than common stock of the Company, at a 20% discount from the market price at the
time of conversion. If the Company prohibits sales during the Blackout Period,
and the trading volume in the common stock prior to December 15, 1997 does not
meet defined minimums, the holders may convert into the NSI Shares at a discount
from the market price which would produce a 25% return on an annualized basis.
The NSI Shares may be released from the pledge ratably as the outstanding
principal amount of Debentures is reduced.
In connection with this financing, the Company issued warrants to the investors
and to investment bankers. The warrants are exercisable at any time prior to
August 13, 2000 at exercise prices of $7.79 per share (for up to 150,000 Shares)
and $9.35 per share (for up to 65,000 shares).
The Company will incur a one time expense related to the issuance of the
Debentures of approximately $1,100,000 in the quarter ending September 30, 1997.
44
<PAGE> 47
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING SHAREHOLDER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
Page
----
Available Information....................................... 1
Summary of the Prospectus................................... 2
Risk Factors................................................ 3
Price Range of Common Stock
and Dividend Policy..................................... 7
Use of Proceeds............................................. 8
Selected Financial Data..................................... 8
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................... 8
Business.................................................... 12
Management.................................................. 18
Ownership of Common Stock by
Management and Principal Shareholders................... 24
Certain Relationships and
Related Transactions................................... 25
Selling Shareholders........................................ 26
Plan of Distribution........................................ 27
Description of Capital Stock................................ 27
Certain Provisions of Articles
and Regulations......................................... 28
Experts..................................................... 31
Legal Matters............................................... 31
Financial Statements........................................ 32
================================================================================
1,500,000 Shares
NETMED, INC.
COMMON SHARES
(without par value)
September __, 1997
================================================================================
<PAGE> 48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses relating to the registration of the Shares of Common Stock
being offered hereby, other than underwriting discounts and commissions, will be
borne by the Company. Such expenses are estimated to be as follows:
Item Amount
---- ------
Securities and Exchange Commission
Registration Fee $21,656.25
----------
Legal Fees and Expenses 2,500
Accounting Fees and Expenses 5,000
Miscellaneous Expenses 7,000
----------
Total $ 36,156
----------
2
<PAGE> 49
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Ohio General Corporation Law, Article NINTH of
the Registrant's Amended and Restated Articles of Incorporation ("Articles")
provides that a director, officer, incorporator, or any former officer or
director of the Registrant shall be indemnified by the Registrant to the fullest
extent permitted by the Ohio General Corporation Law.
Indemnification of directors, officers, employees and agents is
required under Section 1701.13 of the Ohio General Corporation Law in those
cases where the person to be indemnified has been successful on the merits or
otherwise in defense of a lawsuit. Indemnification is permitted in third party
actions where the indemnified person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and in criminal actions where he had no reasonable cause to believe
his conduct was unlawful. Indemnification is also permitted in lawsuits brought
by or on behalf of the corporation if the standards of conduct described above
are met, except that no indemnification is permitted in respect to any matter in
which the person is adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless a court shall determine that
indemnification is fair and reasonable in view of all the circumstances of the
case. In cases where indemnification is permissive, a determination as to
whether the person met the applicable standard of conduct must be made either by
the court, disinterested directors, by independent legal counsel, or by the
shareholders. Such indemnification rights are specifically not deemed to be
exclusive of other rights of indemnification by agreement or otherwise and the
corporation is authorized to advance expenses incurred prior to the final
disposition of a matter upon receipt of an undertaking to repay such amounts on
a determination that indemnification was not permitted in the circumstances of
the case.
Under Section 1701.13 of the Ohio General Corporation Law, a
corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of the corporation, or who, while
serving in such capacity, is or was at the request of the corporation, a
director, officer, employee or agent of another corporation or legal entity or
of an employee benefit plan, against liability asserted against or incurred by
such person in any such capacity whether or not the corporation would have the
power to provide indemnity under Section 1701.13 of the Ohio General Corporation
Law. The Registrant has not applied for directors' and officers' liability
insurance.
The above discussion of the Registrant's Articles and of Section
1701.13 of the Ohio General Corporation Law is not intended to be exhaustive and
is respectively qualified in its entirety by such Articles of Incorporation and
statute.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In October and December, 1994, the Company issued 21,000 common
shares, without par value, to Corna Securities, Inc., upon the exercise of
warrants with an exercise price of $5.00 per share, with total proceeds of
$105,000. The transaction was exempt from registration under Sections 4(2) and
4(6) of the Securities Act, and Rule 506 of Regulation D.
On April 21, 1995, the Company issued 19,800 common shares, without
par value, to David J. Richards, President of the Company, upon the exercise of
a stock option for 22,000 shares with an exercise price of $3.50 per share. The
options were fully exercised, but due to the option holder's election of a
cashless exercise feature of the options, the net number of shares issued was
19,800. The transaction was exempt from registration under Sections 3(b), 4(2)
and 4(6) of the Securities Act, and Rules 504 and 506 of Regulation D.
On June 9, 1995, the Company issued 6,980 common shares, without par
value, to David J. Richards, President of the Company, upon the exercise of a
stock option for 7,580 shares with an exercise price of $1.75 per share. The
options were fully exercised, but due to the option holder's election of a
cashless exercise feature of the options, the net number of shares issued was
6,980. The transaction was exempt from registration under Sections 3(b), 4(2)
and 4(6) of the Securities Act, and Rules 504 and 506 of Regulation D.
3
<PAGE> 50
On August 9, 1995, the Company issued 32,502 common shares, without
par value, to David J. Richards, President of the Company, upon the exercise of
a stock option for 34,430 shares with an exercise price of $1.75 per share. The
options were fully exercised, but due to the option holder's election of a
cashless exercise feature of the options, the net number of shares issued was
32,502. The transaction was exempt from registration under Sections 3(b), 4(2)
and 4(6) of the Securities Act, and Rules 504 and 506 of Regulation D.
On October 20, 1995, the Company sold 18,000 common shares, without
par value, to 25 persons in a public offering exempt from registration under
Rule 504 of Regulation D, which was registered by description in Ohio pursuant
to Section 1707.06(A)(2), Ohio Rev. Code. The underwriter for the offering was
Corna Securities, Inc. Gross proceeds of the offering were $330,112.50, and the
total underwriting commission was $33,112.50.
On September 25, 1996, the Company issued 14,000 common shares,
without par value, to Jeffrey Guest, a former employee of the Company, upon the
exercise of a stock option for 17,600 shares with an exercise price of $1.38 per
share. The options were fully exercised, but due to the option holder's election
of a cashless exercise feature of the options, the net number of shares issued
was 14,000. The transaction was exempt from registration under Sections 3(b) and
4(2) of the Securities Act, and Rules 504 and 506 of Regulation D.
On January 23, 1997, the Company issued 3,307 common shares, without
par value, to Melissa Place, a former employee of the Company, upon the exercise
of a stock option for 4,000 shares with an exercise price of $1.37 per share.
The options were fully exercised, but due to the option holder's election of a
cashless exercise feature of the options, the net number of shares issued was
3,307. The transaction was exempt from registration under Sections 3(b) and 4(2)
of the Securities Act, and Rules 504 and 506 of Regulation D.
On October 25, 1996, November 14, 1996, and February 19, 1997, the
Company issued a total of 4,883 common shares, without par value, to the
partners of BRP Ventures Partnership, upon the exercise of a stock option for
8,000 shares with an exercise price of $2.25 per share. The options were fully
exercised, but due to the option holders' election of a cashless exercise
feature for all but 1,600 of the options, the net number of shares issued was
6,320, and the net proceeds to the Company were $3,600. The transaction was
exempt from registration under Sections 3(b) and 4(2) of the Securities Act, and
Rules 504 and 506 of Regulation D.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Articles of Incorporation of the
Registrant. (Previously filed as Appendix A to the
Registration Statement on Form S-4, Registration No.
333-8199, and incorporated herein by reference.)
3.2 Amended and Restated Regulations of the Registrant.
(Previously filed as Appendix A to the Registration
Statement on Form S-4, Registration No. 333-8199, and
incorporated herein by reference.)
3.3 Form of Specimen Stock Certificate. (Previously filed as
Exhibit 3(e) to the Registration Statement on Form S-4,
Registration No. 333-8199, and incorporated herein by
reference.)
4.1 Articles FOURTH, SIXTH, SEVENTH, EIGHTH, TENTH, and
ELEVENTH, of the Registrant's Amended and Restated Articles
of Incorporation and Articles I, V and VII of the
Registrant's Amended and Restated Regulations. (Previously
filed as Exhibit 4(b) to the Registration Statement on Form
S-4, Registration No. 333-8199, and incorporated herein by
reference.)
5 * Opinion of Porter, Wright, Moris & Arthur regarding
legality.
4
<PAGE> 51
10.1 Settlement Agreement among Neuromedical Systems, Inc. and
the Registrant, Cytology Indiana, Inc., Indiana Cytology
Review Company, ER Group, Inc., Cytology West, Inc.,
Carolina Cytology Licensing Company, Papnet Utah, Inc.,
Carolina Cytology Warrant Partnership, and GRK Partners,
dated as of December 5, 1995. (Previously filed as Exhibit
10(a) to the Registration Statement on Form S-4,
Registration No. 333-8199, and incorporated herein by
reference.)
10.2 Voting Agreement among the Registrant, Cytology Indiana,
Inc., Indiana Cytology Review Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina Cytology, Inc., and certain
shareholders of these entities dated July 5, 1996.
(Previously filed as Exhibit 10(c) to the Registration
Statement on Form S-4, Registration No. 333-8199, and
incorporated herein by reference.)
10.3 Loan Agreement among the Registrant, Cytology Indiana, Inc.,
Indiana Cytology Review Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina Cytology, Inc., dated July 5,
1996, and the Side letter thereof, dated July 18, 1996.
(Previously filed as Exhibit 10(d) to the Registration
Statement on Form S-4, Registration No. 333-8199, and
incorporated herein by reference.)
10.4 Loan Agreement between the Registrant and Cytology West,
Inc. and Papnet Utah, Inc.,dated March 14, 1996. (Previously
filed as Exhibit 10(e) to the Registration Statement on Form
S-4, Registration No. 333-8199, and incorporated herein by
reference.)
10.5 Promissory Note and Security Agreement among Cytology West,
Inc. and the Registrant dated April 5, 1996 and April 4,
1996, respectively. (Previously filed as Exhibit 10(f) to
the Registration Statement on Form S-4, Registration No.
333-8199, and incorporated herein by reference.)
10.6 Guaranty executed by Carl Genberg, guaranteeing all
obligation of Cytology West, Inc., dated April 4, 1996.
(Previously filed as Exhibit 10(g) to the Registration
Statement on Form S-4, Registration No. 333-8199, and
incorporated herein by reference.)
10.7 Security Agreement granting a security interest in
Neuromedical Systems, Inc. stock to the Registrant, executed
by Carl Genberg on April 4, 1996. (Previously filed as
Exhibit 10(h) to the Registration Statement on Form S-4,
Registration No. 333-8199, and incorporated herein by
reference.)
10.8 Amended and Restated 1995 Stock Option Plan of the
Registrant. (Previously filed as Exhibit 10(i) to the
Registration Statement on Form S-4, Registration No.
333-8199, and incorporated herein by reference.)
10.9 * Net Lease between Muirfield Square, Ltd. as Lessor and
Registrant as Lessee, dated September 15, 1997.
10.10 Investment Agreement among the Registrant, CeramPhysics,
Inc. and Ceram Oxygen Technologies, Inc., dated February 28,
1997. (Previously filed as Exhibit 10(j) to Registrant's
1996 Annual Report on Form 10-K, Commission file no.
1-12529, and incorporated herein by reference.)
10.11 Revolving Loan-Grid Note, between the Registrant as the
lender and Ceram Oxygen Technologies, Inc. as maker, dated
February 28, 1997. (Previously filed as Exhibit 10(k) to
Registrant's 1996 Annual Report on Form 10-K, Commission
file no. 1-12529, and incorporated herein by reference.)
10.12 Marketing Support Agreement among Neuromedical Systems,
Inc., NetMed, Inc., and Blue Cross and Blue Shield Mutual of
Ohio, dated January 30, 1997. (Previously filed as
5
<PAGE> 52
Exhibit 10(l) to Registrant's 1996 Annual Report on Form
10-K, and incorporated herein by reference.)
10.13 Employment Agreement between the Registrant and David J.
Richards, dated as of April 1, 1997. (Previously filed as
Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q
for the quarter ending June 30, 1997, and incorporated
herein by reference.)
10.14 * Employment Agreement between the Registrant and William J.
Kelly, Jr., dated as of July 1, 1997.
23 * Consent of Ernst & Young, LLP.
24 * Powers of Attorney.
99.1 * 6% Secured Convertible Subordinated Debenture Purchase
Agreement, dated August 12, 1997, between the Registrant and
CPR (USA), Inc.
99.2 * Pledge Agreement, dated August 12, 1997, among the
Registrant, CPR (USA), Inc., LibertyView Fund LLC,
LibertyView Plus Fund, and National City Bank.
99.3 * Convertible Debenture Escrow Agreement, dated August 12,
1997, among the Registrant, CPR (USA), Inc., and Sheldon E.
Goldstein, P.C.
99.4 * Registration Rights Agreement, dated August 12, 1997,
between the Registrant and CPR (USA), Inc.
99.5 * Debenture, dated August 13, 1997, issued by the Registrant
to CPR (USA), Inc.
99.6 * Warrant to Purchase 73,334 Shares of Common Stock, dated
August 13, 1997, issued by the Registrant to CPR (USA), Inc.
99.7 * Amendment to Convertible Debenture Purchase Agreement.
* Filed with this Registration Statement.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a
6
<PAGE> 53
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) It will file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered)and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement.
(4) It will remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the
termination of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dublin, State of Ohio, on September 15, 1997.
NETMED, INC.
By: /s/ David J. Richards
---------------------------
David J. Richards, President
7
<PAGE> 54
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ David J. Richards President, Director ) September 15, 1997
- -------------------------- (Principal Executive Officer) )
David J. Richards )
)
)
*Kenneth B. Leachman Executive Vice President-Finance, ) September 15, 1997
- -------------------------- (Principal Accounting Officer) )
Kenneth B. Leachman )
)
*John P. Kennedy Vice President-Business Development, ) September 15, 1997
- -------------------------- Treasurer, Asst. Secretary, Director )
John P. Kennedy )
)
*S. Trevor Ferger Director ) September 15, 1997
- -------------------------- )
S. Trevor Ferger )
)
*Cecil J. Petitti Director ) September 15, 1997
- -------------------------- )
Cecil J. Petitti )
)
*Michael S. Blue Director ) September 15, 1997
- -------------------------- )
Michael S. Blue )
)
*By: /s/ David J. Richards
- ---------------------------
Attorney-in-fact for each of the persons indicated
</TABLE>
8
<PAGE> 1
Exhibit 5
41 South High Street
Columbus, Ohio 43215-6194
Telephone: 614-227-2000
Facsimile: 614-227-2100
Nationwide: 800-533-2794
September 15, 1997
NetMed, Inc.
6189 Memorial Drive
Dublin, Ohio 43017
Gentlemen:
With respect to the Registration Statement on Form S-1 (the
"Registration Statement") being filed by NetMed, Inc. (the "Company") under the
Securities Act of 1933, as amended, relating to the registration of 1,500,000
common shares of the Company, without par value (the "Shares"), we advise you as
follows:
We are counsel for the Company and have participated in the preparation
of the Registration Statement. We have reviewed the Company's Amended and
Restated Articles of Incorporation, as amended to date, the corporate action
taken to date in connection with the Registration Statement and the issuance and
sale of the Shares, and such other documents and authorities as we deem relevant
for the purpose of this opinion.
We understand that the Shares will be issued to certain persons
("Selling Shareholders") upon the conversion of 6% Convertible Subordinated
Debentures of the Company and upon the exercise by the Selling Shareholders of
certain warrants to purchase Company common shares. We assume that the Shares
when issued to the Selling Shareholders will be sold in compliance with the
Securities Act of 1933, as amended, and with any applicable state securities or
"blue sky" laws.
Based upon the foregoing, we are of the opinion that, when the Shares
are sold by the Selling Shareholders in conformity with the terms of the
Registration Statement and in compliance with any applicable state securities or
"blue sky" laws, the Shares will be validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Opinions" in the prospectus included in the Registration Statement.
Very truly yours,
/s/ Porter, Wright, Morris & Arthur
PORTER, WRIGHT, MORRIS & ARTHUR
Cincinnati - Cleveland - Columbus - Dayton - Naples, FL - Washington, DC
<PAGE> 1
Exhibit 10.9
NET LEASE AGREEMENT
THIS NET LEASE AGREEMENT, made and entered into effective September 15,
1997, by and between MUIRFIELD SQUARE, LTD., an Ohio LLC (hereinafter referred
to as "Lessor"), having its principal office at 1689 Memorial Drive, Dublin,
Ohio 43017 and NETMED, INC., an Ohio corporation (hereinafter referred to as
"Lessee"), having its principal office at 6189 Memorial Drive, Dublin, Ohio
43017.
WITNESSETH:
WHEREAS, Lessor is desirous of leasing certain real estate to Lessee,
and Lessee is desirous of leasing said real estate from the Lessor upon the
terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the premises to be demised, the
rents to be paid and the other covenants, conditions, warranties and agreements
hereinafter set forth, it is hereby agreed as follows:
1. DEMISED PREMISES
- -- ----------------
Lessor shall and by these presents does hereby demise and rent unto the
Lessee, and Lessee by these presents does hereby take and hire from the Lessor,
a parcel of real property consisting of an office building and the real estate
upon which it is located, in the City of Dublin, County of Franklin, and State
of Ohio (hereinafter referred to as the "Demised Premises") and being more
particularly described as follows, to wit: Being Lot Number 8 of MUIRFIELD
SQUARE, as the same is numbered and delineated upon the recorded plat thereof,
of record in Plat Book 78, Page 20, Recorder's Office, Franklin County, Ohio.
2. TERM: RENEWAL
- -- -------------
The term of this Lease shall be five (5) years and shall commence as
per the terms of Section 3 below (hereinafter referred to as the "Original
Term"). Provided Lessee is not in default under this Lease and the Lease Term
has not previously been terminated, Lessee shall have the right to renew and
extend the Lease Term for an additional period of five (5) years (sometimes
hereinafter referred to as the "Renewal Term"), commencing on the date of
expiration of the Original Term, by giving written notice to Lessor not less
than three (3) months prior to the expiration of the Original Term. The Renewal
Term shall be upon the same terms and conditions as are provided in this Lease
with respect to the Original Term, except for Minimum Rent. Minimum Rent for the
Renewal Term shall be as provided in Section 7 hereof. (The Original Term,
together with the Renewal Term, if exercised by Lessee, is referred to herein as
the "Lease Term".)
1
<PAGE> 2
3. TERM COMMENCEMENT
- -- -----------------
The Lease Term shall commence upon the date this Lease is executed by
Lessor or Lessee, (hereinafter referred to as the "Commencement Date") and shall
terminate on the fifth anniversary of the Commencement Date, unless sooner
terminated or renewed. If the Commencement Date is a day other than the first
day of the month, this Lease shall terminate on the last day of the month during
which such fifth anniversary date occurs.
4. RENT COMMENCEMENT
- -- -----------------
Payment of rent shall commence on the Commencement Date (herein
referred to as the "Rent Commencement"). If the Rent Commencement commences on a
day other than the first day of the month, then the rent for the first partial
month or months of the Lease Term shall be prorated.
5. LEASE YEAR
- -- ----------
For the purpose of this Lease, the term "Lease Year" shall mean the
period of twelve (12) calendar months commencing with the Commencement Date, and
including each successive period of twelve (12) calendar months thereafter
during the Lease Term.
6. USE
- -- ---
The Demised Premises shall be used for office and commercial purposes
and any other related purpose or purposes which may be necessary or incidental
thereto, and which are not prohibited by law or by that certain Agreement and
Declaration of Easements and Restrictions, dated December 15, 1992, recorded in
Official Record 21312, at page J09, Recorder's Office, Franklin County, Ohio,
and all amendments thereto (the "Declaration").
7. MINIMUM RENT
- -- ------------
Lessee shall pay to Lessor as Minimum Rent for the Demised Premises the
applicable sum set forth below for each full calendar month during the Original
Term and Renewal Term (hereinafter referred to as "Minimum Rent"):
<TABLE>
<CAPTION>
Lease Year Minimum Rent
---------- ------------
<S> <C> <C>
1 $ 4,492.00
2 $ 4,626.00
3 $ 4,765.00
4 $ 4,908.00
5 $ 5,055.00
6-10 $ 5,055.00
</TABLE>
2
<PAGE> 3
All Minimum Rent payments shall be payable monthly in advance on the
first (1st) day of every calendar month of the Lease Term. If the last month of
the Lease Term ends on other than on the last day of the month, then rent for
the said last month shall be prorated.
In addition to the rent payable hereunder, Lessee shall pay any
property taxes, improvements, or assessments payable during the term hereof;
and, keep the Demised Premises insured, all as hereinafter more particularly
provided, it being the intention of the parties that this be a Net Lease, so
that this Lease shall yield to Lessor (exclusive of federal, state, or local
income taxes, but including any tax on rents in lieu of or in addition to any
taxes levied against the Demised Premises) the net annual Minimum Rent specified
herein during the Lease Term, and all costs, expenses and obligations of every
kind and nature whatsoever relating to the Demised Premises shall be paid by
Lessee.
8. TAXES
- -- -----
Lessee shall pay any amounts owing for real estate taxes and
assessments (general or special) (hereinafter collectively referred to as
"Taxes"), imposed at any time during the Lease Term upon or against the Demised
Premises and Improvements thereon, whether assessed in the name of Lessor or
Lessee. If at any time during the term of this Lease, there shall be levied,
assessed or imposed on Lessor a capital levy or other tax directly on the rents
received under this Lease and/or a franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rents, in lieu of or in
addition to the whole or any part of any Taxes levied, assessed, or imposed on
real estate and the improvements thereon or imposed upon any personalty used in
connection therewith or upon the collection of rents or other sums due
hereunder, then all such taxes, assessments, levies or charges, or the part
thereof so measured or based, shall be deemed to be included within the term
"Taxes" for the purposes hereof.
Lessee shall pay the real estate taxes and assessments directly to the
Franklin County Treasurer. Any Taxes payable directly by Lessee shall be paid by
Lessee not later than the date on which such Taxes become due, and a receipted
tax bill shall be exhibited to Lessor by Lessee upon Lessor's request. Should
any penalties or interest be owing the taxing authorities due to a failure to
pay or a late payment by Lessee, Lessee shall be obligated to pay such penalties
and/or interest. Lessee's obligation to pay Taxes with respect to any period for
which such Taxes are assessed shall be prorated based upon the number of months
in the Lease Term falling within the assessment period.
In the event that Lessee fails to pay any of the Taxes within the time
provided, Lessor may pay same. In such event, Lessee shall be obligated to repay
Lessor upon demand the amount so advanced, together with interest thereon at the
rate of ten percent (10%) per annum or a rate equal to two percent (2%) added to
the prime rate of interest then being charged by National City Bank of Columbus,
whichever is greater. In the event that any Taxes may be paid in installments,
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<PAGE> 4
Lessee shall have the right to pay the same as such installments fall due.
Lessee shall have the right, at its own cost and expense, to initiate
and prosecute any proceedings permitted by law for the purpose of contesting the
validity or amount of Taxes assessed to or levied upon the Demised Premises.
Lessee may take such action in the name of the Lessor, who shall cooperate with
Lessee, and Lessee shall fully indemnify and save Lessor harmless from all loss,
cost, damage and/or expenses incurred by or to be incurred by the Lessor as a
result thereof, and further provided that Lessee shall, at Lessor's request,
escrow or post a bond for the full amount of the Taxes claimed, pending such
proceedings. Lessee shall be entitled to any and all proceeds from its said
contesting that relate to the Demised Premises and Improvements and that were
paid by Lessee.
9. LIABILITY INSURANCE AND INDEMNITY
- -- ---------------------------------
Lessor and Lessee shall indemnify, hold harmless and defend the other
from and against any and all costs, expenses (including reasonable attorneys'
fees), liabilities, losses damages, suits, actions, fines, penalties, claims or
demands of any kind and asserted by or on behalf of any person or governmental
authority, arising out of or in any way connected with, the Demised Premises and
its common areas occasioned wholly or in part by the negligence or any act or
omission of the other, its employees, agents, representatives, invitees, or
licensees and which is not caused by the gross negligence or intentional
misconduct of the other, its employees, agents, representatives, invitees, or
licensees. Lessee shall, at all times and at its own cost, protect the Lessor
with public liability insurance and property damage insurance in the amount of
not less than One Million Dollars ($1,000,000.00) on account of bodily injuries
to or the death of one person, and not less than Three Million Dollars
($3,000,000.00) on account of bodily injuries to or the death of more than one
person as the result of any one accident or disaster with not less than Five
Hundred Thousand Dollars ($500,000.00) for property damage. Lessee shall deposit
said policy or policies (or certificates thereof) with Lessor prior to the date
of occupancy by Lessee, and said policy or policies shall protect Lessor as an
additional insured, throughout the term of this Lease and any extension hereof.
Should Lessee fail to carry such public liability insurance within five (5) days
after Lessor's written notice, Lessor may, at its option, but shall not be
required to do so, cause such public liability insurance to be issued and, in
such event, Lessee agrees to pay the premium for such insurance promptly upon
Lessor's written notice. Such liability insurance policy or policies shall bear
endorsements to the effect that the insurer agrees to notify Lessor not less
than thirty (30) days in advance of any material modification or cancellation
thereof. Such insurance policy or policies shall be in a form acceptable to
Lessor and shall be issued by responsible insurer(s) licensed to issue insurance
in the State of Ohio having Best's rating of B+ or better (or equivalent high
rating). The parties release each other and their respective authorized
representatives from any claims for damage to the Demised Premises that are
caused by or result from risks insured against under any insurance policies
carried by either of the parties required by this Lease. Each party shall
obtain, for each policy of insurance, provisions permitting waiver of any claims
against the other party for loss or damage within the scope of the insurance and
waives all such insured claims against the other party. Any liability that
either party may have against the other shall be limited to the amount that
exceeds
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<PAGE> 5
the amount of insurance proceeds received by the indemnified party excluding
deductibles or self-insured retentions.
10. PROPERTY INSURANCE
- --- ------------------
Lessee shall insure the Demised Premises for the full replacement value
of all Improvements thereon against destruction or damage due to fire or other
types of casualty. Lessee shall deposit said policy or policies (or certificates
thereof) with Lessor prior to the date of occupancy by Lessee, and said policy
or policies shall protect Lessor as loss payee, under a "standard mortgagee type
clause" throughout the term of this Lease. Should Lessee fail to carry such fire
and casualty insurance within five (5) days after Lessor's written notice,
Lessor may, at its option, but shall not be required to do so, cause such
insurance to be issued and, in such event, Lessee agrees to pay the premium for
such insurance promptly upon Lessor's written notice. Such fire and casualty
insurance policy shall bear endorsements to the effect that the insurer agrees
to notify Lessor not less than thirty (30) days in advance of any material
modification or cancellation thereof. Such insurance shall be in a form
acceptable to Lessor and shall be issued by a responsible insurer licensed to
issue insurance in the State of Ohio, having a Best's rating of B+ or better (or
equivalent high rating). The deductible under said fire and casualty insurance
shall not exceed Ten Thousand Dollars ($10,000.00).
11. TITLE AND QUIET ENJOYMENT
- --- -------------------------
Lessor covenants and warrants that Lessor is seized in fee title to the
Demised Premises and that, so long as Lessee fulfills the conditions and
covenants required of it to be performed, Lessee will have peaceful and quiet
possession thereof, subject to applicable zoning and building restrictions and
regulations. Lessor further covenants and warrants that it has good right, full
power and lawful authority to make this Lease for the full Lease Term.
12. PERMITS
- --- -------
Lessee shall obtain and pay for all necessary licenses, permits and
other authorizations to utilize the Demised Premises for its contemplated use.
13. IMPROVEMENTS AND ALTERATIONS
- --- ----------------------------
Subject to the restrictions hereinafter set forth, Lessee may remodel
and reconstruct the existing building and improvements (hereinafter collectively
referred to as the "Improvements") according to architectural plans, which shall
first have Lessor's written approval, which approval shall not be unreasonably
delayed, denied or withheld. Lessor shall provide Lessee an allowance of up to
$25,000 to fund the cost of leasehold improvements; any additional leasehold
improvements shall be at the sole cost of Lessee. No construction, alteration,
demolition, renovation, additional, or other improvement of any kind, including
without limitation new building construction, sign installation and/or
landscaping, shall be undertaken at or on the Demised Premises which would
violate the Declaration, or any rules and regulations ("Regulations") adopted by
the Muirfield Square
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<PAGE> 6
Owner's Association (the "Association") pursuant to the Declaration.
Upon expiration or earlier termination of this Lease, Lessor shall have
the right to an assignment of all guarantees or warranties of any work performed
in the construction of Lessee's Improvements against defective workmanship and
materials.
14. MAINTENANCE OF BUILDINGS AND PROPERTY
- --- -------------------------------------
Lessee shall, at Lessee's expense, maintain the Demised Premises and
all Improvements thereon (including signage) in good condition and repair. If
Lessee fails to maintain the Demised Premises as set forth herein, within five
(5) days after Lessor's written notice, Lessor may take whatever action is
necessary to bring maintenance in compliance with the provisions hereof and
charge any expense incurred by Lessor in so doing. Lessee's obligations
hereunder shall not extend to the replacement of major structural components;
heating, ventilating and air conditioning equipment; roofing; electrical wiring;
or plumbing or electrical fixtures except as may be required as a result of
damage through the fault of Lessee, or a peril which is for which insurance
coverage is required under Section 9 or 10 hereof.
Lessee will maintain the Demised Premises and the Improvements thereon
at its own expense in a clean, orderly and sanitary condition free of insects,
rodents, vermin and other pests. Lessee will comply with all laws, ordinances,
rules or regulation of any pertinent governmental body or entity having
jurisdiction over the Demised Premises, and all material provisions of the
Declarations and Regulations.
15. COMMON AREA AND OTHER CHARGES
- --- -----------------------------
Lessee agrees to pay the proportionate share allocable to the Demised
Premises of the costs and expenses in connection with the operation,
maintenance, repair, improvement, replacement, and management of common areas
which are assessed by the Association pursuant to the Declarations and
Regulations (hereinafter referred to as the "Common Area Expenses"), as well as
any dues payable to the Association with respect to the Demised Premises.
Lessee's share of Common Area Expenses for any partial Lease Year shall be
prorated based upon the actual number of days during which this Lease is in
effect in any such partial Lease Year.
16. LIENS
- --- -----
Lessee agrees not to permit any lien to be filed against the Demised
Premises on account of nonpayment or dispute with respect to labor or materials
furnished in connection with construction, repairs or modifications of or
additions thereto, nor shall Lessee permit any judgment, lien or attachment to
encumber the Demised Premises for any other reason. Should any such lien be
filed against the Demised Premises, Lessee shall within thirty (30) days of
notice of the lien, cause such lien to be removed by substitution of a bond over
the lien or otherwise.
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<PAGE> 7
17. PERSONAL PROPERTY
- --- -----------------
All personal property of every kind or description that may at any
time, be on the Demised Premises shall be there at Lessee's sole risk or of
those claiming under Lessee. Lessor shall not be liable for any damage to the
property or for any loss suffered by the business or occupation of Lessee,
except as may result from and be caused by the willful misconduct or negligence
of Lessor, its agents or employees.
18. DAMAGE TO OR DESTRUCTION OF IMPROVEMENTS
- --- ----------------------------------------
Lessor and Lessee agree that if, at any time after the execution
hereof, any of the Improvements (whether now contemplated or not) at or on the
Demised Premises are destroyed or damaged in whole or in part by fire, the
elements, or casualty, this Lease shall not terminate, rent shall not abate, and
Lessee shall rebuild such Improvements in order that the Demised Premises shall
contain Improvements of the same general type of construction or better as soon
after the damages as is reasonably possible and complete said construction
within one hundred twenty (120) days following such damage or destruction. If
the damage destroys more than fifty percent (50%) of the Improvements and occurs
in the last two (2) years of the Original Term or the last two (2) years of any
then current Renewal Term, then Lessee shall have the option of either
rebuilding the Demised Premises or terminating this Lease by giving Lessor
written notice within thirty (30) days of said destruction, in which event
Lessor shall be entitled to all of the full replacement insurance proceeds
available as a result of said damage or destruction.
If because of damage or repairs to the Improvements Lessee is unable to
conduct business from the Improvements, Lessor, at Lessee's request, shall allow
Lessee to place a temporary structure upon the Demised Premises so the Lessee
can continue its business activities until Lessee can once again operate in the
Improvements and no additional compensation beyond the Minimum Rent and other
charges stated in this Lease shall be due.
19. UTILITIES
- --- ---------
Lessee shall pay all charges for water, sewer, electric, gas, or
telephone service provided to the Demised Premises during the Lease Term.
20. EMINENT DOMAIN
- --- --------------
In the event that the Demised Premises or any part thereof shall be
taken or condemned, either permanently or temporarily, for any public or
quasi-public use or purpose by any competent authority in appropriate
proceedings or by any right of eminent domain, the entire compensation award
shall belong to the Lessor, and Lessee hereby assigns to Lessor all of its
right, title and interest to such award.
If more than twenty-five percent (25%) of the building included in the
Improvements shall
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<PAGE> 8
be taken as aforesaid, or the points of ingress and egress to the Demised
Premises are substantially and materially impaired by a public or quasi-public
authority so as to make the Demised Premises unusable for Lessee's business,
then Lessee or Lessor may terminate this Lease, effective as of the date that
possession thereof is required for public use, and from that date on the parties
hereto shall be released from further obligation hereunder. In the event that
only a portion of the Demised Premises shall be so taken or condemned, and this
Lease is not canceled, then Lessee shall at its own expense, repair and restore
the portion not affected by the taking and thereafter the Minimum Rent to be
paid by Lessee for the remaining Demised Premises shall be equitably and
proportionately adjusted following the effective date of the "taking", but only
to the extent that Lessee is unable to have as many square feet in its building
included in the Improvements as it actually had prior to the taking.
21. DEFAULT
- --- -------
Lessor and Lessee agree that, (A) if the Minimum Rent or any other
monies due from Lessee according to the terms of this Lease shall, at any time,
be in arrears and unpaid for a period of seven (7) days after Lessee is advised
in writing of the failure to pay, (provided, that if Lessor shall properly issue
such a notice more than twice during any twelve (12) month period of the Lease
Term, then in any subsequent instance in which Lessee fails to timely pay
Minimum Rent or other monies due and Lessor issues written notice to Lessee to
pay, then in addition to such other remedies as may be provided for hereinafter,
Lessor may assess a penalty of One Hundred Dollars ($100.00) after the seventh
(7th) day of any calendar month if the Minimum Rent for that month is still not
paid), or (B) if Lessee shall fail to keep and perform any of the covenants,
agreements or conditions of this Lease on its part to be kept or performed,
within thirty (30) days after Lessor's written notice, or (c) if Lessee's
interest in the Demised Premises shall be sold under execution or other legal
process, or (D) except where Lessee continues to pay all rent and other charges
due on a timely basis, if Lessee shall make an assignment for the benefit of
creditors, or be adjudged a bankrupt, or be placed under the control of a court
appointed receiver or trustee; then in the event of the occurrence of any of the
afore-described items (A), (B), (C), or (D) Lessor shall have the following
rights and options:
(i) Lessor may terminate this Lease, and lawfully re-enter the Demised
Premises and repossess same and expel Lessee, and those claiming under and
through Lessee, without being deemed guilty of any manner of trespass and
without prejudice to any remedies which might otherwise be used to collect rent,
and as of the date of occurrence of any of the above acts of default, the rights
of Lessee under this Lease shall terminate. Such termination shall, however, not
relieve Lessee from its responsibilities for all Minimum Rent and all other
charges required to be paid by Lessee, up to the time of such termination.
(ii) Lessor may, without terminating this Lease or Lessee's right of
possession hereunder, re-enter the Demised Premises and the Improvements, and
cure any such Event of Default of Lessee. If Lessor elects to exercise this
remedy, Lessee shall reimburse and pay to Lessor upon demand any and all costs
and expenses which Lessor incurred to cure such Event of Default, together with
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<PAGE> 9
interest thereon at the rate of ten (10%) per annum, or at the maximum rate of
interest permitted by law, if less than ten percent (10%) per annum, from the
date or dates of payment thereof by Lessor; Lessor shall not be deemed to have
evicted Lessee by reason of such re-entry; and Lessor shall not be liable to
Lessee for any loss or damage which Lessee may sustain by reason of such
re-entry; or
(iii) Lessor, may, without terminating this Lease, re-enter and
repossess the Demised Premises and Improvements; dispossess Lessee therefrom;
and re-let the Demised Premises and Improvements for a term the same as or
different than that which would otherwise have constituted the balance of the
Lease Term and for rent and on terms and conditions different from those
contained herein. If Lessor elects to exercise this remedy, Lessee shall
continue to be obligated to pay all Minimum Rent and other amounts payable
hereunder and to perform all of its other obligations under this Lease until
such time as the Demised Premises have been re-let; and, thereafter, Lessee
shall be obligated to pay to Lessor from time to time as the same may be due the
amount of the difference between the Minimum Rent and all other amounts payable
hereunder provided for herein and that provided for in any lease covering a
subsequent re-letting of the Demised Premises and Improvements, together with
all of Lessor's reasonable costs and expenses for preparing the Demised Premises
and Improvements for re-letting, including all repairs, brokers' and attorneys'
fees, and the amount of all loss or damage which Lessor may sustain by reason of
such re-entry, repossession and re-letting.
If Lessee, at any time, shall fail to make any payment to a third party
or perform any act required of Lessee under this Lease Term, within thirty (30)
days after Lessor's written notice, Lessor may, without waving or releasing
Lessee from any obligation or default under the Lease Term, at any time
thereafter, make such payment or perform such act for the account and at the
expense of Lessee. If Lessee fails to pay any Minimum Rent, additional rent,
Common Area Expenses, taxes, assessments, insurance or utilities payable to
Lessor when due, or if Lessor makes any payment or performs any act on behalf of
Lessee as provided in the preceding sentence, all sums so payable to Lessor and
all reasonable costs or expenses so incurred, together with interest thereon at
the rate of ten percent (10%) per annum or a rate equal to two percent (2%)
added to the prime rate then being charged by National City Bank of Columbus,
whichever is greater, shall constitute additional rent payable by Lessee to
Lessor upon written notice in addition to any other penalty sums provided for
above. All rights and remedies of Lessor herein enumerated shall be cumulative,
and none shall exclude any other remedies allowed by law.
22. TRANSFER OF INTEREST
- --- --------------------
If Lessor should sell or otherwise transfer its interest in the Demised
Premises, and if the purchaser shall undertake responsibility for all of the
covenants and undertakings of Lessor, Lessee agrees that Lessor shall thereafter
have no liability to Lessee under this Lease or any modifications or amendments
hereto or extension hereof.
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<PAGE> 10
23. SIGNS
- --- -----
Lessee shall be permitted such signage as conforms to the Declarations
and Regulations. Lessee shall obtain all necessary permits and governmental
approvals, and comply with all applicable sign ordinances and zoning for the
erection of Lessee's signs. Lessee may remove and Lessor may require removal of
said signs upon the termination of this Lease and shall repair any damage to the
Building caused thereby.
24. ACCESS TO DEMISED PREMISES
- --- --------------------------
Upon at least twenty-four (24) hour prior notice, Lessor and/or
Lessor's agent may have free access to the Demised Premises during Lessee's
normal business hours in order to inspect the Demised Premises. During the last
nine (9) months of the Lease Term or any renewal thereof, Lessor may enter on
the Demised Premises to show same. Such actions by Lessor or Lessor's agent
shall not be deemed an eviction or disturbance of Lessee, nor shall Lessee be
allowed any abatement or rent, or any damages as a result of such Lessor
actions.
25. LEASE EXPIRATION OR TERMINATION
- --- -------------------------------
Lessee shall surrender to Lessor possession of the Demised Premises and
all Improvements thereon upon the expiration of the Lease Term, or its earlier
termination as herein provided, in good condition and repair (ordinary wear and
tear excepted), clean, orderly, and free of debris, and Lessee shall deliver the
keys and the combinations to any locks to Lessor at the office of Lessor or
Lessor's agent. Lessee and Lessor expressly agree that all Improvements to the
Demised Premises are and shall be part of the real estate with title thereto
vesting in Lessor upon their completion. Should Lessee, after two (2) days
written or oral notice from Lessor, fail to remove any trash or debris from the
Demised Premises, or make such repairs to the improvements on the Demised
Premises as are necessary to maintain the improvements as required above, then
Lessor may undertake such work, all at the expense of Lessee, without notice to
Lessee. The express intent of this Lease is that any breach of the covenant to
repair shall survive the termination or expiration of this Lease.
26. HOLDING OVER
- --- ------------
Should Lessee, or any party claiming under Lessee, remain at or upon
the Demised Premises or any part thereof after termination or expiration of the
Lease Term, Lessee shall be a tenant from month-to-month. In addition, for every
month of such hold over, Lessee shall, upon written notice, pay to Lessor, a sum
equal to one and one-half (1-1/2) times the Minimum Rent specified for the month
immediately prior to the hold over unless Lessor and Lessee otherwise agree to
terms and conditions set forth in writing.
27. ASSIGNMENT OR SUBLETTING
- --- ------------------------
Lessee shall not assign this Lease without, in each case, the written
consent of Lessor first
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<PAGE> 11
had, unless the assignee is a direct or indirect parent, affiliate, or
subsidiary of Lessee, which consent shall not be unreasonably withheld, delayed
or denied. Any consent by Lessor to an assignment shall not constitute a waiver
of the requirement that Lessor approve subsequent assignments. Lessee may sublet
all or any portion of the Demised Premises, provided that such sublease does not
violate any other term, condition or covenant hereof. No assignment or
subletting shall release Lessee from its obligations hereunder.
28. MORTGAGE SUBORDINATION
- --- ----------------------
This Lease shall, at the option of Lessor, be subject, subordinate and
inferior in line with respect to any first mortgage of Lessor. Any such mortgage
shall be deemed prior in time to this Lease, irrespective of the date of the
recording of such mortgage. Lessee shall execute any instrument necessary to
effectuate the subordination of this Lease, within seven (7) days after receipt
of such an instrument.
It is a condition, however, to the subordination and lien provisions
herein provided that if any subordination agreement is requested as aforesaid
Lessor shall procure from any such mortgagees an agreement which shall be
contained in the aforesaid subordination agreement providing, in substance, that
so long as Lessee shall faithfully discharge the obligations on its part to be
kept and performed under the terms of this Lease, its tenancy will not be
disturbed as a result of any default under such mortgage. Lessee shall execute
any reasonable estoppel certificates requested by Lessor or Lessor's Lender
within seven (7) days after receipt of such request.
29. NOTICES
- --- -------
All notices, demands or requests to the Lessee shall be sent by
registered or certified mail, addressed to the Lessee at:
NetMed, Inc.
6189 Memorial Drive
Dublin, Ohio 43017
Attention: Chief Financial Officer
or at such other address as the Lessee shall designate in writing. All notices,
demands or requests to the Lessor shall be sent by registered or certified mail
to the Lessor at:
Muirfield Square, Ltd.
6189 Memorial Drive
Dublin, Ohio 43017
Attn: General Manager
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<PAGE> 12
or at such other address as Lessor shall designate in writing.
Notwithstanding any provisions in this Lease to the contrary concerning
modifications, a change in address may be effected only by a registered or
certified letter sent by either party to the other. All payments to Lessor,
under the terms of his Lease, shall be made at the address designated for
notices to Lessor. Any such notice, request or payment shall be deemed given
when deposited in an United States general or branch Post Office addressed as
herein before provided.
30. NO REPRESENTATION BY LESSOR
- --- ---------------------------
This Lease is made without representations, promises or warranties of
any kind, express or implied, as to the condition of the Demised Premises or any
part thereof, or any appurtenance thereto, or as to the fitness of the Demised
Premises for any use or purpose. Lessee accepts the Demised Premises as is.
31. ENTIRE AGREEMENT
- --- ----------------
This Lease contains the entire agreement between the parties and any
executory agreement hereafter made shall be ineffective to change this Lease, in
whole or in part, unless such executory agreement is in writing and signed by
both parties.
32. WAIVER
- --- ------
No waiver of any condition or legal right or remedy shall be implied by
the failure of Lessor to declare a forfeiture, or for any other reason, and no
waiver of any condition or covenant shall be valid unless it is signed by
Lessor. The mention in the Lease of any specific right or remedy shall not
preclude Lessor from exercising any other right, or from having any other
remedy, or from maintaining any action to which it may be otherwise entitled
either at law or in equity. For the purpose of any suit by Lessor brought or
based on this Lease, it is further agreed that any failure to include in such
suit a sum then due shall not be a bar to the maintenance of any action for the
recovering of said sum so omitted.
33. LEASE INURES TO BENEFIT OF ASSIGNEES
- --- ------------------------------------
This Lease and all covenants, provisions and conditions contained
herein shall inure to the benefit of and be binding upon the heirs, personal
representatives, successors and assigns of the parties hereto. However, no
assignment by, from through or under Lessee in violation of the provisions
hereof shall vest in any assigns the right, title and interest to the Lease or
to the Demised Premises.
34. EXCULPATION
- --- -----------
Lessee agrees that it shall look solely to Lessor's interest in the
Demised Premises for the
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<PAGE> 13
collection of any judgment (or any other judicial process) requiring the payment
of money by Lessor to Lessee in the event of a default or breach by Lessor with
respect to any of the terms, covenants and conditions of this Lease to be
observed and/or performed by Lessor. No other property of Lessor or its members,
managers or partners shall be subject to levy, execution or other enforcement
procedures for the satisfaction of Lessee's remedies.
35. TITLES
- --- ------
Titles inserted herein are done so only as a matter of convenience and
in no way define, limit or describe the scope of intent of this Lease, nor in
any way affect this Lease.
36. [RESERVED]
- --- ----------
37. RECORDATION; MEMORANDUM OF LEASE
- --- --------------------------------
This Lease shall not be recorded. Lessor shall, upon request by Lessee,
execute and deliver to Lessee a memorandum of lease or similar instrument
reflecting such of the non-economic terms of this Lease as Lessee may reasonably
designate, which instrument shall be in a form recordable under the laws,
regulations and customs of the State of Ohio and its political subdivisions and
which instrument Lessee may record in the Franklin County, Ohio, Recorder's
office.
38. EVIDENCE OF AUTHORITY
- --- ---------------------
The representatives and/or officers executing this Lease on behalf of
Lessee and Lessor hereby represent that they are duly authorized to do so.
Within ten (10) days after the Commencement Date each party hereto shall deliver
to the other written evidence of the authority (e.g. corporate or partnership
resolution) of their respective representative(s) or officer(s) who have
executed this Lease on each party's behalf, provided, however, failure to do so
shall not effect the validity of this Lease, and this Lease shall be fully
binding absent of said delivery.
39. MUTUAL WAIVER OF SUBROGATION.
- --- -----------------------------
Lessor shall not be liable to Lessee, and Lessee shall not be liable to
Lessor for any loss or damage caused by fire, theft, vandalism, malicious
mischief or any other peril or casualty covered by insurance required to be
carried pursuant to this lease even if such fire or extended coverage casualty
resulted from the negligence of the party sought to be held liable, and each
party hereto hereby releases and waives all rights and claims against the other
for any such loss or damage so caused. Any party responsible for securing
casualty insurance hereunder shall also be responsible to secure any required
consent to such waivers of subrogation from the company issuing such policy.
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<PAGE> 14
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be
executed effective the day and year first above stated.
Signed and Acknowledged in the presence of: LESSOR
MUIRFIELD SQUARE, LTD.
Witness:___________________________ By: ____________________________
Printed Name _______________________ Title: _________________________
Witness:___________________________
Printed Name _______________________
Signed and Acknowledged in the presence of: LESSEE
NETMED, INC.
Witness:___________________________ By: ____________________________
Printed Name _______________________ Title: _________________________
Witness:___________________________
Printed Name _______________________
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<PAGE> 15
ACKNOWLEDGMENTS
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
The foregoing Lease Agreement was acknowledged before me this __ day of
September, 1997, by David J. Richards, as Managing Member of Muirfield Square,
Ltd., an Ohio LLC, the Lessor under the foregoing Lease, on behalf of said
limited liability company.
[SEAL]
--------------------------------------
Notary Public ________________________
My Commission Expires: _______________
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
The foregoing Lease Agreement was acknowledged before me this __ day of
September, 1997, by _____________ , the _______________ of NetMed, Inc., an
Ohio corporation, the Lessee under the foregoing Lease, on behalf of
corporation.
[SEAL]
--------------------------------------
Notary Public ________________________
My Commission Expires: _______________
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<PAGE> 16
SCHEDULE OF EXHIBITS
EXHIBIT "A" Description of Demised Premises
16
<PAGE> 1
EXHIBIT 10.14
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 1, 1997 (the "Commencement Date") between
NetMed, Inc., an Ohio corporation, with its principal offices located at 425
Metro Place North, Suite 140, Dublin, Ohio 43017 hereinafter the "Company"), and
William J. Kelly, Jr., residing at 5558 Old Pond Drive, Dublin, Ohio 43017
("Executive").
RECITAL
The Company has offered to employ Executive as a Vice-President and its
General Counsel and Secretary, and Executive has agreed to accept such
employment, on the terms and conditions hereinafter set forth.
STATEMENT OF AGREEMENT
In consideration of the foregoing, and of their mutual promises
contained herein, and intending to be legally bound thereby, the parties agree
as follows:
Section 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" shall mean a corporation which, directly or indirectly,
controls, is controlled by or is under common control with the Company, and for
purposes hereof, "control" shall mean the ownership of 20% or more of the voting
shares of the corporation in question.
"Basic Salary" shall have the meaning assigned to it in Section 5 of
this Agreement.
"The Business" shall mean the business conducted by the Company in the
past and on the date of execution of this Agreement, including business
activities under investigation or in developmental stages, all other business
activities which flow therefrom by a reasonable expansion of the present
activities of the Company or any Affiliate, and all business activities which
may be developed by the Company or any Affiliate during the Term.
"Commencement Date" shall be the effective date of this Agreement, as
stated in the introductory paragraph.
"Confidential Information" shall include, without limitation by reason
of specification, any information, including, without limitation, trade
"know-how," trade secrets, customer lists, pricing policies, operational
methods, methods of doing business, technical processes, formulae, designs and
design projects, inventions, research projects, and other business affairs of
the Company, which is or are designed to be used in or are or may be useful in
connection with the business of the Company or any Affiliate, or which in the
case of any of these entities, results from any of their research or
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development activities, and which (i) is private or confidential in that it is
not generally known or available to the public, except as the result of
unauthorized disclosure by or information supplied by Executive, or (ii) which
gives the Company an opportunity or the possibility of obtaining an advantage
over competitors who may not know or use such information or who are not
lawfully permitted to use the same.
"Death/Disability Benefit" shall mean an amount equal to the amount of
Basic Salary payable to Executive during the year in which he dies or becomes
disabled; PROVIDED, HOWEVER, that the Death/Disability Benefit shall be reduced
by any amount to be received by Executive or his designated beneficiary under
life or disability insurance policies, the premiums for which are paid for by
the Company.
"Employment Year" shall mean each twelve-month period, or part thereof,
during which Executive is employed hereunder, commencing on the Commencement
Date or on July 1 of any subsequent calendar year, the first such subsequent
Employment Year being the twelve-month period which will begin on July 1, 1998.
"Incentive Bonus" shall have the meaning assigned to it in Section 6.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Restricted Period" shall mean the term of employment of Executive
under this Agreement or any extension thereof and the twenty-four-month period
thereafter; provided, however, that the Restricted Period shall terminate
immediately upon the occurrence of any termination of the employment of
Executive under Section 9.4 of this Agreement.
"Subsidiary" shall mean a corporation, 50% or more of the outstanding
voting shares of which is owned or controlled directly or indirectly by the
Company.
"Term" shall mean the term of employment of Executive under this
Agreement.
"Termination Date" shall have the meaning assigned to it in Section 3.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
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Section 2. Employment and Duties of Executive.
----------------------------------
2.1. EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Executive,
and Executive hereby accepts appointment and election as, a Vice-President and
as General Counsel and Secretary of the Company. In such capacity, Executive
shall render such services as are necessary and desirable to protect and advance
the best interests of the Company, acting in all instances under the supervision
of and in accordance with the policies set by the President and the Board of
Directors.
As Vice-President, General Counsel and Secretary, Executive shall have
general executive authority over the management of the legal affairs of the
Company, the maintenance of corporate minutes and records, the documentation of
corporate transactions, and the Company's compliance with government
regulations, subject to the direction and control of the President and the Board
of Directors.
2.2. PLACE OF EMPLOYMENT. The principal place of employment of
Executive shall be within a twenty mile radius of Dublin, Ohio or such other
location as is consented to by Executive. It is however understood and agreed
that Executive may be required, in connection with the performance of his
duties, to work from time to time at other locations designated by the Board of
Directors or as required in connection with the Business of the Company. When
required to travel to and/or spend time at such other locations, Executive's
reasonable traveling and temporary living expenses shall be reimbursed to him by
the Company, upon his submittal of written expense reports, supported by
appropriate documentation and subject to the general reimbursement policies of
the Company applicable to executive officers.
2.3. FACILITIES. The Company shall provide the Executive with a fully
furnished office and secretarial assistance, and the facilities of the Company
shall be generally available to the Executive in the performance of his duties
pursuant to this Agreement, it being understood and contemplated by the parties
that all equipment, supplies and office personnel required in the performance of
the Executive's duties under this Agreement shall be supplied by the Company.
2.4. PERFORMANCE OF DUTIES. Executive shall devote substantially his
full working time, attention and efforts to the performance of his duties as an
executive of the Company, including any duties as are assigned him from time to
time by the President and/or the Board of Directors. During the term of this
Agreement, Executive shall not engage in or become employed, directly or
indirectly, in the commercial or professional business of any other Person,
without the prior consent of the President or Board of Directors, nor shall he
act as a consultant to or provide any services to, whether on a remunerative
basis or otherwise, the commercial or professional business of any other Person,
without such consent.
2.5. SERVICES TO SUBSIDIARIES. During the term of this Agreement,
Executive shall also accept election or appointment, and serve, during all or
any part of the Term, as an officer and director of any Subsidiary of the
Company, and perform the duties appropriate thereto, without additional
compensation other than as set forth in this Agreement.
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Section 3. Term of Employment.
------------------
The employment of Executive pursuant to this Agreement shall commence
as of the Commencement Date and end on the earlier of (i) June 30, 2000, or (ii)
the first date on which such employment is terminated in accordance with Section
9 hereof (the "Termination Date").
Section 4. Compensation and Benefits.
-------------------------
The Company shall pay Executive as compensation for all of the services
to be rendered by him hereunder during the Term, and in consideration of the
various restrictions imposed upon Executive during the Term and the Restricted
Period, and otherwise under this Agreement, the Basic Salary and other benefits
as provided for and determined pursuant to Sections 4 to 8, inclusive, of this
Agreement.
Section 5. Basic Salary.
------------
The Company shall pay Executive, as compensation for all of the
services to be by him rendered hereunder during the Term, a minimum annual base
salary of $170,000.00 (the "Basic Salary"), which may be increased, but not
decreased, from time to time by the Board of Directors (or its Compensation
Committee). Such Basic Salary shall be payable in accordance with the regular
payroll practices of the Company for executives, less such deductions or amounts
as are required to be deducted or withheld by applicable laws or regulations and
less such other deductions or amounts, if any, as are authorized by Executive.
Section 6. INCENTIVE BONUS. Within 60 days after the last day of each
Employment Year, the Company shall pay Executive as additional compensation (the
"Incentive Bonus") an amount to be determined according to reasonable criteria
established by the Board of Directors (or its Compensation Committee), after
consultation with Executive, at the beginning of such Employment Year.
Section 7. ADDITIONAL BENEFITS. The Company shall provide the following
additional benefits to Executive during the Term:
(i) participation on an equitable basis in all group life,
medical, hospitalization, accident/disability insurance plans,
retirement plans, health and other benefit programs offered by the
Company to any of its executive employees;
(ii) payment of reasonable bar association and other
professional organization dues and related business expenses of
Executive;
(iii) reimbursement of all ordinary and necessary travel,
entertainment and other business expenses incurred by the Executive in
the performance of his duties hereunder, in
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accordance with reporting and reimbursement policies established by the
Board of Directors applicable to executive officers; and
(iv) four weeks vacation with pay in each Employment Year,
subject to reasonable policies of the Company with respect to carryover
of unused vacation time or pay from year to year.
Section 8. Grant of Stock Options.
----------------------
8.1. GRANT. Pursuant to the terms of the Company's Amended and Restated
1995 Stock Option Plan (the "Plan") the Company hereby grants to Executive
("Optionee") an option (the "Option") to purchase 75,000 of the Company's no par
value common shares ("Common Shares"). The Option shall be an Incentive Stock
Option as defined in the Plan. The right to acquire such Common Shares pursuant
to the Option shall vest at the rate of 25,000 shares for each Employment Year
during the Term when Executive shall be in the employ of the Company or any
successor in interest thereto, on the last day of the relevant Employment Year.
The exercise price for the 25,000 shares vesting in the first Employment Year
shall be $8.00 per share, for the 25,000 shares vesting in the second Employment
Year shall be $10.00 per share, and for the 25,000 shares vesting in the third
Employment Year shall be $10.00 per share. Executive may exercise said Option,
in whole or in part, at any time or from time to time, but only with respect to
stock the option rights to which have previously vested in him hereunder, and
only on or prior to June 30, 2007. Other terms and conditions of the Option
(including without limitation provisions relating to transferability, manner of
exercise, sale of the Option shares, termination of the Option, and adjustment
of the number of Common Shares subject to the Option) shall be as provided in
the Plan to the extent not otherwise inconsistent with this Agreement.
8.2. FURTHER PROVISIONS FOR TERMINATION OF OPTION. Executive's Option
rights hereunder shall expire, to the extent not theretofore vested in Executive
under Section 8.1, in the event of voluntary termination of employment by
Executive (other than pursuant to Section 9.4), or in the event of the Company's
termination of Executive's employment pursuant to Section 9.3 hereof. However
such expiration or termination shall not derogate from Executive's rights with
respect to any portion of the Option which has previously vested in him pursuant
to Section 8.1.
8.3. RESERVATION OF STOCK. The Company shall at all times prior to the
expiration of the Option reserve sufficient common shares as are subject to the
Option.
8.4. RESTRICTION WITH RESPECT TO STOCK. The Company shall use its best
efforts to register the common shares issuable upon exercise of the Option under
the Securities Act of 1933 (the "Act") on Form S-8 (or any successor form for
registration of shares issuable pursuant to stock option or similar employee
benefit plans) and to maintain the effectiveness of such registration during the
term of the Option. If despite the best efforts of the Company the common shares
of issuable upon any exercise of the Option are not registered under the Act at
the time of exercise, then, unless the said shares have previously, or will
simultaneously or immediately thereafter be registered under the Act,
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<PAGE> 6
the person exercising the Option shall, as a condition of its exercise, furnish
the Company with a written statement signed by him representing and agreeing (i)
that he is purchasing the stock subject to this Option for investment and not
with a view to a distribution, (ii) that he will not offer, sell, pledge or
otherwise transfer the shares acquired through the exercise of this Option,
without having first obtained and delivered to Company an opinion of counsel
satisfactory to the Company to the effect that such transfer will not be in
violation of the Act, or a letter from the staff of the Securities and Exchange
Commission to the effect that no action will be taken or recommended by such
staff in the event of such transfer, and (iii) that the Company is authorized to
inscribe on all share certificates issued upon the exercise of the Option a
legend referring to the provisions of this paragraph.
Section 9. Termination of Employment.
-------------------------
9.1. DEATH. If Executive dies during the Term, (i) his employment under
this Agreement shall automatically terminate on the date of his death, and (ii)
within sixty (60) days of his death, the Company shall pay his designated
beneficiary any unpaid portion of his Basic Salary through the date of death,
any accrued vacation pay, reimbursement for previously unreimbursed business
expenses, and an amount equal to the Death/Disability Benefit. Executive agrees
to cooperate with the Company fully and promptly in applying for any insurance
which the Company may elect to obtain to insure the Death/Disability Benefit. If
Executive dies during the Term, his rights to receive his Incentive Bonus
hereunder for any Employment Year which has ended shall remain vested, but his
right to receive his Incentive Bonus for the Employment Year in which he has
died shall be prorated to the date of his death. If Executive dies during the
Term, the Option granted to him under Section 8 of this Agreement shall be fully
vested as of the date of his death.
9.2. DISABILITY. If, during the Term, Executive becomes physically or
mentally disabled, whether totally or partially, so that he is unable to perform
substantially all his services hereunder for (i) a period of six (6) consecutive
months, or (ii) for shorter periods aggregating six (6) months during any twelve
(12) month period, the Company may, at any time after the last day of the sixth
consecutive month of disability, or after the day on which the shorter periods
of disability shall have equaled an aggregate of six (6) months, terminate
Executive's employment by written notice to him. Executive's employment, Basic
Salary and benefits hereunder shall continue during any period of disability
until written notice of termination is provided under this Section 9.2. The date
on which Company sends written notice of termination under this Section 9.2
shall be the Termination Date hereunder. In case of any dispute as to whether or
not Executive is disabled within the meaning of this Section 9.2, the
determination of disability is to be made by a licensed physician selected by
the Board of Directors of the Company and acceptable to Executive, in his
reasonable judgment, which physician's decision shall be final and binding on
the parties hereto. In the event Executive's employment is terminated pursuant
to this Section 9.2, the Company shall pay him the Death/Disability Benefit. If
Executive's employment is terminated under this Subsection 9.2, his right to
receive his Incentive Bonus hereunder for any Employment Year which has ended
shall remain vested, but his right to receive his Incentive Bonus for the year
in which he is terminated shall be prorated to the Termination Date, and if
Executive shall have no further right to receive Incentive
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Bonus except as stated hereinabove. In addition, the Option granted to Executive
pursuant to Section 8 hereof shall be deemed to have become fully vested in him
pursuant to and subject to the provisions of said Section.
9.3. TERMINATION FOR GOOD CAUSE. (a) The Company may terminate the
employment of the Executive hereunder only for good cause and upon written
notice.
(b) As used in this Section 9.3, "good cause" shall include:
(i) the Executive's is formally charged with a felony (other
than a traffic offense), that in the reasonable good faith judgment of the Board
of Directors, results in material damage to the Company or its reputation, or
would materially interfere with the performance of Executive's obligations under
this Agreement;
(ii) acts by Executive of fraud, embezzlement, theft or other
material dishonesty directed against the Company;
(iii) the breach by Executive of any material obligation to
the Company under this Agreement which remains uncorrected after written notice
of such breach to the Executive and a reasonable opportunity to cure;
(iv) the Executive's willful and persistent failure to take
actions permitted by law and necessary to implement directives of the Board of
Directors which have been communicated to him in writing, provided that minutes
of a Board of Directors meeting attended in its entirety by the Executive shall
be deemed communicated in writing to the Executive;
(v) any condition which either results from the Employee's
substantial dependence, as reasonably determined in good faith by the Board of
Directors, on alcohol, or on any narcotic drug or other controlled or illegal
substance; but if such determination is disputed by the Executive, the Company
and the Executive agree to abide by the diagnosis of a physician selected by the
Board of Directors from a list of three physicians provided by Executive, and
Executive hereby consents to the release to the Board of Directors of such
diagnosis and any associated test results.
(c) The date of the written notice provided under Section 9.3(a) shall
be the Termination Date. If Executive's employment is terminated for good cause
under this Section 9.3, then Executive shall be entitled to receive only the
following payments: any portion of his Basic Salary and benefits accrued to the
Termination Date and not theretofore paid to him (including vacation pay); any
Incentive Bonus to which he is entitled for any completed Employment Year under
this Agreement which has not theretofore been paid to him; and the right to
exercise any portion of the Option granted to him hereunder which has previously
vested in him under the provisions of Section 8, plus reimbursement for any
expenses of Executive which are reimbursable under this Agreement, which
expenses have been incurred prior to the Termination Date and not previously
reimbursed. Except
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as set forth in the immediately preceding sentence, all of Executive's rights to
compensation hereunder shall be terminated as of the Termination Date.
9.4. Voluntary Termination of Employment upon Change in Control
----------------------------------------------------------
(a) If during the Term a Change in Control of the Company, as defined
in Section 9.4(b) shall occur, and the Executive shall:
(i) voluntarily terminate his employment within one (1) year
following such Change in Control and such termination shall be as a
result of the Executive's good faith determination that as a result of
the Change in Control and a change in circumstances thereafter
significantly affecting his position, he can no longer adequately
exercise the authorities, powers, functions or duties attached to his
position as an executive officer of the Company, or
(ii) voluntarily terminate his employment within one (1) year
following such Change in Control, and such termination shall be as a
result of the Executive's good faith determination that he can no
longer perform his duties as an executive officer of the Company by
reason of a substantial diminution in his responsibilities, status,
perquisites or position; or
(iii) voluntarily terminate his employment within one (1) year
following such Change in Control, if the Company has breached any
material obligation to Executive contained in this Agreement or has
otherwise failed to assume all obligations of the Company under this
Agreement; or
(iv) have his employment terminated by the Company for reasons
other than those specified in Section 9.3(b) within one (1) year
following such Change in Control;
then in any of the above four cases, and notwithstanding any other provision of
this Agreement, the Executive shall have the right to immediately terminate this
Agreement by written notice to the Board of Directors and a nonforfeitable right
to receive, payable in a lump sum within ten (10) business days following such
written notice, an amount equal to eighteen (18) months of Base Salary at the
then current rate, reimbursement of any previously unreimbursed business
expenses, plus an amount equal to the greater of (x) the full Incentive Bonus
for which Executive could receive under any bonus criteria established by the
Board of Directors for the Employment Year in which termination occurs
(regardless of whether such criteria are actually satisfied), or (y) the
Incentive Bonus actually paid to Executive during the previous Employment Year.
In addition, on the date of such written notice (which shall be the Termination
Date) the Option granted to Executive pursuant to Section 8 hereof shall be
deemed to have become fully vested in him pursuant to and subject to the
provisions of such Section, and the Company shall continue for a period of
eighteen (18) months Executive's coverage under medical, hospitalization, and
health benefit plans as applicable on the Termination Date. Notwithstanding the
foregoing, payments made to Executive pursuant to this Section, together with
any other payments to the Executive by the Company under this Agreement or
otherwise, shall not
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exceed the maximum amount allowable as a deduction to the Company for federal
income tax purposes, as may be determined in the reasonable discretion of the
Company, under any applicable provision of law or regulations.
(b) For purposes of this Agreement, a "Change in Control" shall mean:
(i) the obtaining by any party of fifty percent (50%) or more
of the voting shares of the Company pursuant to a "tender offer" for such shares
as provided under Rule 14d-2 promulgated under the Securities Exchange Act of
1934, as amended, or any subsequent comparable federal rule or regulation
governing tender offers; or
(ii) individuals who were members of the Company's Board of
Directors immediately prior to any particular meeting of the Company's
shareholders which involves a contest for the election of directors fail to
constitute a majority of the members of the Company's Board of Directors
following such election; or
(iii) the Company executing an agreement concerning the sale
of substantially all of its assets to a purchaser which is not a subsidiary; or
(iv) the Company's adoption of a plan of dissolution or
liquidation; or
(v) the Company's executing an agreement concerning a merger
or consolidation involving the Company in which the Company is not the surviving
corporation or if, immediately following such merger or consolidation, less than
fifty percent (50%) of the surviving corporation's outstanding voting stock is
held by persons who are share holders of the Company immediately prior to such
merger or consolidation.
9.5. VOLUNTARY TERMINATION OF EMPLOYMENT. If Executive voluntarily
terminates his employment (other than as authorized under Section 9.4), then he
shall be deemed to have been terminated by the Company for cause and shall
receive no further compensation or benefits except as provided in Section
9.3(c).
9.8. COBRA. Any Termination Date under this Section 9 shall be deemed
to be the date of termination of Executive's employment for purposes of the
Comprehensive Budget Reconciliation Act ("COBRA"), and the continuation of any
compensation or benefits after the Termination Date pursuant to any provision of
this Section 9 shall not have the effect of delaying the commencement of the
COBRA coverage period beyond the Termination Date.
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Section 10. Representations and Warranties of Executive.
-------------------------------------------
Executive hereby represents and warrants, the same being part of the
essence of this Agreement that, as of the Commencement Date, he is not a party
to any agreement, contract or understanding, and that no facts or circumstances
exist which would in any way restrict or prohibit him from undertaking or
performing any of his obligations under this Agreement. The foregoing
representations and warranties shall remain in effect throughout the Term.
Section 11. Confidential Information and Proprietary Interests.
--------------------------------------------------
11.1. ACKNOWLEDGEMENT OF CONFIDENTIALITY. Executive understands and
acknowledges that he may obtain Confidential Information in the performance of
his services. Executive further acknowledges that the services to be rendered by
him are of a special, unique and extraordinary character and that, in connection
with such services, he will have access to Confidential Information vital to the
business of the Company and its Affiliates. Accordingly, Executive agrees that
he shall not, either during the Term or at any time thereafter, use or disclose
to any person any such Confidential Information except as such use or disclosure
is reasonably required in the proper performance of his services hereunder.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or in consequence of a breach by Executive of his
obligations under this Section 11).
In the event Executive is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects,
permit the Company an adequate opportunity, at its own expense, to contest such
law or court order.
11.2. DELIVERY OF MATERIAL. Executive shall promptly, and without
charge, deliver to the Company on the termination of his employment hereunder,
or at any other time the Company may so request, all memoranda, notes, records,
reports, manuals, computer disks, videotapes, drawings, blueprints and other
documents (and all copies thereof) relating to the business of the Company and
Affiliates, and all property associated therewith, which he may then possess or
have under his control.
11.3. IDEAS, PROGRAMS, ETC. If, during the Term, Executive invents or
develops any ideas, software programs, products, devices, business systems or
procedures, marketing methods or materials, inventions, trademarks, works of
authorship or trade secrets relating to or useful in connection with the
Business of the Company, the same are and shall remain the property of the
Company, and he will promptly deliver all copies of the same to the Company,
assign his interest therein to the Company and execute such documents as
Company's counsel may request to convey title thereto to the Company including,
but not limited to applications for or assignments of patents, copyrights, or
trade or service marks, all without any further compensation.
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Section 12. Non-competition Provisions.
--------------------------
Executive agrees that he will not, during the Restricted Period,
compete directly or indirectly with the business of the Company or any
Affiliate. The phrase "compete directly or indirectly with the business of the
Company or any Affiliate" shall be deemed to include, without limiting the
generality thereof, (a) engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, sales
representative, stockholder, capital investor, adviser or consultant, either
alone or in association with other, in the operation of any aspect of any type
of business or enterprise competitive with the business or operation of the
Company or any Affiliate; (b) soliciting any person employed by the Company or
any Affiliate to leave such employment; (3) soliciting any person employed by
the Company or any Affiliate to become an employee of any other Person; or (4)
soliciting the business of any current or prospective customer of the Company or
any Affiliate for the benefit of any Person (other than the Company or such
Affiliate) for products or services competitive with or similar to products and
services as are at the time of such solicitation provided by the Company or any
Affiliate. For purposes of this Section 12, the legal or beneficial ownership of
equity securities representing five (5%) percent or less of the voting power of
any Person shall not be deemed to be a material direct or indirect ownership or
investment interest in such Person.
Section 13. INDEMNIFICATION OF EXECUTIVE. The Company shall indemnify
Executive against any loss or expense arising out of acts or omissions of
Executive as an officer, director or employee of the Company or any Affiliate
(except to the extent such acts or omissions violate Executive's obligations
under this Agreement) to the full extent permitted by the Ohio General
Corporation Law and shall include Executive as a named insured or covered person
on any policies of director and officer liability, product liability, errors and
omissions or other liability insurance maintained by the Company. Such
indemnification and insurance shall extend to any claim of professional
liability asserted by or on behalf of the Company or any Affiliate arising out
of legal services provided by Executive to the Company or such Affiliate.
Section 14. Disputes And Remedies.
---------------------
14.1. WAIVER OF JURY TRIAL. EXECUTIVE AND THE COMPANY HEREBY WAIVE THE
RIGHT TO A TRIAL BY JURY IN THE EVENT OF ANY DISPUTE WHICH ARISES UNDER THIS
AGREEMENT.
14.2. INJUNCTIVE RELIEF. If Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 11 or 12 of this
Agreement, the Company shall have the following rights and remedies (each of
which shall be independent of the other, and shall be severally enforceable, and
all of which shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company at law or in equity):
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(i) the right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity
jurisdiction, it being acknowledged by Executive that any such breach
or threatened breach will or may cause irreparable injury to the
Company and that money damages will or may not provide an adequate
remedy to the Company and Parent; and
(ii) the right and remedy to require Executive to account for
and pay over to the Company or Parent all compensation, profits,
monies, increments, things of value or other benefits, derived or
received by Executive as the result of any acts or transactions
constituting a breach of any of the provisions of Sections 11 or 12 of
this Agreement, and Executive hereby agrees to account for and pay over
all such compensation, profits, monies, increments, things of value or
other benefits to the Company.
Executive specifically agrees not to object to any application made by
the Company to any court having equity jurisdiction, seeking an injunction
restraining him from committing, threatening or continuing any violation of
Sections 11 or 12 of this Agreement.
14.3. PARTIAL ENFORCEABILITY. If any provision contained in Section 11
or 12, or any part thereof, is construed to be invalid or unenforceable, the
same shall not affect the remainder of Executive's agreements, covenants and
undertakings, or the other restrictions which he has accepted, in Sections 11 or
12, and the remaining such agreements, covenants, undertakings and restrictions
shall be given the fullest possible effect, without regard to the invalid parts.
14.4. ADJUSTMENT OF RESTRICTIONS. Despite the prior provisions of this
Section 13, if any covenant or agreement contained in Section 12 or 13, or any
part thereof, is held by any court of competent jurisdiction to be unenforceable
because of the duration of such provision or the geographic area covered
thereby, the court making such determination shall have the power to reduce the
duration or geographic area of such provision and, in its reduced form, such
provision shall be enforceable.
14.5. ATTORNEYS FEES AND EXPENSES. In the event that any action, suit
or other proceeding at law or in equity is brought by either party to enforce
the provisions of this Agreement, or to obtain money damages for the breach
thereof, then the party which substantially prevails in such action (whether by
judgment or settlement) shall be entitled to recover from the other party all
reasonable expenses of such litigation (including any appeals), including, but
not limited to, reasonable attorneys' fees and disbursements.
Section 15. Survival.
--------
The provisions of Sections 11, 12, 13, 14 and this Section 15 shall
survive termination or expiration of this Agreement and remain enforceable
according to their terms.
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Section 16. Severability.
-------------
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
Section 17. Notices.
--------
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, which notices shall be addressed as
follows:
If to the Company:
NetMed, Inc.
425 Metro Place North, Suite 140
Dublin, Ohio 43017
Attention: President
with a copy to:
Richard C. McQuown
Porter, Wright, Morris & Arthur
41 South High Street, Suite 2900
Columbus, Ohio 43215
If to Executive:
Mr. William J. Kelly, Jr.
5558 Old Pond Drive
Dublin, Ohio 43017
By notice as provided in this Section either party may from time to
time change its address or the name of any person to whose attention notice is
to be given, or designate an additional person to whom notice is to be given
under this Section.
13
<PAGE> 14
Section 18. Assignment and Successors.
-------------------------
Neither this Agreement nor any of his rights or duties hereunder may be
assigned or delegated by Executive. This Agreement is not assignable by the
Company except to any successor in interest which acquires all or substantially
all of the business of the Company as it is conducted at the time of such
assignment. Any corporation into or with which the Company is merged or
consolidated or which acquires all or substantially all of the business of
Company shall be deemed to be a successor of the Company for purposes hereof.
This Agreement shall be binding upon and, except as aforesaid, shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
Section 19. Entire Agreement and Waiver.
---------------------------
19.1. INTEGRATION. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect. This
Agreement may not be amended, supplemented or rescinded except by instrument in
writing signed by the parties hereto. Neither this Agreement nor any of the
rights of any of the parties hereunder may be terminated except as provided
herein.
19.2. NO WAIVER. No waiver or modification of any of the provisions of
this Agreement shall be valid unless in writing and signed by or on behalf of
the party granting such waiver or modification. No waiver by any party of any
breach or default hereunder shall be deemed a waiver of any repetition of such
breach or default or shall be deemed a waiver of any other breach or default,
nor shall it in any way affect any of the other terms or conditions of this
Agreement or the enforceability thereof. No failure of the Company to exercise
any power given it hereunder or to insist upon strict compliance by Executive
with any obligation hereunder, and no custom or practice at variance with the
terms hereof, shall constitute a waiver of the right of the Company to demand
strict compliance with the terms hereof.
Executive shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Executive, as the President of the Company, or otherwise, reduce
his obligations under this Agreement.
Section 20. Governing Law.
-------------
This Agreement shall be governed by and construed, and the rights and
obligations of the parties hereto enforced, in accordance with the laws of the
State of Ohio.
Section 21. Headings.
--------
The Section and Subsection headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above, which shall be deemed to be the Commencement
Date.
COMPANY
NetMed, Inc.
By: /s/David J. Richards
--------------------------------
David J. Richards, President
EXECUTIVE
/s/ William J. Kelly, Jr.
--------------------------------
William J. Kelly, Jr.
15
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated March 14, 1997 in the Registration Statement
(Form S-1 dated September 15, 1997) and related Prospectus of NetMed, Inc. for
the registration of 1,500,000 shares of its common stock.
/s/ Ernst & Young LLP
Columbus, Ohio
September 15, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned officers and directors of NetMed, Inc., an Ohio
corporation (the "Company") whose signature appears below hereby appoints David
J. Richards and Kenneth B. Leachman, each with power to act without the other,
as his true and lawful attorney-in-fact, in his name and on his behalf, and in
any and all capacities stated below, to sign and to cause to be filed with the
Securities and Exchange Commission the Company's Registration Statement on Form
S-1 (the "Registration Statement") to register under the Securities Act of 1933,
as amended, a maximum of 1,500,000 authorized and unissued common shares, no par
value (the "Common Stock"), of the Company (as such number of shares may be
adjusted from time to time for stock dividends, stock splits, or similar
transactions affecting the Common Stock of the Company generally), and any and
all amendments, including post-effective amendments, to the Registration
Statement, hereby granting unto such attorneys-in-fact, full power and authority
to do and perform in the name and on behalf of each of the undersigned, in any
and all such capacities, every act and thing whatsoever necessary to be done in
and about the premises as fully as the undersigned could or might do in person,
hereby granting to each such attorneys-in-fact full power of substitution and
revocation, and hereby ratifying all that any such attorneys-in-fact or their
substitutes may do by virtue hereof. .
IN WITNESS WHEREOF, we have hereunto set our hands this 11th day of
September, 1997.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/David J. Richards President, Chief Executive Officer and Director
- -------------------------------------
David J. Richards
/s/ John P. Kennedy Vice President-Business Development,
- ------------------------------------- Treasurer, Assistant Secretary, and Director
John P. Kennedy
/s/ Kenneth B. Leachman Vice President - Finance and
- ------------------------------------- Chief Financial Officer
Kenneth B. Leachman
/s/ S. Trevor Ferger Director
- -------------------------------------
S. Trevor Ferger
/s/ Michael S. Blue Director
- -------------------------------------
Michael S. Blue, M.D.
/s/ Cecil J. Petitti Director
- -------------------------------------
Cecil J. Petitti
</TABLE>
<PAGE> 1
Exhibit 99.1
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
6% SECURED CONVERTIBLE
SUBORDINATED DEBENTURE PURCHASE AGREEMENT
NETMED, INC.
THIS AGREEMENT is made this 12th day of August, 1997, between NETMED, INC., Amex
Symbol "NMD" (the "Company"), incorporated in the State of Ohio, with its
principal office at 425 Metro Place North, Suite 140, Dublin, OH 43017 and CPR
(USA) INC. (the "Purchaser"), with its principal office at 101 Hudson Street,
Suite 3700, Jersey City, NJ 07302.
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this
Agreement:
"Agreement" means this 6% Secured Convertible Subordinated
Debenture Purchase Agreement including all Exhibits and Attachments hereto.
"Closing" means the completion of the purchase and sale of the
Debentures and Warrants on the Closing Date.
"Closing Date" means the date of the delivery of the original
Debentures and original Warrants to the Purchaser against a wire transfer of the
funds to the Escrow Agent.
"Closing Price" shall mean the last transaction price as
reported on the American Stock Exchange, Inc. ("Amex") or, in the event no
transaction is reported on any day during such period, the closing bid price for
the Common Stock on such day.
"Common Stock" means the Common Stock of the Company, no par
value.
<PAGE> 2
"Conversion Date" means the date on which the Purchaser has
telecopied the Notice of Conversion to the Company. Ninety (90) calendar days
after the Closing Date, the Purchaser may convert one-half (1/2) of the
Purchaser's initial investment, including any and all interest and additional
interest, if any. Two hundred seventy (270) calendar days after the Closing
Date, Purchaser may convert the remaining portion of its initial investment,
including any and all interest and additional interest, if any. The Company can
prohibit conversions into the Company's Common Stock from December 14, 1997 to
February 1, 1998 (the "Blackout Period").
"Conversion Price" means an amount equal to the lesser of (a)
a twenty (20%) percent discount to the average closing bid price as reported by
the American Stock Exchange, Inc. ("Amex") or such other Exchange on which the
securities are listed ("Closing Bid Price") for the three (3) business days
preceding the Conversion Date (for conversions taking place after March 31, 1998
the discount shall be a twenty-five (25%) percent discount to the average
Closing Bid Price for the three (3) business days preceding the Conversion
Date); or (b) one hundred ten (110%) percent of the average Closing Price for
the Common Stock as reported on the Amex during the three (3) trading days
ending on the day before the Closing Date; provided, however, that in the event
the Conversion Price for (a) or (b) above is less than Three ($3) Dollars per
share prior to March 31, 1998, the Purchaser may either convert into the
Company's shares or the Pledged Shares, as defined herein, at the indicated
discount for the Company's shares as per (a) or (b) above and the discount set
forth in Section 7(iii) of the Pledge Agreement for the Pledged Shares.
"Conversion Shares" means the underlying common stock issued
upon the conversion of the Convertible Debentures.
"Convertible Debenture" means the $3,000,000 in aggregate
principal amount of Convertible Debenture of the Company convertible into common
stock of the Company as hereinafter provided.
"Debenture" or "Debentures" means the Convertible Debenture or
Convertible Debentures purchased on the Closing Date, as appropriate.
"Registration Effective Date" means the date upon which the
registration of the Conversion Shares and Shares underlying the Warrants is
approved by the SEC.
"Pledged Shares" means Four Hundred Seventy-Five Thousand
(475,000) Shares of free trading common shares of Neuromedical Systems, Inc.
(NASDAQ Symbol "NSIX") which shall be held in escrow and will be subject to a
Pledge Agreement annexed hereto as Attachment II.
"Warrant" or "Warrants" means the Warrants purchased from the
Company on the Closing Date, as appropriate.
2
<PAGE> 3
3
<PAGE> 4
Section 2. Authorization and Sale of Debenture.
------------------------------------
2.1 AGREEMENT TO EXECUTE AND DELIVER THE DEBENTURE AGREEMENT
AND THE DEBENTURE. The Company will borrow Two Million Two Hundred Thousand
($2,200,000) Dollars from the Purchaser in reliance upon the representations and
warranties of the Purchaser contained in this Agreement. The Purchaser will lend
such sum to the Company, in reliance upon the representations and warranties of
the Company contained in this Agreement. Such loan shall occur on the Closing
Date and shall accrue interest from the Closing Date.
2.2 AUTHORIZATION. Subject to the terms and conditions of this
Agreement, the Company has authorized the execution and delivery of one or more
Convertible Debentures in an aggregate principal amount of up to Three Million
($3,000,000) Dollars (the "Principal"), with a maturity date three (3) years
after the date of issuance (the "Maturity Date"). The Company promises to pay to
the Purchaser the Principal, if any remains unconverted, with interest at six
(6%) percent per annum, in cash or shares of Common Stock at the Conversion
Price at the discretion of the Company on the Maturity Date. Such loan shall
occur on the Closing Date and shall accrue interest from the Closing Date. The
form of such Debenture is annexed hereto as Exhibit A. Alternatively, at the
Maturity Date the Company may, at its option, provide the Purchaser with the
Common Stock of the Company at the Conversion Price, the Pledged Shares (or
other shares of NSIX that the Company owns) and or immediate payment of cash at
one hundred twenty-five (125%) percent of the principal, plus accrued interest,
or any combination of the same.
2.3 WARRANTS ISSUABLE UPON CLOSING. The Purchaser shall
receive a pro rata portion of warrants to purchase a total of One Hundred
Thousand (100,000) Shares of the Company's Common Stock, for each Three Million
(US$3,000,000) Dollars principal amount of Debentures purchased as per the terms
of a separate Stock Purchase Warrant, the form of which is attached hereto as
Exhibit B.
2.4 TIME AND PLACE OF CLOSINGS. The Closing shall be
held at the offices of Sheldon E. Goldstein, P.C., 65 Broadway, 10th Fl., New
York, NY 10006 ("Escrow Agent") on the Closing Date.
2.5 ESCROW AGREEMENT. The parties have entered into
an Escrow Agreement annexed hereto as Attachment II.
2.6 PAYMENT AND DELIVERY. At or prior to the Closing,
the following shall occur:
(a) The Company shall deliver or cause to be
delivered to Purchaser original Debentures and Warrants, substantially in the
form set forth in Exhibits A and B hereby, bearing the original signatures of an
authorized officer of the Company at which time Purchaser shall remit by wire
transfer the Purchase Price to the Company.
4
<PAGE> 5
(b) Wire instructions to Sheldon E. Goldstein, PC as
follows:
Chase Manhattan Bank, N.A.
ABA #021000021
For the Account of
United States Trust Company of New York
Account #920-1-073195
In Favor of Sheldon E. Goldstein, P.C. Attorney
Trust Account
Account #59-02347
Section 3. GENERAL REPRESENTATIONS AND WARRANTIES OF THE
COMPANY. The Company hereby represents and warrants to, and covenants with, the
Purchaser that the following are true and correct as of the date hereof.
3.1 ORGANIZATION; QUALIFICATION. The Company is a corporation
duly organized and validly existing under the laws of the State of Ohio and is
in good standing under such laws. The Company has all requisite corporate power
and authority to own, lease and operate its properties and assets, and to carry
on its business as presently conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
3.2 CAPITALIZATION AND CONVERSION. The authorized capital
stock of the Company consists of 20,000,000 Shares of Common Stock, no par
value, of which 10,947,114 shares of Common Stock have been issued as of June
30, 1997, 250,000 shares of voting preferred stock, no par value, and 250,000
non-voting preferred stock, no par value, none of which are issued and
outstanding. All issued and outstanding Shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. As of the
Closing Date, the Company had reserved from its authorized but unissued shares
of Common Stock a sufficient number of shares of Common Stock for issuance upon
conversion of the aggregate principal of the Debenture. Each such conversion
shall reduce the principal amount owing on the Debenture by the amount stated in
the Notice of Conversion (Exhibit C) and will be reflected in a Convertible
Debenture Principal Reduction Schedule signed by an authorized officer of the
Company.
3.3 AUTHORIZATION. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Debenture by the Company, the authorization, sale, issuance and delivery of the
Conversion Shares and the performance of the Company's obligations hereunder has
been taken. This Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company enforceable
in accordance with its terms,
5
<PAGE> 6
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy as they may apply to the indemnification provisions set forth in Section
7.3 of this Agreement. Upon their issuance and delivery pursuant to this
Agreement, the Conversion Shares will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances except for those
imposed by or on behalf of the Purchaser, its creditors or agents.
3.4 NO CONFLICT. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Articles of Incorporation, and any amendments thereto,
Regulations and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets.
3.5 ACCURACY OF REPORTS AND INFORMATION. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company has registered its Common Stock
pursuant to Section 12 of the Exchange Act and the Common Stock is listed and
trades on the Amex.
The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer and sale of the Debenture (or for such shorter period that
the Company has been required to file such material).
3.6 SEC FILINGS/FULL DISCLOSURE. For a period of at least
twelve (12) months immediately preceding this offer and sale, or such shorter
period that the Company has been required to file such Reports as defined
herein, (i) none of the Company's filings with the Securities and Exchange
Commission contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, and (ii) the Company has timely filed all requisite forms, reports
and exhibits thereto with the Securities and Exchange Commission.
There is no fact known to the Company (other than general
economic conditions known to the public generally or conditions generally
affecting the medical device industry) that has not been publicly disclosed by
the Company or disclosed in writing to the Purchaser which (i) could reasonably
be expected to have a material adverse effect on the condition (financial or
otherwise) or on earnings, business affairs, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform
6
<PAGE> 7
its obligations pursuant to this Agreement.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no
material liabilities or obligations, absolute or contingent (individually or in
the aggregate), except as set forth in the Reports (as hereinafter defined) or
as incurred in the ordinary course of business after the date of the Reports.
3.8 GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Debenture, or the consummation of any other transaction contemplated hereby,
except the filing with the SEC of a registration statement for the purpose of
registering the Common Stock underlying the Debenture.
3.9 INTELLECTUAL PROPERTY RIGHTS. Except as disclosed in the
Form 10-K/A's, Form 10-Q's and Form 8-Ks filed by the Company for a period of at
least twelve (12) months immediately preceding this offer, or such shorter
period that the Company has been required to file such Reports as defined herein
(the "Reports"), the Company has sufficient trademarks, trade names, patent
rights, copyrights and licenses to conduct its business as presently conducted.
To the Company's knowledge, except as disclosed in the Reports, neither the
Company nor its products is infringing or will infringe any trademark, trade
name, patent right, copyright, license, trade secret or other similar right of
others currently in existence; and there is no claim being made against the
Company regarding any trademark, trade name, patent, copyright, license, trade
secret or other intellectual property right which could have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Company.
3.10 MATERIAL CONTRACTS. Except as set forth in the Reports,
the material agreements to which the Company is a party described in the Reports
are valid agreements, in full force and effect, the Company is not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements, and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default (with or without notice or lapse of time, or both) under any of such
agreements.
3.11 LITIGATION. Except as disclosed in the Reports, there is
no action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company currently intends to initiate which will materially effect the Company.
3.12 TITLE TO ASSETS. Except as disclosed in the Reports, the
Company has good
7
<PAGE> 8
and marketable title to all properties and material assets described in the
Reports as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than such as are not material to
the business of the Company.
8
<PAGE> 9
3.13 SUBSIDIARIES. Except as disclosed in the Reports and the
financial statements, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity, except for Ceram Oxygen Technologies, Inc., an Ohio
corporation.
3.14 REQUIRED GOVERNMENTAL PERMITS. The Company is in
possession of and operating in material compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, federal and
other regulatory authorities which are material to the conduct of its business,
all of which are valid and in full force and effect.
3.15 LISTING. The Company will maintain the listing of its
Common Stock on the Amex, NASDAQ or other National Securities Exchange.
3.16 OTHER OUTSTANDING SECURITIES. Except as disclosed in the
Reports and excluding outstanding options to employees and directors, there are
no other outstanding debt or equity securities presently convertible into shares
of Common Stock. Except as disclosed in the Reports, the Company has no
outstanding restricted shares of Common Stock, or shares of Common Stock sold
under Regulation D or Regulation S under the Securities Act of 1933, as amended
or outstanding, under any other exemption from registration, which are available
for sale as unrestricted free trading stock.
3.17 LEGAL OPINION. Purchaser shall, upon the purchase of the
Debentures and warrants, receive an opinion letter from counsel to the Company,
and the Company represents that it will immediately obtain such an opinion from
counsel to the Company to the effect that:
(i) The Company is duly incorporated and validly
existing under the laws and jurisdiction of its incorporation. The
Company and/or its subsidiaries are duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions where
the Company and/or its subsidiaries owns or leases properties,
maintains employees or conducts business, except for jurisdictions in
which the failure to so qualify would not have a material adverse
effect on the Company, and has all requisite corporate power and
authority to own its properties and conducts its business.
(ii) There is no action, proceeding or investigation
pending, or to such counsel's knowledge, threatened against the Company
which might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, conditions, affairs
or operations of the Company.
(iii) The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality.
(iv) There is no action, suit, proceeding or
investigation by the
9
<PAGE> 10
Company currently pending or which the Company currently intends to
initiate.
10
<PAGE> 11
(v) All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable.
(vi) The Debentures which shall be issued at the
closing are properly issued under the Company's state of incorporation.
(vii) The Purchase Agreement, the issuance of the
Debentures, Warrants and the issuance of Common Stock upon conversion
of the Debentures and exercise of the Warrants, have been duly approved
by all required corporate action and that all such securities, upon
delivery, shall be validly issued and outstanding, fully paid and
nonassessable.
(viii) The issuance of the Debentures will not
violate the applicable listing agreement between the Company and any
securities exchange or market on which the Company's securities are
listed.
(ix) Assuming the accuracy of the representations and
warranties of the Company and the Purchaser set forth in the 6% Secured
Convertible Subordinated Debenture Purchase Agreement, the offer,
issuance and sale of the Debentures, Warrants, Conversion Shares and
the Warrant Shares to be issued upon exercise to the Purchaser pursuant
to the 6% Secured Convertible Subordinated Debenture Purchase Agreement
are exempt from the registration requirements of the Securities Act.
3.18 DILUTION. The Company is aware and acknowledges that
conversion of the Debentures could cause dilution to existing shareholders and
could significantly increase the outstanding number of shares of Common Stock.
3.19 RIGHT OF FIRST REFUSAL. In the event that the Company
wishes to obtain further debt or equity financing within one hundred eighty
(180) days following the Closing Date, the Purchaser shall have the right of
first refusal to participate in such offerings and shall have three (3) business
days to reply in writing after facsimile receipt of a term sheet outlining such
transaction from the Company for facsimile response. In the event the Company
does not receive a response within three (3) business days, this will be deemed
a refusal by the Purchaser.
3.20 SECURITY. In order to secure its obligations under this
Agreement and related documents, the Company has arranged to deliver the Pledged
Securities as per separate Pledge Agreement annexed hereto as Attachment I.
Section 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASER. The Purchaser represents and warrants to, and covenants with, the
Company that the following are true and correct as of the date hereof and as of
the Closing Date.
4.1 AUTHORITY. The Purchaser has all requisite right, power
and authority to
11
<PAGE> 12
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Purchaser, its
directors, shareholders, members or partners necessary for the authorization,
execution, delivery and performance of this Agreement, and the purchase of the
Debentures and Warrants as well as their respective conversion and exercise, and
the performance of the Purchaser's obligations hereunder, has been taken. The
Purchaser's signatory has all right, power, authority and capacity to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Purchaser and
will constitute the legal, valid and binding obligations of the Purchaser,
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy as they may apply to the indemnification
provisions set forth in Section 7.3 of this Agreement.
4.2 INVESTMENT EXPERIENCE. Purchaser is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Purchaser is aware
of the Company's business affairs and financial condition and has had access to
and has acquired sufficient information about the Company, including the
Reports, to reach an informed and knowledgeable decision to acquire the
Debentures and Warrants. Purchaser has such business and financial experience as
is required to give it the capacity to protect its own interests in connection
with the purchase of the Debentures and Warrants. Purchaser is engaged, as a
substantial part of its business, in purchasing and holding securities.
4.3 INVESTMENT INTENT. Without limiting its ability to resell
the underlying Common Stock pursuant to an effective registration statement,
Purchaser represents that it is purchasing the Debentures and Warrants for its
own account as principal for investment purposes, and not with a view to a
distribution. Purchaser understands that its acquisition of the Debentures and
Warrants have not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. Purchaser will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchaser or otherwise acquire or take a pledge
of) any of the Debentures, Warrants or the underlying Common Stock, except in
compliance with the Securities Act and any applicable state securities laws, and
the rules and regulations promulgated thereunder.
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS. Purchaser further
acknowledges and understands that the Debentures, Warrants or the Conversion
Shares may not be resold or otherwise transferred except in a transaction
registered under the Securities Act and any applicable state securities laws or
unless an exemption from such registration is available. Purchaser understands
that the Debentures, Warrants and, if converted or exercised as the case may be,
the Conversion Shares and Shares underlying the Warrants will be imprinted with
a legend that prohibits the transfer of such securities unless (i) it is
registered or such registration is not required pursuant to an exemption
therefrom, and (ii) if the transfer is pursuant to an
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exemption from registration other than Rule 144 under the Securities Act and an
opinion of counsel reasonably satisfactory to the Company is obtained to the
effect that the transaction is so exempt.
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE. Purchaser understands
that nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of the Debentures and Warrants constitutes
legal, tax or investment advice. Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Debentures and the Warrants.
4.6 PURCHASER REVIEW. Purchaser hereby represents and warrants
that the Purchaser has carefully examined the Reports, and the financial
statements contained therein. The Purchaser acknowledges that the Company has
made available to the Purchaser all documents and information that it has
requested relating to the Company and has provided answers to all of its
questions concerning the Company, the Debenture and the Warrants. Nothing stated
in the previous two sentences, however, shall be deemed to affect the
representations and warranties of the Company contained in this Agreement.
4.7 CERTAIN RISKS. The Purchaser recognizes that the purchase
of the Debentures, Warrants and the Conversion Shares and shares underlying the
Warrants involves a high degree of risk in that:
(i) an investment in the Company is highly
speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Debentures,
Warrants and the respective underlying securities;
(ii) a purchaser may not be able to liquidate its
investment;
(iii) transferability of the Debentures, Warrants and
Conversion Shares and shares underlying the Warrants is extremely
limited;
(iv) in the event of disposition, Purchaser could
sustain the loss of its entire investment;
(v) the Debentures represent non-voting securities,
which have the right to convert into and purchase shares of voting
equity securities in a corporate entity;
(vi) no return on investment, whether through
distributions, appreciation, transferability or otherwise, and no
performance by, through or of the Company, has been promised, assured,
represented or warranted by the Company, or by any director, officer,
employee, agent or representative thereof;
(vii) while the Common Stock is presently quoted and
traded on the
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Amex and while the Purchasers are beneficiaries of certain registration
rights provided herein:
(a) the Debentures, Warrants and the Conversion
Shares and the shares underlying the Warrants are not
registered under applicable federal or state
securities laws, and thus may not be sold, conveyed,
assigned or transferred unless registered under such
laws or unless an exemption from registration is
available under such laws, as more fully described
below; and
(b) the Debentures and Warrants are not quoted,
traded or listed for trading or quotation on the
Amex, or any other organized market or quotation
system, and there is therefore no present public or
other market for such Debentures or Warrants, nor can
there be any assurance that the Common Stock will
continue to be quoted, traded or listed for trading
or quotation on the Amex or on any other organized
market or quotation system.
4.8 NO REGISTRATION, REVIEW OR APPROVAL. The Purchaser
acknowledges and understands that the limited private offering and sale of the
Debentures, Warrants and the Conversion Shares pursuant to this Agreement has
not been reviewed or approved by the SEC or by any state securities commission,
authority or agency, and is not registered under the Act or under the securities
or "blue sky" laws, rules or regulations of any state. The Purchaser
acknowledges, understands and agrees that the Debentures, Warrants and the
Conversion Shares are being offered and sold hereunder pursuant to (i) a private
placement exemption to the registration provisions of the Act pursuant to
Section 3(b) or Section 4(2) of such Act and Regulation D promulgated under such
Act, and (ii) a similar exemption to the registration provisions of applicable
state securities laws.
4.9 NO HEDGING. Purchaser shall not, directly or indirectly,
engage in any long or short sale of the stock of the Company during the three
(3) days prior to any Conversion Date.
4.10 RESTRICTIONS ON CONVERSION OF DEBENTURES. The Purchaser
or any subsequent holder of the Debentures shall be prohibited from converting
any portion of the Debentures which would result in the Purchaser or the holder
being deemed a beneficial owner, in accordance with the provisions of Rule 13d-3
of the Securities Exchange Act of 1934, as amended, of 4.99% or more of the then
issued and outstanding Common Stock of the Company.
Section 5. CONDITIONS TO THE PURCHASER'S OBLIGATION TO
PURCHASE. The Company understands that the Purchaser's obligation to purchase
the Debentures and Warrants is conditioned upon:
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<PAGE> 15
(a) Acceptance by Purchaser of this Debenture
Purchase Agreement for the purchase of the Debentures and Warrants, as evidenced
by the execution of this Agreement by its authorized officers;
(b) Delivery of the original Debentures and Warrants
to Purchaser;
(c) Delivery of legal opinion as required by this
Agreement;
(d) Execution and delivery by the Company of the
Pledge Agreement, Escrow Agreement and Registration Rights Agreement, in the
form of Attachments I, II and III.
Section 6. CONDITIONS TO COMPANY'S OBLIGATION TO SELL.
Purchaser understands that the Company's obligation to sell the Debentures and
Warrants is conditioned upon:
(a) The receipt and acceptance by the Company of this
Debenture Purchase Agreement for the Debentures and Warrants as evidenced by
execution of this Debenture Purchase Agreement by any duly authorized signatory
for the Purchaser; and
(b) Delivery to the Company of good funds
($2,200,000) as payment in full for the purchase of the Debentures and Warrants.
(c) Execution and delivery by the Purchaser of the
Pledge Agreement, Escrow Agreement and Registration Rights Agreement in the form
of Attachments I, II and III.
Section 7. Compliance with the Securities Act.
-----------------------------------
7.1 REGISTRATION RIGHTS AGREEMENT. The parties will enter into
a Registration Rights Agreement, annexed hereto as Attachment III.
7.2 UNDERWRITER. The Company understands that the Purchaser
disclaims being an "underwriter," as such term is defined under the Securities
Act and the rules and regulations promulgated thereunder (an "Underwriter"), but
Purchaser being deemed an Underwriter shall not relieve the Company of any
obligation it has hereunder, except as may be required by law.
7.3 INDEMNIFICATION. Each of the Company and the Purchaser
agrees to indemnify the other and to hold the other harmless from and against
any and all losses, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) which the other may sustain or incur in connection
with the breach by the indemnifying party of any representation, warranty or
covenant made by it in this Agreement.
7.4 INFORMATION AVAILABLE. So long as any registration
statement is effective covering the resale of the Common Stock underlying the
Debenture, the Company will furnish to
15
<PAGE> 16
Purchaser:
(a) as soon as possible after available (but in the
case of the Company's Annual Report to Stockholders, within 150 days after the
end of each fiscal year of the Company), one copy of (i) its Annual Report to
Stockholders (which Annual report shall contain financial statements audited in
accordance with generally accepted accounting principles by a national firm of
certified public accountants); (ii) each of its Quarterly Reports to
Stockholders, and its Quarterly Reports on Form 10-Q; and (iii) a full copy of
the registration statement covering the Conversion Shares (the foregoing, in
each case, including exhibits); and
(b) upon the reasonable request of Purchaser, such
other information that is generally available to the public.
7.5 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Underlying Shares to the public without registration, the
Company agrees to use its best efforts to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date on which the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
(b) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(c) to furnish to Purchaser forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144, and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as Purchaser may
reasonably request in availing itself of any rule or regulation of the SEC
allowing Purchaser to sell any of the Conversion Shares without registration.
7.6 TEMPORARY CESSATION OF OFFERS AND SALES BY PURCHASER. The
Purchaser acknowledges that there may occasionally be times when the Company may
be required to suspend the use of the prospectus forming part of the
Registration Statement until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the
Commission, until the prospectus is supplemented or amended to comply with the
Securities Act, or until such time as the Company has filed an appropriate
report with the Commission pursuant to the Exchange Act. The Company agrees to
file any necessary amendments, supplements and reports as soon as practicable
under the circumstances. Purchaser hereby covenants that it will not sell any
Common Stock pursuant to said prospectus during a
16
<PAGE> 17
period of not more than twenty (20) days commencing at the time at which the
Company gives the Purchaser notice of the suspension of the use of said
prospectus and ending at the time the Company gives the Purchaser notice that
the Purchaser may thereafter effect sales pursuant to said prospectus, as the
same may have been supplemented or amended.
7.7 TRANSFER OF COMMON STOCK AFTER REGISTRATION. Purchaser
hereby covenants with the Company not to make any sale of the Common Stock
except either (i) in accordance with the Registration Statement, in which case
Purchaser covenants to comply with the requirement of delivering a current
prospectus, or (ii) in accordance with Rule 144, in which case Purchaser
covenants to comply with Rule 144.
7.8 TERMINATION OF OBLIGATIONS. The obligations of the Company
pursuant to the Registration Rights Agreement shall cease and terminate upon the
earlier to occur of (i) such time as all of the Conversion Shares have been
re-sold, or (ii) such time as all of the Conversion Shares may be re-sold in any
three-month period pursuant to Rule 144 under the Securities Act.
7.9 LEGEND. The certificate or certificates representing the
Debentures, Warrants and, upon conversion, the Conversion Shares shall be
subject to a legend restricting transfer under the Securities Act of 1933, such
legend to be substantially as follows:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH,
EXCEPT IN THE CASE OF AN EXEMPTION UNDER SAID ACT, IS CONFIRMED IN A
LEGAL OPINION SATISFACTORY TO THE COMPANY."
Such securities shall also include any legends required by any applicable state
securities laws.
With respect to the Conversion Shares and the shares
underlying the Warrants, the legend(s) shall be removed and the Company shall
issue a replacement certificate without such legend to the holder of such
certificate if such holder provides to the Company an opinion of counsel
reasonably acceptable to the Company, to the effect that a public sale, transfer
or assignment of such stock may be made without registration.
7.10 Mandatory Conversion/Mandatory Redemption.
------------------------------------------
(a) The Company has the right to require the Purchaser to
convert the Debentures, pursuant to this Agreement, in the event the average of
the Closing Price of the shares for a consecutive two week period remain one
hundred fifty (150%) percent above the average Closing Price for the three (3)
days prior to the Closing Date and the average trading volume for thirty (30)
trading days prior to the date of notice from the Company to convert its
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<PAGE> 18
shares pursuant to this section averages thirty-five thousand (35,000) shares
per day, outside of volume created by Purchaser's sales, if any, of the
Conversion Shares.
(b) The Company has the right to redeem the Debentures, in
whole or in part, in cash upon payment of the outstanding principal amount of
the Debentures, plus the premium based on the Conversion Price and accrued
interest. Upon notice of its right to redeem the Debenture the Company shall
immediately wire transfer the appropriate amount of funds into an escrow account
mutually agreed upon by both Company and Purchaser. If after three (3) business
days from the date the notice of redemption is received by the Purchaser the
funds have not been received by the escrow agent, then the Purchaser shall again
have the right to convert the Debenture and the Company shall have the right to
redeem the Debenture but only upon simultaneously sending a notice of redemption
to the Purchaser and wire transferring the appropriate amount of funds to the
Escrow Agent. Such notice of redemption shall not be applicable to Debentures
for which the Company has received a Notice of Conversion.
Section 8. LEGAL FEES AND EXPENSES. The Company shall pay all
fees as per Section 1.4 of the Escrow Agreement (Attachment II).
Section 9. NOTICE OF CONVERSION. Conversion of the Debenture
to Common Stock may be exercised in whole or in part by Purchasers telecopying
an executed and completed Notice of Conversion (in the form annexed hereto as
Exhibit C) to the Company and delivering the original Notice of Conversion and
the certificate representing the Debenture to the Company by express courier
within three (3) business days of exercise. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion Date. The Company shall notify the transfer agent
to transmit the certificates representing the Common Stock issuable upon
conversion of all or any part of the Debenture (together with the certificates
representing portions of the Debenture not so converted) to the Purchaser or a
custodian designated by Purchaser via express courier or electronic transfer
within five (5) business days after the Company has received the original Notice
of Conversion and Debenture certificate being so converted. In addition to any
other remedies which may be available to the Purchaser, in the event that the
Company fails for any reason to effect delivery of such shares of Common Stock
within such five (5) business day period, the Purchaser will have the option to
revoke the relevant Notice of Conversion by delivering by telecopier with an
original by overnight courier a notice to such effect to the Company whereupon
the Company and the Purchaser shall each be restored to their respective
positions immediately prior to the delivery of the Notice of Conversion, upon
receipt of such Notice, the Company shall return by overnight courier the
original certificate representing the Debenture, or Purchaser can elect to deem
the Notice of Conversion sent an effective notice from the telecopying date. The
Notice of Conversion and certificate representing the portion of the Debenture
converted shall be delivered as follows:
To the Company:
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<PAGE> 19
NetMed, Inc.
425 Metro Place North, Suite 140
Dublin, OH 43017
Attn: Kenneth Leachman and Bill Kelly, Esq.
(tele) (614) 793-9356
(fax) (614) 793-9376
or to such other person at such other place as the Company shall designate to
the Purchaser in writing.
In the event that the Common Stock issuable upon conversion of
the Debenture is not delivered within five (5) business days of receipt by the
Company of a valid Conversion Notice and the Debenture to be converted, through
the fault of the Company (such date of receipt referred to as the "Conversion
Date"), Purchaser may draw down on the Pledged Shares or in the event the
Pledged Shares have been depleted, the Company shall pay to the Purchaser, by
wire transfer, as non-cumulative additional interest for such failure and not as
a penalty, for each $100,000 of Debenture sought to be converted, $500 for each
of the first ten (10) days, and $1,000 per day thereafter that the Conversion
Shares are not delivered, which non-cumulative additional interest shall run
from the sixth business day after the Conversion Date.
Section 10. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, and shall be deemed given when
so mailed:
(a) if to the Company, to
NetMed, Inc.
425 Metro Place North, Suite 140
Dublin, OH 43017
Attn: Kenneth Leachman and Bill Kelly, Esq.
(tele) (614) 793-9356
(fax) (614) 793-9376
or to such other person at such other place as the Company shall designate to
the Purchaser in writing;
(b) if to the Purchaser, to
CPR (USA) Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
(tele) (201) 200-9115
(fax) (201) 200-1140
19
<PAGE> 20
copy to:
Sheldon E. Goldstein, P.C.
65 Broadway, 10th Fl.
New York, NY 10006
(tele) (212) 809-4220
(fax) (212) 809-4228
or at such other address or addresses as may have been furnished to the Company
in writing; or
(c) if to any transferee or transferees of a
Purchaser, at such address or addresses as shall have been furnished to the
Company at the time of the transfer or transfers, or at such other address or
addresses as may have been furnished by such transferee or transferees to the
Company in writing.
Section 11. Miscellaneous.
-------------
11.1 ENTIRE AGREEMENT. This Agreement, including all Exhibits
and Attachments embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement or
any kind not expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
11.2 AMENDMENTS. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and by
Purchaser.
11.3 HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
11.4 SEVERABILITY. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
11.5 GOVERNING LAW/JURISDICTION. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of Ohio, except for matters arising under the 1933 Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the federal district court for the Southern District of Ohio in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on FORUM
NON CONVENIENS, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if
20
<PAGE> 21
either party to this Agreement obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
11.6 RECOVERY OF ATTORNEY'S FEES. Should any party bring an
action to enforce the terms of this Agreement then, if Purchaser prevails in
such action it should be entitled to recovery of its attorney's fees from the
Company, and if the Company prevails in such action it shall be entitled to
recovery of its attorney's fees from the Purchasers.
11.7 FEES. The Company acknowledges that Purchaser shall have
no responsibility for the payment of any of its fees in connection with this
offering.
11.8 COUNTERPARTS/FACSIMILE. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
11.9 PUBLICITY. Neither the Purchaser nor the Company shall
issue any press releases or otherwise make any public statement with respect to
the transactions contemplated by this Agreement without the prior written
consent of the other, except as may be required by applicable law or regulation.
11.10 SURVIVAL. The representations and warranties in this
Agreement shall survive Closing.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives the day and year
first above written.
NETMED, INC.
By /s/David J. Richards
-----------------------------------------
David J. Richards, President
CPR (USA) INC.
21
<PAGE> 22
By /s/George T. Hartigan
-------------------------------------------
Chief Operations Officer
22
<PAGE> 1
Exhibit 99.2
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is being entered into as of August 12,
1997 by and among NETMED, INC., an Ohio corporation located at 425 Metro Place
North, Suite 140, Dublin, OH 43017 ("Pledgor"); CPR (USA) INC., a Delaware
corporation, located at 101 Hudson Street, Jersey City, NJ 07302 LIBERTYVIEW
FUND LLC, a Delaware limited liability company, located at at 101 Hudson Street,
Jersey City, NJ 07302, and LIBERTYVIEW PLUS FUND, a Bahamian corporation,
located at Hemisphere House, 9 Church Street, Hamilton, Bermuda HM DX (each a
"Pledgees" and collectively "Pledgeess"); and National City Bank, whose offices
are located at 629 Euclid Avenue, Suite 635, Cleveland, OH 44114 ("Escrow
Agent").
RECITALS
A. The Pledgor is offering to sell to the Pledgees 6% Secured
Convertible Subordinated Debentures due August 12, 2000 of the Pledgor in the
aggregate amount of Three Million ($3,000,000) Dollars (the "Debentures")
pursuant to the terms and conditions of the 6% Secured Convertible Subordinated
Debenture Purchase Agreements executed by the Pledgor and the Pledgees (together
with all attachments and exhibits thereto and documents related thereto, the
"Agreements").
B. Pursuant to the Agreements and the Debentures, the Pledgor
is obligated to comply with, perform and fulfill certain obligations,
undertakings, representations, covenants and responsibilities, all as set forth
in the terms and provisions of the Agreements and the Debentures (the "Pledgor
Obligations") including with respect to certain conversion rights granted
therein to the Pledgees pursuant to which the Pledgees are entitled to convert
the Debentures into shares of Common Stock, no par value per share, of the
Pledgor (the "Common Stock").
C. In addition to the provisions of the Agreements and the
Debentures, the Pledgees requires additional security and benefits from the
Pledgor in the event certain market conditions exist, or the Pledgor fails to
fully perform, comply with, and fulfill all of the Pledgor Obligations.
D. The Pledgor is the owner and holder of Certificate(s) set
forth in Schedule A representing 475,000 fully paid and non-assessable shares of
Common Stock of Neuromedical Systems, Inc. (NSIX) (the "Pledged Shares") and
Pledgor has a direct financial interest in the consummation of the offering of
the Debentures.
E. In order to facilitate the sale of the Debentures, which
sale would be beneficial to the Pledgor, the Pledgor has agreed to pledge and to
deposit with the Escrow Agent for this purpose the Pledged Shares and fully
executed stock powers as security and collateral to secure their obligations and
undertakings under the Agreement and under this Pledge Agreement, all pursuant
to the terms and provisions hereinafter set forth.
F. The Escrow Agent shall act as temporary escrow agent and
will be replaced by Skadden, Arps, Slate, Meagher & Flom, LLP ("Skadden Arps"),
the successor escrow agent. The Escrow Agent shall, upon receipt of the proper
documentation, transfer such Pledged Shares and fully executed stock powers to
Skadden Arps, at which time Escrow Agent and its duties shall terminate.
G. The Pledgor, the Pledgees and the Escrow Agent have agreed
that the Escrow Agent shall be appointed the temporary escrow agent for the
holding of the Pledged Shares and fully executed stock powers pursuant to the
terms and provisions hereinafter set forth.
H. The Pledgor and the Pledgees wish to confirm their
acceptance of and agreement to all of the foregoing and to set forth the terms
and provisions pursuant to which the Escrow
<PAGE> 2
Agent shall perform its duties hereunder during the period prior to the
appointment of Skadden Arps as escrow agent in the event the Escrow Agent is not
replaced for any reason.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements and undertakings herein contained, the parties hereto agree as
follows:
1. Each of the Pledgor and the Pledgees hereby confirms as
true and correct the foregoing recitals, which are hereby incorporated by
reference.
2. The Pledgor hereby agrees that the Pledged Shares shall
serve as security and collateral to secure their obligations to the Pledgees
under the Agreement and hereunder. In connection therewith, the Pledgor agrees
to deliver prior to the Closing Date (as defined in the Agreement) (the
"Delivery Date") the Pledged Shares to the Escrow Agent for the benefit of the
Pledgees as hereinafter set forth together with fully executed stock powers
attached thereto executed in favor of the Pledgees.
3. In the event that during the term of this Pledge Agreement
any stock dividend, reclassification, readjustment or other change is declared
or made in the capital structure of NSIX, all new substituted and additional
shares or other securities issued in respect to the Pledged Shares shall be
promptly delivered by the Pledgor together with stock powers attached thereto
executed in favor of the Pledgees to the Escrow Agent to be held by the Escrow
Agent for the benefit of the Pledgees under the terms of this Pledge Agreement
in the same manner as the Pledged Shares. All references to "Pledged Shares" in
this Pledge Agreement shall include any and all shares or other securities
described in this Section 3.
4. The Pledgor hereby represents and warrants to the Pledgees
that as of the date hereof and hereafter so long as this Pledge Agreement shall
be in effect pursuant to its terms, (i) the Pledgor is and at all times shall be
the sole owner of the Pledged Shares with full power and authority to pledge the
Pledged Shares as herein provided and to be fully bound by the terms and
provisions hereof, (ii) the Pledged Shares are and at all times shall be free of
any encumbrance, security or other interest, lien or claim of any nature
whatsoever except with respect to the Pledgees as herein provided, and (iii)
that the Pledgor has and at all times shall have the right to pledge the Pledged
Shares for the benefit of the Pledgees pursuant to the terms and provisions
hereof without the need to obtain the consent of any person or entity whatever.
5. From and after the date hereof and so long as this Pledge
Agreement shall be in effect pursuant to its terms, each of the Pledgor and the
Pledgees agrees that they shall not take any action that would cause either
party to be in breach or default of any of their Obligations.
All representations and warranties shall survive this Pledge
Agreement.
6. As of the Delivery Date, the Pledgees shall be deemed to
have a priority lien on the Pledged Shares for the purposes and in accordance
with the terms and provisions hereof, and the Pledgor shall cooperate with the
Pledgees and take all action requested by the Pledgees to ensure the same and
with respect thereto.
7. The Pledgor and the Pledgees hereby appoint the Escrow
Agent to perform the following duties in accordance with the following terms and
conditions, and the Escrow Agent hereby accepts such appointment:
(a) The Escrow Agent shall accept delivery of the Pledged
Shares from the Pledgor for and on behalf of the Pledgees, and shall promptly
notify Pledgees and of such receipt.
(b) The Escrow Agent shall hold the Pledged Shares and not
release the same, except as follows:
2
<PAGE> 3
(i) Upon receipt of a notice in writing from the
Pledgees certifying to the Pledgor and the Escrow Agent, that the Pledgor has
defaulted on or breached a material Pledgor Obligation, with a brief description
of such breach or default, the Escrow Agent shall promptly deliver the Pledged
Shares together with the appropriate attached stock powers to the Pledgees by
overnight courier at the address set forth herein for the Pledgees or to such
other address as the Pledgees may designate in such written notice.
(ii) Upon receipt of a notice in writing from the
Pledgees certifying to the Pledgor and the Escrow Agent that the Registration
Statement has not been declared effective within ninety (90) days of the Closing
Date. Such notice shall specify the number of Pledge Shares to be released and
the manner in which such number is calculated.
(iii) Upon receipt of a notice in writing from the
Pledgor to each of the Pledgees and the Escrow Agent, stating that a fiscal
quarter has ended and the market value of the remaining Pledged Shares, based
upon the lowest closing share price for the prior consecutive two week period,
is not less than one hundred fifty (150%) percent of the outstanding convertible
debt, the Pledgor may request the Escrow Agent to deliver that portion of the
Pledged Shares together with the appropriate attached stock powers, over the one
hundred fifty (150%) percent of the outstanding convertible debt. Such notice
shall specify the number of Pledged Shares to be released and the manner in
which such number is calculated.
(iv) Upon receipt of a notice in writing from each of
the Pledgees to the Pledgor certifying that it has not sold thirty-five (35%)
percent of its investment by December 15, 1997 and the aggregate trading volume
of the Company's Common Stock from the Registration Effective Date up through
December 15, 1997 is less than six hundred thousand (600,000) shares (excluding
sales and purchases by Investor and affiliates). At that time, Pledgees may
convert into the Pledged Shares until thirty-five (35%) percent of their
investment is converted (whether into Conversion Shares or Pledged Shares) at a
discount calculated as twenty-five (25%) percent multiplied by the number of
days from the Closing Date to the Conversion Date divided by 360. The notice
shall specify the number of Pledged Shares to be released and the manner in
which such number is calculated.
In the event the Company lifts the Blackout Period, which
shall be December 14, 1997 through and including February 1, 1998, conversions
may continue as per the Agreements into the Company's Common Stock, Pledgor
shall notify Pledgees and the Escrow Agent in writing, and no release of Pledged
Shares shall be made under this paragraph 7(b)(iv).
(v) Upon receipt of a notice in writing from each of
the Pledgees confirming that the Debentures have been either (i) fully redeemed
and paid for in full pursuant to its terms, or (ii) fully converted into shares
of Common Stock pursuant to its terms and all certificates representing the
converted shares of Common Stock have been received by the Pledgees in
accordance with the terms of the Agreement and the Debentures, the Escrow Agent
shall deliver the Pledged Shares to the Pledgor in such manner and at such
address as the Pledgor shall designate in writing.
(vi) If by August 12, 2000 the Escrow Agent shall not
have received any written notice for release of the Pledged Shares as provided
above in subparagraphs (i) through (iv) of this Subsection 7(b), then on such
date the Escrow Agent shall promptly and automatically, without the need for any
notice or demand whatever, release and deliver the Pledged Shares together with
the attached stock powers to the Pledgees as provided in subparagraph (i) above.
(vii) Upon receipt of a notice in writing from the
Pledgor and each of the Pledgees, Escrow Agent shall immediately transfer such
Pledged Shares and fully executed stock powers to Skadden Arps, the successor
Escrow Agent.
3
<PAGE> 4
Upon release or transfer of the Pledged Shares as herein
provided, this escrow and the duties of the Escrow Agent shall terminate.
(c) All of the terms and conditions in connection with the
Escrow Agent's duties and responsibilities, and the rights of the parties hereto
or anyone else are contained in this instrument, and the Escrow Agent is not
expected or required to be familiar with the provisions or any other instrument
or agreement, and shall not be charged with any responsibility or liability in
connection with the observance or non-observance by any one of the provisions of
any such other instrument or agreement. The Escrow Agent shall have no
responsibility to determine that any of the events specified in Section 3 have
occurred and shall have no obligation to enforce the parties' obligations
hereunder.
(d) The Escrow Agent may rely on, and shall be protected in
acting upon, any paper or other document which may be submitted to the Escrow
Agent in connection with its duties hereunder and which is believed by the
Escrow Agent to be genuine and to have been signed or presented by the proper
party or parties and shall have no liability or responsibility with respect to
the form, execution or validity thereof.
(e) The Escrow Agent shall not be required to institute or
defend any action or legal process involving any matter referred to herein
which, in any manner, affects the Escrow Agent or its duties or liabilities
hereunder unless or until requested to do so by both the Pledgor and Pledgees,
and then only upon receiving full indemnity from the Pledgor in an amount and of
such character as the Escrow Agent shall require, against any and all claims,
liabilities, judgments, attorneys' fees and other expenses of every kind in
relation thereto, except in the case of the Escrow Agent's own willful
misconduct or gross negligence.
(f) The Escrow Agent shall not be bound or in any way affected
by any notice of any modification, cancellation, abrogation or rescission of the
Pledge Agreement, or any fact or circumstance affecting or alleged to affect the
rights or liabilities of any other person, unless the Escrow Agent shall have
received written notice satisfactory to it, signed by the Pledgor and each of
the Pledgees.
(g) The Escrow Agent may resign upon thirty (30) days written
notice to the parties hereto and a successor escrow agent shall be mutually
agreed upon and appointed.
(h) If any party shall be in disagreement about the
interpretation of the duties and obligations of the Escrow Agent under this
Pledge Agreement, or about the rights and obligations, or the propriety of any
action contemplated by the Escrow Agent hereunder, the Escrow Agent may at its
sole discretion, file an action in interpleader to resolve said disagreement.
The Escrow Agent shall be indemnified by the Pledgor for all costs, including
reasonable attorneys' fees, in connection with the aforesaid interpleader action
and shall be fully protected in suspending all or part of its activities under
this Pledge Agreement.
(i) The Escrow Agent is not to be held liable for
authenticity, sufficiency or correctness as to form, manner or execution, or
validity or any instrument deposited in this escrow, or as to the identity,
authority or rights of any person executing the same, or for failure to comply
with any of the provisions of any agreement or other instrument filed herein or
referred to herein, and the Escrow Agent's duties hereunder shall be limited to
the safekeeping of such instruments or other documents received by it as escrow
agent and for the disposition of same in accordance with the written
instructions set forth herein.
(j) Any notice which the Escrow Agent or any other party to
this Pledge Agreement is required to or desires to give to another party hereto
shall be in writing and shall be given, unless otherwise explicitly provided for
herein, by mailing the same to the address for such other party set forth in
Section 10 herein (or to such other address as said party may have theretofore
substituted therefor by written notification to the Escrow Agent and the other
parties hereto). Except as otherwise set forth in the next sentence below, for
all purposes hereof any notice so mailed shall be as effectual as though served
4
<PAGE> 5
upon the party to whom it was mailed at the time it was deposited in the United
States Mail by the Escrow Agent and/or any other party hereto, whether or not
such party thereafter actually received such notice. Notices in writing to the
Escrow Agent shall be acceptable upon facsimile transmission and shall not be
deemed to be given until actually received. Whenever under the terms hereof the
time for giving a notice or performing an act falls upon a Saturday, Sunday or
holiday, such time shall be extended to the next business day.
(k) The duties of the Escrow Agent under the terms hereunder
shall be governed by, interpreted under and construed and enforced in accordance
with the laws of the State of Ohio and any dispute concerning such duties shall
be resolved by and be brought through the American Arbitration Association at
the designated locale of Cleveland, Ohio.
(l) Unless specifically set forth herein, Pledgor agrees to
pay Escrow Agent reasonable compensation for the services to be rendered
hereunder and will pay or reimburse Escrow Agent upon request for all expenses,
disbursements and advances, including reasonable attorney's fees, incurred or
made by it in connection with carrying out its duties hereunder.
8. So long as the Pledged Shares are held by the Escrow Agent
as aforesaid, the Pledgor shall have the right to vote such Shares on all
matters.
9. As a party to this Pledge Agreement, the Pledgor agrees (i)
to the terms and conditions hereof and to be bound by the provisions hereof that
in any way require the action or inaction of the Pledgor with respect thereto,
and (ii) that the execution and delivery of this Pledge Agreement by the Pledgor
has been authorized by the Board of Directors of the Pledgor and by the taking
all other actions required by the Pledgor with respect thereto.
10. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, and shall be deemed given when
so mailed:
(a) if to the Company, to
NetMed, Inc.
425 Metro Place North, Suite 140
Dublin, OH 43017
Attn: Kenneth Leachman and William J. Kelly, Esq.
(tele) (614) 793-9356
(fax) (614) 793-9376
or to such other person at such other place as the Company shall designate to
the Purchaser in writing;
(b) if to the Pledgees, to
CPR (USA) Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
(tele) (201) 200-9115
(fax) (201) 200-1140
LibertyView Fund LLC
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
(tele)(201) 200-9115
(fax) (201) 200-1140
5
<PAGE> 6
LibertyView Plus Fund
Hemisphere House
9 Church Street
Hamilton, Bermuda HM DX
copy to:
Sheldon E. Goldstein, P.C.
65 Broadway, 10th Fl.
New York, NY 10006
(tele) (212) 809-4220
(fax) (212) 809-4228
(c) If to the Escrow Agent:
National City Bank
629 Euclid Avenue, Suite 635
Cleveland, OH 44114
Attn: Deborah A. Zopkovich
Corporate Trust Administrator, Loc. #3116
(tele) (216) 575-9225
(fax) (216) 420-1844
or at such other address or addresses as may have been furnished to the Company
in writing; or
(c) if to any transferee or transferees of a Pledgee,
at such address or addresses as shall have been furnished to the Pledgor and
Escrow Agent at the time of the transfer or transfers, or at such other address
or addresses as may have been furnished by such transferee or transferees to the
Company in writing.
(d) If such notice concerns any release of Pledged
Shares pursuant to Section 7(b), a copy of such notice shall be transmitted by
facsimile to each of the other parties on the date of mailing of such notice.
11. In the event of a default of breach of a Pledgor
Obligation or a Pledgor Obligation and the Subsequent release of the Pledges
Shares to the Pledgees in accordance with the terms hereunder, the obligations
of the Pledgor under this Pledge Agreement shall be deemed satisfied; provided,
however, that the obligations of the Pledgor to fully satisfy and cure such
default or breach and to otherwise perform and comply fully with the terms of
the Purchase Agreement and the Debentures shall remain and be unaffected by the
same.
12. In the event that the bank acting as Escrow Agent merges
or consolidates with another bank or sells or transfers all or substantially all
of its assets or trust business, then the successor or resulting bank shall be
the Escrow Agent hereunder without the necessity of further action or the
execution of any document, so long as such successor or resulting bank meets the
requirements of a successor escrow agent hereunder.
13. Except as otherwise provided above with respect to the
duties of the Escrow Agent, (i) this Pledge Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio, without giving
effect to principles governing the conflicts of law, and (ii) any action brought
in connection with this Pledge Agreement shall be brought only in the United
States District Court for the Southern District of Ohio.
6
<PAGE> 7
14. This Pledge Agreement shall be binding upon and inure to
the benefit of the parties hereto and to each of their respective heirs,
beneficiaries, executors, successors, nominees and assigns.
15. This Pledge Agreement may be executed in counterparts,
each of which shall be an original, and such counterparts together shall
constitute one and the same instrument.
NETMED, INC., Pledgor
By /s/Kenneth B. Leachman
-----------------------------------
Kenneth B. Leachman
Vice President - Finance
CPR (USA) INC., Pledgee
By /s/George T. Hartigan
-----------------------------------
LIBERTYVIEW FUND LLC, Pledgee
By /s/George T. Hartigan
-----------------------------------
LIBERTYVIEW PLUS FUND, Pledgee
By /s/Stuart Drake
-----------------------------------
NATIONAL CITY BANK,
Escrow Agent
By /s/D. A. Zupkovich
-----------------------------------
7
<PAGE> 1
Exhibit 99.3
CONVERTIBLE DEBENTURE ESCROW AGREEMENT
THIS AGREEMENT is made as of the 12th day of August, 1997 by
and between NETMED INC., with its principle office at 425 Metro Place North,
Suite 140, Dublin, OH 43017 (hereinafter the "Company"), CPR (USA) INC., with
its principal office at 101 Hudson Street, Suite 3700, Jersey City, NJ 07302
(hereinafter the "Purchaser") and SHELDON E. GOLDSTEIN, P.C., 65 Broadway, 10th
Fl., New York, NY 10006 (hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Purchaser will be purchasing Debentures and
Warrants (the "Securities") from the Company at a purchase price as set forth in
the 6% Secured Convertible Subordinated Debenture Purchase Agreement (the
"Agreement") signed by the Company and Purchaser; and
WHEREAS, it is intended that the purchase of Securities be
consummated in accordance with the requirements set forth by Regulation D
promulgated under the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the Escrow Agent hold
the funds of Purchaser in escrow until the Escrow Agent has received the
Securities. The Escrow Agent will then immediately wire transfer or otherwise
deliver at the Company's discretion immediately available funds to the Company's
account and arrange for delivery of the Securities to Purchaser as per the
Purchaser's instructions.
NOW, THEREFORE, in consideration of the covenants and mutual
promises contained herein and other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE 1
---------
TERMS OF THE ESCROW
-------------------
1.1 The parties hereby agree to establish an escrow account
with the Escrow Agent whereby the Escrow Agent shall hold the funds for the
purchase of the Securities.
1.2 Upon Escrow Agent's receipt of funds into its attorney
trustee account, it shall notify the Company, or the Company's designated
attorney or agent, of the amount of funds it has received into its account.
<PAGE> 2
1.3 The Company, upon receipt of said notice and acceptance of
the Agreement, as evidenced by the Company's execution thereof, shall deliver to
the Escrow Agent the Securities being purchased. Escrow Agent shall then
communicate with the Company to confirm the validity of its issuance.
1.4 Once Escrow Agent confirms the validity of the issuance of
the Securities, he shall immediately wire that amount of funds necessary to
purchase the Securities per the written instructions of the Company. The Company
will furnish Escrow Agent with a "Net Letter" directing payment of fees of legal
fees to Sheldon E. Goldstein, P.C. not to exceed $25,000 and placement agent
fees as directed by the Company accordingly with the net balance payable to the
Company. Once the funds have been received per the Company's instructions, the
Escrow Agent shall then arrange to have the Securities delivered as per
instructions from the Purchaser.
1.5 This Agreement may be altered or amended only with the
consent of all of the parties hereto. Should the Company or Purchaser attempt to
change this Agreement in a manner which, in the Escrow Agent's discretion, shall
be undesirable, the Escrow Agent may resign as Escrow Agent by notifying the
Company and the Purchaser in writing. In the case of the Escrow Agent's
resignation or removal pursuant to the foregoing, its only duty, until receipt
of notice from the Company and the Purchaser or its agent that a successor
escrow agent shall have been appointed, shall be to hold and preserve the funds.
Upon receipt by the Escrow Agent of said notice from the Company and the
Purchaser of the appointment of a successor escrow agent, the name of a
successor escrow account and a direction to transfer the funds, the Escrow Agent
shall promptly thereafter transfer all of the funds held in escrow to said
successor escrow agent. Immediately after said transfer, the Escrow Agent shall
furnish the Company and the Purchaser with proof of such transfer. The Escrow
Agent is authorized to disregard any notices, requests, instructions or demands
received by it from the Company or the Purchaser after notice of resignation or
removal shall have been given, unless the same shall be the aforementioned
notice from the Company and the Purchaser to transfer the funds to a successor
escrow agent or to return same to the respective parties.
1.6 The Escrow Agent shall be reimbursed by the Company and
the Purchaser for any reasonable expenses incurred in the event there is a
conflict between the parties and the Escrow Agent shall deem it necessary to
retain counsel.
1.7 The Escrow Agent shall not be liable for any action taken
or omitted by it in good faith in accordance with the advice of the Escrow
Agent's counsel; and in no event shall the Escrow Agent be liable or responsible
except for the Escrow Agent's own gross negligence or willful misconduct.
<PAGE> 3
1.8 The Company and the Purchaser warrant to and agree with
the Escrow Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or
any part thereof;
(ii) no financing statement under the Uniform
Commercial Code is on file in any jurisdiction
claiming a security interest or in describing
(whether specifically or generally) the Securities or
any part thereof; and
(iii) the Escrow Agent shall have no responsibility
at any time to ascertain whether or not any security
interest exists in the Securities or any part thereof
or to file any financing statement under the Uniform
Commercial Code with respect to the Securities or any
part thereof.
1.9 The Escrow Agent has no liability hereunder to either
party other than to hold the funds and to deliver them under the terms hereof.
Each party hereto agrees to indemnify and hold harmless the Escrow Agent from
and with respect to any suits, claims, actions or liabilities arising in any way
out of this transaction including the obligation to defend any legal action
brought which in any way arises out of or is related to this Escrow.
ARTICLE 2
---------
MISCELLANEOUS
-------------
2.1 No waiver or any breach of any covenant or provision
herein contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed any extension of
the time for performance of any other obligation or act.
2.2 All notices or other communications required or permitted
hereunder shall be in writing, and shall be sent by fax, overnight courier,
registered or certified mail, postage prepaid, return receipt requested, and
shall be deemed received upon receipt thereof, as follows:
(a) NetMed, Inc.
425 Metro Place North, Suite 140
Dublin, OH 43017
Attn: Kenneth Leachman and Bill Kelly, Esq.
(tele) (614) 793-9356
(fax) (614) 793-9376
or to such other person at such other place as the Company shall designate to
the Purchaser in writing;
(b) if to the Purchaser, to
<PAGE> 4
CPR (USA) Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
(tele) (201) 200-9115
(fax) (201) 200-1140
copy to:
Sheldon E. Goldstein, P.C.
65 Broadway, 10th Fl.
New York, NY 10006
(tele) (212) 809-4220
(fax) (212) 809-4228
2.3 This Agreement shall be binding upon and shall inure to
the benefit of the permitted successors and assigns of the parties hereto.
2.4 This Agreement is the final expression of, and contains
the entire Agreement between, the parties with respect to the subject matter
hereof and supersedes all prior understandings with respect thereto. This
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
2.5 Whenever required by the context of this Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Agreement.
2.6 The Company acknowledges and confirms that it is not being
represented in a legal capacity by Sheldon E. Goldstein, P.C. and it has had the
opportunity to consult with its own legal advisors prior to the signing of this
Agreement.
2.7 The parties hereto expressly agree that this Agreement
shall be governed by, interpreted under and construed and enforced in accordance
with the laws of the State of New York. Any action to enforce, existing out of,
or relating in any way to, any provisions of this Agreement shall be brought
through the American Arbitration Association at the designated locale of New
York, New York.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 12th day of August, 1997.
NETMED, INC.
By /s/ David J. Richards
-------------------------------
CPR (USA) INC.
By /s/George T. Hartigan
-------------------------------
Officer
SHELDON E. GOLDSTEIN, P.C.,
ESCROW AGENT
By /s/Sheldon E. Goldstein
-------------------------------
Sheldon E. Goldstein
<PAGE> 1
Exhibit 99.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 12th day of
August, 1997, between the person and/or entity whose name and address appears on
the signature page attached hereto (individually a "Holder" or collectively with
the holders of the other Securities issued pursuant to a Secured Convertible
Subordinated Debenture Purchase Agreement of even date herewith, as defined
below, the "Holders") and NETMED, INC., a corporation incorporated in the State
of Ohio, having its principal place of business at 425 Metro Place North, Suite
140, Dublin, OH 43017.
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Holders are purchasing from the Company, pursuant to a 6%
Secured Convertible Subordinated Debenture Purchase Agreement dated the date
hereof (the "Agreement"), an aggregate of up to Three Million ($3,000,000)
Dollars principal amount of Debentures (singularly the "Debenture" and
collectively the "Debentures"); and
WHEREAS, the Debenture is convertible into shares (the
"Conversion Shares") of the Company's Common Stock, no par value per share (the
"Common Stock"); and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the Conversion Shares.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. REGISTRABLE SECURITIES. As used herein the term
"Registrable Security" means each of the Conversion Shares and the Warrant
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the
Securities Act of 1933, as amended (the "Securities Act") and disposed of
pursuant thereto, (ii) registration under the Securities Act is no longer
required for the immediate public distribution of such security as a result of
the provisions of Rule 144, or (iii) it has ceased to be outstanding. The term
"Registrable Securities" means any and/or all of the securities falling within
the foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Security" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Section 1.
Section 2. RESTRICTIONS ON TRANSFER. The Holder acknowledges
and understands that prior to the registration of the Conversion Shares as
provided herein, the Debenture and the Conversion Shares are "restricted
securities" as defined in Rule 144 promulgated under the Act. The Holder
understands that no disposition or transfer of the Debenture or Conversion
Shares may be made by Holder in the absence of (i) an opinion of counsel
reasonably satisfactory to the
<PAGE> 2
Company that such transfer may be made or (ii) a registration statement under
the Securities Act is then in effect with respect thereto.
Section 3. Registration Rights.
--------------------
(a) The Company shall prepare and file with the Securities and
Exchange Commission ("SEC"), on one occasion, at the sole expense of the Company
(except as provided in Section 3(c) hereof), in respect of all holders of
Registrable Securities, so as to permit a non-underwritten public offering and
sale of the Registrable Securities under the Act. The number of Conversion
Shares to be registered shall be one hundred fifty (150%) percent of the number
of shares that would be required if all the Registrable Shares were converted on
the effective date of the Registration Statement.
(b) The Company will maintain any Registration Statement or
post-effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
the holders thereof receive an opinion of counsel that the Registrable
Securities may be sold under the provisions of Rule 144, or (iii) the third
anniversary of the Closing Date.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
any Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Holder shall bear the cost
of underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel. The
Company shall use its best efforts to qualify any of the securities for sale in
such states as such Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the sellers. The Company at its
expense will supply the Holder with copies of such Registration Statement and
the prospectus or offering circular included therein and other related documents
in such quantities as may be reasonably requested by the Holder.
(d) The Company shall not be required by this Section 3 to
include a Holder's Registrable Securities in any Registration Statement which is
to be filed if, in the opinion of counsel for both the Holder and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the Securities Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not declared effective by the SEC
within ninety (90) days of the Closing Date, as defined in the Agreement, then
the Holder shall have the option to exercise their
<PAGE> 3
rights under a Pledge Agreement annexed to the Agreement. In the event the
Pledged Shares have been depleted and after six (6) months from the Closing
Date, the Company will pay Holder, as non-cumulative additional interest for
such failure and not as a penalty, one (1%) percent of the outstanding principal
amount of this Debenture each month thereafter until the Company procures
registration of the Common Stock underlying the Debenture (the "Conversion
Shares").
If the Company does not remit the damages to the Purchaser as
set forth above, the Company will pay the Purchaser reasonable costs of
collection, including attorneys fees, in addition to the liquidated damages.
Such payment shall be made to the Purchaser immediately if the registration of
the Conversion Shares are not effected; provided, however, that the payment of
such liquidated damages shall not relieve the Company from its obligations to
register the Conversion Shares pursuant to this Section. The registration of the
Conversion Shares pursuant to this provision shall not affect or limit
Purchaser's other rights or remedies as set forth in this Agreement. Any payment
pursuant to this Section 3(e) shall be made either in cash or paid in additional
shares of Common Stock at the discretion of the Purchaser.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
Section 4. COOPERATION WITH COMPANY. Holders will cooperate
with the Company in all respects in connection with this Agreement, including,
timely supplying all information reasonably requested by the Company and
executing and returning all documents reasonably requested in connection with
the registration and sale of the Registrable Securities.
Section 5. REGISTRATION PROCEDURES. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible:
(a) prepare and file with the Commission such amendments and
supplements to such registration statement and the Prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder or Holders of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 of the Commission);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Act, and such other documents, as such Holder may reasonably request in
order to facilitate the public sale or other disposition of the securities owned
by such Holder;
<PAGE> 4
(c) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as the Holder, shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable each Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Holder, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process;
(d) use its best efforts to list such securities on the Amex
or any securities exchange on which any securities of the Company is then
listed, if the listing of such securities is then permitted under the rules of
such exchange or NASDAQ;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
Section 6. Indemnification.
----------------
(a) In the event of the filing of any Registration Statement
with respect to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Securities Act ("Distributing
Holders") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holders, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
<PAGE> 5
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof; arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in a Registration
Statement requested by such Distributing Holder, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Distributing Holders may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section 6. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation, unless
the indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which
<PAGE> 6
case the indemnifying party shall not have the right to assume the defense of
such action on behalf of the Distributing Holder, it being understood, however,
that the indemnifying party shall, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable only for
the reasonable fees and expenses of one separate firm of attorneys for the
Distributing Holder, which firm shall be designated in writing by the
Distributing Holder). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.
Section 7. CONTRIBUTION. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
Distributing Holder makes a claim for indemnification pursuant to Section 6
hereof but is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any Distributing Holder,
then the Company and the applicable Distributing Holder shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Holder, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Section 8. NOTICES. Any notice pursuant to this Agreement by
the Company or by the Holder shall be in writing and shall be deemed to have
been duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery, or (iii) if mailed by certified mail, return receipt requested,
postage prepaid, addressed as follows:
(a) If to the Holder, to its, his or her address set forth on
the signature page of this Agreement, with a copy to the person designated in
the Agreement.
(b) If to the Company, at NetMed, Inc. 425 Metro Place North,
Suite 140, Dublin, OH 43017, (tele) (614) 793-9356, (fax) (614) 793-9376, or to
such other address as any
<PAGE> 7
such party may designate by notice to the other party. Notices shall be deemed
given at the time they are delivered personally or five (5) days after they are
mailed in the manner set forth above. If notice is delivered by facsimile to the
Company and followed by mail, delivery shall be deemed given two (2) days after
such facsimile is sent.
Section 9. ASSIGNMENT. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. This Agreement cannot be assigned, amended or
modified by the parties hereto, except by written agreement executed by the
parties. If requested by the Company, the Holder shall have furnished to the
Company an opinion of counsel reasonably satisfactory to the Company to such
effect.
Section 10. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 11. HEADINGS. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 12. GOVERNING LAW, VENUE. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to its principles of conflicts of laws. Each of the parties
hereto agrees that in the event of any dispute arising hereunder venue shall be
Columbus, Ohio and each party hereby submits to the jurisdiction of the United
States Federal Court for the Southern District of Ohio.
Section 13. SEVERABILITY. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
NETMED, INC.
By /s/David J. Richards
-------------------------------
Name: David J. Richards
Title: President
CPR (USA) INC.
By /s/George T. Hartigan
-------------------------------
Officer
<PAGE> 1
Exhibit 99.5
NO. 1 $100,000 USD
NETMED, INC.
$3,000,000 6% Secured Convertible Subordinated Debenture
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS WHICH, EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144
UNDER SAID ACT, IS CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY.
THIS DEBENTURE is one of a duly authorized issue of Debentures of NETMED, INC.,
a corporation duly organized and existing under the laws of the State of Ohio
(the "ISSUER") issued August 13, 1997, designated as its Six (6%) Percent
Convertible Debenture due August 12, 2000, in an aggregate face amount not
exceeding Three Million (USD$3,000,000) Dollars, issuable in One Hundred
Thousand ($100,000) Dollars par value face amounts.
FOR VALUE RECEIVED, the ISSUER promises to pay to
CPR (USA) INC.
the registered holder hereof and its successors and assigns (the "HOLDER"), the
principal sum of:
ONE HUNDRED THOUSAND UNITED STATES DOLLARS,
on August 12, 2000 (the "Maturity Date"), and to pay interest, as outlined
below, at the rate of 6% per annum, on the principal sum outstanding from time
to time for the term of the Debenture or until the Debenture is completely
converted. Accrual of Interest shall commence on the first business day to occur
after the date hereof and shall continue until payment in full of the principal
sum has been made or duly provided for. The interest so payable will be paid to
the person in whose name this Debenture (or one or more predecessor Debentures)
is registered on the records of the Issuer regarding registration and transfers
of the Debenture (the "Debenture Register"), provided, however, that the
ISSUER'S obligation to a transferee of this Debenture
<PAGE> 2
arises only if such transfer, sale or other disposition is made in accordance
with the terms and conditions contained in the 6% Secured Convertible
Subordinated Debenture Purchase Agreement dated on or about August 12, 1997
between the ISSUER and HOLDER (the "Agreement"). Except upon an event of
default, the principal of, and interest on, this Debenture are payable only in
cash or Conversion Shares (as defined in this Agreement) at the discretion at
the Company, at the address last appearing on the Debenture register of the
ISSUER as designated in writing by the Holder hereof from time to time. The
ISSUER will pay the principal of and all accrued and unpaid interest due upon
this Debenture on the Maturity Date in cash or Conversion Shares at the
Conversion Price, less any amounts required by law to be deducted or withheld,
to the Holder at the last address on the Debenture Register. Such payment shall
constitute a payment of principal and interest hereunder and shall satisfy and
discharge the liability for principal and interest on the Debenture to the
extent of the sum represented by such check plus any amounts so deducted.
The Debenture is subject to the following additional provisions:
1. The Debenture is exchangeable for like Debentures in equal
aggregate principal amount of authorized denominations, as requested by the
HOLDERS surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. The ISSUER shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States Income Tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be transferred or
exchanged in the US only in compliance with Securities Act of 1933, as amended
(the "Act") and applicable state securities laws. Prior to the due presentment
for such transfer of this Debenture, the ISSUER and any agent of the ISSUER may
treat the person in whose name this Debenture is duly registered on the ISSUER'S
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and all other purposes, whether or not this debenture is
overdue, and neither the ISSUER nor any such agent shall be affected by notice
to the contrary. The transferee shall be bound, as the original HOLDER by the
same representations and terms described herein and under the Agreement.
4. The Holder is entitled, at its option, to convert this
Debenture in accordance with the terms and conditions contained in the 6%
Secured Convertible Subordinated Debenture Purchase Agreement, dated on or about
August 12, 1997 between the ISSUER and HOLDER (the "Agreement").
No fractional shares or scrip representing fractions of shares
will be issued on conversion, but the number of shares issuable shall be rounded
to the nearest whole share, with the fraction paid in cash at the discretion of
the ISSUER.
The Conversion Price shall be equitably adjusted accordingly
on a pro rata basis
<PAGE> 3
in the event of the happening of certain events that would affect the Common
Stock or the Convertible Debenture's value including, but not limited to,
forward and reverse splits, dividend payment on shares, subdivision of shares,
combinations, reclassifications, issuance of rights, warrants, options or the
like. An adjustment made pursuant to this section shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such an event.
5. This Debenture may be converted by the HOLDER, at its
option in accordance with the Agreement on or before August 12, 2000, or
redeemed by the Company in accordance with the Agreement. This Debenture shall
automatically convert on August 12, 2000.
6. No provision of this Debenture shall alter or impair the
obligation of the ISSUER, which is absolute and unconditional, upon an Event of
Default (as defined below), to pay the principal of, and interest on this
Debenture at the place, time, and rate, and in the coin or currency herein
prescribed.
7. The ISSUER hereby expressly waives demand and presentment
for payment, notice on nonpayment, protest, notice of protest, notice of
dishonor, notice of acceleration or intent to accelerate, and diligence in
taking any action to collect amounts called for hereunder and shall be directly
and primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
8. If one or more of the following described "Events of
Default" shall occur,
a. Any of the representations or warranties made by
the ISSUER herein, or in the Agreement shall have
been incorrect when made in any material respect; or
b. The ISSUER shall fail to perform or observe any
other covenant, term, provision, condition, agreement
or obligation of the ISSUER under this Debenture and
such failure shall continued uncured for a period of
seven (7) days after notice from the Holder of such
failure; or
c. A trustee, liquidator or receiver shall be
appointed for the ISSUER or for a substantial part of
its property or business without its consent and
shall not be discharged within thirty (30) days after
such appointment; or
d. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the ISSUER and shall not be dismissed
within thirty (30) calendar days thereafter; or
e. Bankruptcy reorganization, Insolvency or
liquidation proceedings or
<PAGE> 4
other proceedings for relief under any bankruptcy law
or any law for the relief or debtors shall be
instituted by or against the ISSUER, and if
instituted against the ISSUER, ISSUER shall by any
action or answer approve of, consent to or acquiesce
in any such proceedings or admit the material
allegations of, or default in answering a petition
filed in any such proceeding; or
f. The ISSUER'S Common Stock is delisted from trading
on Amex unless it is thereupon admitted to trading on
a national stock exchange or NASDAQ.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the
HOLDER (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the HOLDER and in the HOLDER'S
sole discretion, the HOLDER may consider this Debenture immediately due
and payable, without presentment, demand protest or notice of any kind,
all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding,
and HOLDER may immediately, and without expiration of any period of
grace, enforce any and all of the HOLDER'S rights and remedies provided
herein or any other rights or remedies afforded by law.
9. In case any provision of this Debenture is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
10. This Debenture and the Agreement referred to in this
Debenture constitute the full and entire understanding and agreement between the
ISSUER and HOLDER with respect hereof. Neither this Debenture nor any terms
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the ISSUER and the HOLDER. Any Capitalized terms shall have
the same meaning as defined in the Agreement. In the event of any
inconsistencies between this Debenture and the Agreement, the Agreement shall
control.
11. This Debenture shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. Notwithstanding anything to the contrary herein contained,
Holder shall be prohibited from converting any portion of the Debenture which
would result in the Holder being deemed the beneficial owner, in accordance with
the provisions of Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
of 4.99% or more of the then issued and outstanding Common Stock of the Company.
13. In the absence of an event of default, the Debentures may
not be transferred by the Holder, except in connection with the transfer of all
outstanding debentures to a single holder.
<PAGE> 5
IN WITNESS WHEREOF, the ISSUER has caused this instrument to
be duly executed by an officer thereunto duly authorized.
NETMED, INC.
By /s/ David J. Richards
-------------------------------
Name: David J. Richards
Title: President
Date: 8/13/97
<PAGE> 6
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
6% Secured Convertible Subordinated Debenture)
The undersigned hereby irrevocably elects to convert the below applicable
portion of Debenture No. 1 into shares of common stock of NETMED, INC. (the
"Company") according to the conditions hereof, as of the date written below.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Debenture shall be made pursuant to an exemption from
registration under the Act, or pursuant to registration of the Common Stock
under the Securities Act of 1933, as amended (the "Securities Act"), subject to
any restrictions on sale or transfer set forth in the 6% Secured Convertible
Subordinated Debenture Purchase Agreement between the Company and the original
holder of the Certificate submitted herewith for conversion.
- ------------------------------ -----------------------------------
Date of Conversion Applicable Conversion Price
- ------------------------------ -----------------------------------
Number of Common Shares upon $ Amount of Conversion
Conversion
- ------------------------------ -----------------------------------
Signature Name
Address: Delivery of Shares to:
------------------------------------
<PAGE> 1
Exhibit 99.6
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO
THE PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED
STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM
SUCH REGISTRATION.
NO. 1 WARRANT TO PURCHASE
73,334 SHARES OF
COMMON STOCK
WARRANT TO PURCHASE
COMMON STOCK
OF
NETMED, INC.
This certifies that, for value received, CPR (USA) INC. or its
registered assigns (collectively, the "Holder"), is entitled to purchase from
NETMED, INC., a corporation incorporated under the laws of the State of Ohio
(the "Company"), subject to the terms and conditions set forth below, at any
time on or after 9:00 A.M., Eastern time, on the Exercise Date (as defined
below) of this Warrant, and before 5:00 P.M., Eastern time, on the Expiration
Date (as defined below), the number of fully paid and nonassessable shares of
common stock, no par value, of the Company ("Common Stock") stated above at the
Purchase Price (as defined below). The Purchase Price and the number of shares
purchasable hereunder are subject to adjustment as provided below.
ARTICLE I
DEFINITIONS
Section 1.1. (1) The term "Agreement" as used in this Warrant
means the 6% Secured Convertible Subordinated Debenture Purchase Agreement
entered into by the parties of which this Warrant is an Exhibit.
(2) The term "Business Day" as used in this Warrant means a
day other than a Saturday, Sunday or other day on which national banking
associations whose principal offices are located in the State of Ohio are
authorized by law to remain closed.
<PAGE> 2
(3) The term "Expiration Date" as used in this Warrant means
the date of expiration of the thirty-six (36) month period immediately after the
Exercise Date (as defined in Section 2.1 hereof) or, if that day is not a
Business Day, as defined above, at or before 5:00 P.M. New York City time on the
next following Business Day.
(4) The term "Closing Date" as used in this Warrant means the
date of issuance of this Warrant.
(5) The term "Purchase Price" as used in this Warrant shall
mean one hundred twenty-five (125%) percent of the closing price as reported on
the Amex or other securities exchanges or markets on which the Common Stock is
listed as of the Closing Date per Warrant Share (as defined below), as may be
adjusted pursuant to the terms of Article III hereof.
(6) The term "Warrant" as used in this Warrant means this
Warrant and Warrants of like tenor to purchase up to the amount of Warrant
Shares (as defined below), indicated on the first page of the warrant.
(7) The term "Warrant Shares" as used in this Warrant means
the shares of Common Stock or other securities issuable upon exercise of the
Warrants.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
Section 2.1. This Warrant may be exercised at any time after
9:00 A.M., Eastern time on August 13, 1997 (the "Exercise Date"), and before
5:00 P.M., Eastern time, on the Expiration Date.
Section 2.2. (a) The Holder may exercise this Warrant in whole
or in part (but not in denominations of fewer than 1,000 Warrant Shares except
upon an exercise of the Warrant with respect to the remaining balance of Warrant
Shares purchasable hereunder at the time of exercise) by surrender of this
Warrant, with the Purchase Form (attached hereto) duly executed, to the Company
at its corporate office, together with the applicable Purchase Price of each
Warrant Share being purchased in lawful money of the United States, or by
certified check or official bank check payable in United States dollars to the
order of the Company, subject to compliance with all the other conditions set
forth in this Warrant.
(b) Upon receipt of this Warrant with the Purchase Form duly
executed and accompanied by payment of the aggregate Purchase Price for the
shares of Common Stock for which this Warrant is being exercised, the Company
shall cause to be issued certificates for the total number of whole shares (as
provided in Section 3.2) of Common Stock for which this Warrant is being
exercised in such denominations as are required for delivery to the Holder, and
the Company will promptly deliver those certificates to the Holder.
<PAGE> 3
(c) If the Holder exercises this Warrant with respect to fewer
than all the shares of Common Stock that may be purchased by exercise of this
Warrant, the Company will execute a new Warrant for the balance of the shares of
Common Stock that may be purchased by exercise of this Warrant and deliver that
new Warrant to the Holder.
ARTICLE III
ADJUSTMENT OF PURCHASE PRICE, NUMBER
OF SHARES OR NUMBER OF WARRANTS
Section 3.1. The Purchase Price, the number and type of
securities issuable on exercise of this Warrant and the number of Warrants
outstanding are subject to adjustment from time to time as follows:
(a) If the Company issues any shares of its Common Stock as a
dividend on its Common Stock, the Purchase Price then in effect will be
proportionately reduced at the opening of business on the day following the date
fixed for the determination of shareholders entitled to receive the dividend or
other distribution. For example, if the Company distributes one share of Common
Stock as a dividend on each outstanding share of Common Stock the Purchase Price
would be reduced by 50%. If the Company issues as a dividend on its Common Stock
any securities which are convertible into, or exchangeable for, shares of its
Common Stock, such dividend will be treated as a dividend of the Common Stock
into which the securities may be converted, or for which they may be exchanged,
and the Purchase Price shall be proportionately reduced.
(b) If the outstanding shares of Common Stock are subdivided
into a greater number of shares of Common Stock, then the Purchase Price will be
proportionately reduced at the opening of business on the day following the day
when the subdivision becomes effective, and if the outstanding shares of the
Common Stock are combined into a smaller number of shares of Common Stock, the
Purchase Price will be proportionately increased at the opening of business on
the day following the day when the combination becomes effective.
(c) If by reason of a merger, consolidation, reclassification
or similar corporate event, the holders of the Common Stock receive securities
or assets other than Common Stock, upon exercise of this Warrant after that
corporate event, the Holder of this Warrant will be entitled to receive the
securities or assets the Holder would have received if the Holder had exercised
this Warrant immediately before the first such corporate event and not disposed
of the securities or assets received as a result of that or any subsequent
corporate event.
Section 3.2. Upon each adjustment of the applicable Purchase
Price pursuant to Section 3.1 hereof, this Warrant will, after the adjustment,
evidence the right to purchase, at the adjusted Purchase Price, the number of
shares (calculated to the nearest hundredth) obtained by (i) multiplying the
number of shares issuable on exercise of this Warrant immediately prior to the
adjustment by the Purchase Price in effect immediately prior to the adjustment
and (ii) dividing
<PAGE> 4
the resulting product by the Purchase Price in effect immediately after the
adjustment. However, the Company will not be required to issue a fractional
share or to make any payment in lieu of issuing a fractional share.
Section 3.3. Whenever the Purchase Price or the number of
shares or type of securities issuable on exercise of this Warrant is adjusted as
provided in this Article III, the Company will compute the adjusted Purchase
Price and the adjusted number of Warrant Shares and will prepare a certificate
signed by its President or any Vice President, and by its Treasurer or Secretary
setting forth the adjusted Purchase Price and the adjusted number of Warrant
Shares and showing in reasonable detail the facts upon which the adjustments
were based and mail a copy of that certificate to the Holder.
Section 3.4. If at any time when this Warrant is outstanding
the Company:
(a) declares a dividend (or authorizes any other distribution)
on its Common Stock payable otherwise than in cash out of its undistributed net
income;
(b) authorizes the granting to the holders of its Common Stock
of rights to subscribe for or purchase any shares of its capital stock or
assets;
(c) authorizes a reclassification, split or combination of the
Common Stock, or a consolidation or merger to which the Company is a party or a
sale or transfer of all or substantially all the assets of the Company; or
(d) authorizes a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
the Company will mail written notice of such action to the Holder at least 20
days prior to the record date, or other date, for determining the shareholders
entitled to receive the dividend, distribution or rights, or the securities or
other property deliverable as a result of such action.
Section 3.5. The form of this Warrant need not be changed
because of any change in the Purchase Price or in the number of Warrant Shares,
and Warrants issued after that change may continue to describe the Purchase
Price and the number of Warrant Shares which were described in this Warrant as
initially issued.
Section 3.6. Before taking any action which would cause an
adjustment reducing the Purchase Price below the then par value, if any, of the
Common Stock, the Company will take all corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock at the
adjusted Purchase Price.
<PAGE> 5
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF WARRANT HOLDER
Section 4.1. If this Warrant is duly exercised, the Holder
will for all purposes be deemed to become the holder of record of the Warrant
Shares as to which this Warrant is exercised on, and the certificate for such
shares will be dated the date this Warrant is surrendered for exercise and the
Purchase Price paid in accordance with Section 2.2 hereof, except that if that
date is not a Business Day, the Holder will be deemed to become the record
holder of the Warrant Shares on, and the certificate will be dated the next
succeeding Business Day. The Holder will not be entitled to any rights as a
holder of the Warrant Shares, including the right to vote and to receive
dividends, until the Holder becomes or is deemed to become the holder of such
shares pursuant to the terms hereof.
Section 4.2. (a) The Company covenants and agrees that it will
at all times reserve and keep available for the exercise of this Warrant a
sufficient number of authorized but unissued shares of Common Stock to permit
the exercise in full of this Warrant.
(b) Prior to the issuance of any shares of Common Stock upon
exercise of this Warrant, the Company shall use its reasonable best efforts to
cause those shares to be authorized for listing, to the extent not previously
authorized for listing, on any securities exchange or trading system upon which
the Common Stock is then listed.
(c) The Company covenants that all shares of Common Stock
issued upon exercise of this Warrant and against payment of the Purchase Price
will be validly issued, fully paid and nonassessable.
Section 4.3. Notices to the Holder relating to this Warrant
will be effective on the earliest of actual receipt or the third business day
after mailing by first class mail (which shall be certified or registered,
return receipt requested), postage prepaid, addressed to the Warrant Holder at
the address shown on the books of the Company.
ARTICLE V
TREATMENT OF WARRANT HOLDER
Section 5.1. Prior to presentation of this Warrant for
registration of transfer, the Company may treat the Holder for all purposes as
the owner of this Warrant and the Company will not be affected by any notice to
the contrary.
<PAGE> 6
ARTICLE VI
COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS
Section 6.1. Any transfer permitted under this Warrant will be
made by surrender of this Warrant to the Company at its principal office with
the Form of Assignment (attached hereto) duly executed and funds sufficient to
pay any transfer tax. In such event the Company will, without charge, execute
and deliver a new Warrant to and in the name of the assignee named in the
instrument of assignment and this Warrant will promptly be canceled, and if the
assignor does not transfer all of its Warrants hereunder, the Company will
execute and deliver a new Warrant to and in the name of the assignor
representing the remaining Warrants held by the assignor.
Section 6.2. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation of them at the
principal office of the Company together with a written notice signed by the
Holder, specifying the names and denominations in which new Warrants are to be
issued.
Section 6.3. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of reasonably
satisfactory indemnification, or, in the case of mutilation, upon surrender of
the mutilated Warrant, the Company will execute and deliver a new Warrant
bearing the same terms and date as the lost, stolen or destroyed Warrant, which
will thereupon become void.
ARTICLE VII
OTHER MATTERS
Section 7.1. (a) This Warrant and any Warrant Shares may not
be sold, transferred, pledged, hypothecated or otherwise disposed of except as
follows: (i) to a person who, in the opinion of counsel to the Company, is a
person to whom this Warrant or the Warrant Shares may legally be transferred
without registration and without the delivery of a current prospectus under the
Securities Act with respect thereto, and then only against receipt of an
agreement of such person to comply with the provisions of this Section 7.1(a)
with respect to any resale or other disposition of such securities; or (ii) to
any person upon delivery of a prospectus then meeting the requirements of the
Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.
(b) Unless the Warrant Shares have been registered under the
Securities Act, upon exercise of any of the Warrant and the issuance of any of
the Warrant Shares, all certificates representing Warrant Shares shall bear on
the face thereof substantially the following legend:
<PAGE> 7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED,
TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED
PURSUANT TO THE PROVISIONS OF THAT ACT OR UNLESS AN OPINION OF
COUNSEL TO THE ISSUER IS OBTAINED STATING THAT SUCH
DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM
SUCH REGISTRATION.
Section 7.2. All the covenants and provisions of this Warrant
by or for the benefit of the Company will bind and inure to the benefit of its
successors and assigns.
Section 7.3. All notices and other communications under this
Warrant must be in writing. Any notice or communication to the Company will be
effective upon the earlier of actual receipt or the third business day after
mailing by first class mail (which shall be certified or registered, return
receipt requested), postage prepaid, addressed (until another address is
designated by the Company) as follows:
NetMed, Inc.
425 Metro Place North, Suite 140
Dublin, OH 43017
Attn: Kenneth Leachman and Bill Kelly, Esq.
(tele) (614) 793-9356
(fax) (614) 793-9376
Any notice or demand authorized by this Warrant to be given or
made by the Company to the Holder must be given in accordance with Section 4.3.
Section 7.4. The validity, interpretation and performance of
this Warrant will be governed by the laws of the State of Ohio. This Warrant
shall be subject to the exclusive jurisdiction of the courts of the State of
Ohio. The parties agree that any breach of any term or condition of this Warrant
shall be deemed to be a breach occurring in the State of Ohio by virtue of a
failure to perform an act required to be performed in the State of Ohio and
irrevocably and expressly agree to submit to the jurisdiction of the courts of
the State of Ohio for the purpose of resolving any disputes among the parties
relating to this Warrant or the transactions contemplated hereby. The parties
irrevocably waive, to the fullest extent permitted by law, any objection which
they may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Warrant, or any judgment entered
by any court in respect hereof brought in the State of Ohio, and further
irrevocably waive any claim that any suit, action or proceeding brought in the
State of Ohio has been brought in an inconvenient forum. Proceeding arising out
of or relating to this Warrant, or any judgment entered by any court in respect
hereof brought in the State of Ohio, and further irrevocably waive any claim
that any suit, action or proceeding brought in the State of Ohio has been
brought in an inconvenient forum.
<PAGE> 8
Section 7.5. Nothing in this Warrant will give any person,
corporation or other entity other than the Company and the Holder(s) any right
or claim under this Warrant, and all agreements in this Warrant will be for the
sole benefit of the Company, the Holder(s) and their respective successors.
Section 7.6. The Article headings in this Warrant are for
convenience only, are not part of this Warrant and will not affect the
interpretation of its terms.
IN WITNESS WHEREOF, this Warrant has been duly executed by the
Company as of the 13th day of August, 1997.
NETMED, INC.
By: /s/David J. Richards
---------------------------------
Name: David J. Richards
Title: President
<PAGE> 9
PURCHASE FORM
To Be Executed By The Warrant Holder
To Exercise The Warrant In Whole Or In Part:
To: NETMED, INC.
The undersigned ( )
---------------------------------------------
Please insert Tax ID Number or other
identifying number of Holder
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, ___________________ shares of
Common Stock of NetMed, Inc. in the amount of $__________ The undersigned
requests that certificates for those shares of Common Stock be issued as
follows:
Name:
--------------------------------------
Address:
-----------------------------------
Deliver to:
--------------------------------
Address:
----------------------------------
and that, if the number of shares of Common Stock is not all the shares of
Common Stock purchasable by exercise of the Warrant, that a new Warrant for the
balance of the shares of Common Stock purchasable under the within Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated below:
Address:
-----------------------------------
Date:
--------------------------------------
Signature:
-----------------------------------
<PAGE> 10
FORM OF ASSIGNMENT
(To Be Executed Only Upon An Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto
____________________ the right to purchase ________ shares of Common Stock of
NetMed, Inc. evidenced by the within Warrant.
Signature
---------------------------------
Signature Guaranteed:
- --------------------------------
<PAGE> 1
EXHIBIT 99.7
AMENDMENT TO CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
This Amendment ("Amendment") is made as of August 12, 1997, to the 6%
Secured Convertible Subordinated Debenture Purchase Agreement dated August 12,
1997 (the "Agreement") between NETMED, INC., (the "Company"), and CPR (USA) INC.
(the "Purchaser"). All capitalized terms which are not otherwise defined herein
shall have the meanings as defined in the Agreement.
WHEREAS, pursuant to the Agreement, on August 13, 1997, the Company
issued $2,200,000 in principal amount of Debentures to the Purchaser; and
WHEREAS, the parties desire to amend the Agreement as provided herein;
NOW THEREFORE, the parties agree as follows:
1. Conversion Date. The definition of "Conversion Date" contained
in Section 1 of the Agreement is hereby amended to read as follows:
"Conversion Date" means the date on which the Purchaser has
telecopied the Notice of Conversion to the Company. The Debentures
(including any interest or additional interest accrued thereon) are
convertible at any time during their term; provided, however that (i)
no Conversion Shares may be sold by the Purchaser prior to ninety (90)
calendar days after the Closing Date, and (ii) prior to two hundred
seventy (270) days after the Closing Date, the aggregate number of
Conversion Shares which may be sold by Purchaser shall not exceed
366,667. Notwithstanding the foregoing, the Company can prohibit any
sales of Conversion Shares from December 14, 1997 to February 1, 1998
(the "Blackout Period").
2. Confirmation of Agreement. The provisions of the Agreement, as
amended hereby, are ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
NETMED, INC.
By /s/ David J. Richards
----------------------------
David J. Richards, President
CPR (USA) INC.
By /s/ George T. Hartigan
----------------------------
George T. Hartigan,
Chief Operations Officer
