<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
NETMED, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
NETMED, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
MAY 18, 1998
AND
PROXY STATEMENT
- --------------------------------------------------------------------------------
IMPORTANT
PLEASE MARK, SIGN AND DATE YOUR PROXY
AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE
<PAGE> 3
NETMED, INC.
6189 Memorial Drive
Dublin, Ohio 43017
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 15, 1998
To Our Shareholders:
The Annual Meeting of Shareholders of NetMed, Inc. (the "Company") will
be held at the Wyndham Dublin Hotel, located at 600 Metro Place North, Dublin,
Ohio 43017, on Monday, May 18, 1998, at 10:00 a.m. local time, for the following
purposes:
(1) To elect three Class II Directors of the Company to serve for
a two-year term expiring at the 2000 Annual Meeting of
Shareholders.
(2) To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the 1998 fiscal year.
(3) To transact any other business which may properly come before
the meeting or any adjournment thereof.
Holders of record of the Company's common shares at the close of
business on March 31, 1998, will be entitled to vote at the Annual Meeting of
Shareholders.
You will be most welcome at the meeting, and we hope you can attend.
Directors and officers of the Company and representatives of its independent
public accountants will be present to answer your questions and to discuss the
Company's business.
We urge you to execute and return the enclosed proxy as soon as
possible so that your shares may be voted in accordance with your wishes. If you
attend the meeting, you may vote in person and your proxy will not be used.
By Order of the Board of Directors,
David J. Richards
President
- --------------------------------------------------------------------------------
PLEASE SIGN AND MAIL THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
- --------------------------------------------------------------------------------
<PAGE> 4
NETMED, INC.
6189 Memorial Drive
Dublin, Ohio 43017
-----------------------------
PROXY STATEMENT
-----------------------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 1998
-----------------------------
This Proxy Statement is furnished to the shareholders of NetMed, Inc.
(the "Company") in connection with the solicitation of proxies to be used in
voting at the Annual Meeting of Shareholders to be held on May 18, 1998, at the
Wyndham Dublin Hotel, Dublin, Ohio 43017, and at any adjournment thereof (the
"Annual Meeting"). The enclosed proxy is solicited by the Board of Directors of
the Company. This Proxy Statement and the enclosed proxy will be first sent or
given to the Company's shareholders on approximately April 15, 1998.
The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of shares. Representatives of the
Company may solicit proxies by mail, telegram, telephone, or personal interview.
The shares represented by the accompanying proxy will be voted as
directed if the proxy is properly signed and received by the Company prior to
the Annual Meeting. If no direction is made to the contrary, the proxy will be
voted FOR each nominee for director named herein; FOR the ratification of the
selection of Ernst & Young LLP as the Company's independent auditors for the
fiscal year 1998; and, at the discretion of persons acting under the proxy, to
transact such other business as may properly come before the Annual Meeting or
any adjournment thereof. Any shareholder giving a proxy has the power to revoke
it at any time before it is exercised by filing a written notice with the
Secretary of the Company prior to the Annual Meeting. Shareholders who attend
the Annual Meeting may vote in person and their proxies will not be used.
Holders of record of the Company's common shares, without par value
("Common Shares") at the close of business on March 31, 1998, will be entitled
to vote at the Annual Meeting. At that time, the Company had 11,334,169 Common
Shares outstanding and entitled to vote. Each Common Share outstanding on the
record date entitles the holder to one vote on each matter submitted at the
Annual Meeting.
The presence, in person or by proxy, of holders of a majority of the
outstanding Common Shares of the Company is necessary to constitute a quorum for
the transaction of business at the Annual Meeting. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum. Broker non-votes occur when brokers, who hold their customers' shares in
street name, sign and submit proxies for such shares and vote such shares on
some matters, but not others. Typically, this would occur when brokers have not
received any instructions from their customers, in which case the brokers, as
the holders of record, are permitted to vote on "routine" matters, which
typically includes the election of directors.
The election of the director nominees requires the favorable vote of a
plurality of all votes cast by the holders of Common Shares at a meeting at
which a quorum is present. Proxies that are marked "Withhold Authority" and
broker non-votes will not be counted toward such nominee's achievement of a
plurality and thus will have no effect. Each other matter to be submitted to the
shareholders for approval or ratification at the Annual Meeting requires the
affirmative
<PAGE> 5
vote of the holders of a majority of the Common Shares present and entitled to
vote on the matter. For purposes of determining the number of Common Shares
voting on the matter, abstentions will be counted and will have the effect of a
negative vote; broker non-votes will not be counted and thus will have no
effect.
ELECTION OF DIRECTORS
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 there will be 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 Board of Directors proposes the election of three members of Class
II at the Annual Meeting. Robert J. Massey and James F. Zid are currently Class
II Directors and are being nominated by the Board of Directors for re-election
as Class II Directors. John P. Kennedy, currently a Class II Director, has
declined nomination for election to serve an additional term, and the Board of
Directors has nominated Susan M. O'Toole for election to the seat being vacated
by Mr. Kennedy. The nominees for Class II Director, if elected, will serve for a
two-year term expiring at the 2000 Annual Meeting of Shareholders. Three
incumbent Class I Directors will continue in office.
It is intended that, unless otherwise directed, the shares represented
by the enclosed proxy will be voted FOR the election of Mr. Massey, Mr. Zid and
Ms. O'Toole as Class II Directors. In the event that any nominee for director
should become unavailable, the number of directors of the Company may be
decreased pursuant to the Regulations, or the Board of Directors may designate a
substitute nominee, in which event the Common Shares represented by the enclosed
proxy will be voted for such substitute nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF ALL NOMINEES FOR DIRECTOR.
The following table sets forth for the nominee and each continuing
director of the Company, such person's name, age, and his or her position with
the Company:
<TABLE>
<CAPTION>
CLASS II DIRECTORS
(NOMINEES FOR TERMS EXPIRING IN 2000)
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Susan M. O'Toole 48 Nominee for Director
James F. Zid 64 Director
Robert J. Massey 52 Director
</TABLE>
<TABLE>
<CAPTION>
CLASS I DIRECTORS
(TERMS EXPIRING IN 1999)
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David J. Richards 46 President, Director
S. Trevor Ferger 43 Director
Cecil J. Petitti 44 Director
Michael S. Blue, M.D. 43 Director
</TABLE>
-3-
<PAGE> 6
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND NOMINEES FOR DIRECTOR
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.
S. Trevor Ferger is President of Ferger & Associates, a sales
consulting firm. He started his career with Procter & Gamble and had sales
management responsibilities in Atlanta, Georgia; Jacksonville, Florida; and
Raleigh, North Carolina. After obtaining an MBA Degree from Xavier University in
Cincinnati, he started a sales and marketing firm specializing in the sales and
marketing of consumer goods to grocery stores, which merged into Acosta Sales of
Jacksonville, Florida in October of 1996.
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, and CallTech Communications, Inc., a
company providing telemarketing services and customer care outsourcing. 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.
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 currently President of RJM & Associates, a Columbus,
Ohio based consulting firm, and a principal in CallTech Communications, Inc., a
company providing telemarketing services and customer care outsourcing. Prior to
his affiliation with these businesses, he was President, Chief Executive Officer
and a director of CompuServe Corporation, culminating an over twenty year career
with the firm as an executive with responsibilities in sales, marketing and
general management. Mr. Massey is a director of Hublink, Inc., a Columbus-based
software company, and serves on various advisory boards, including that of Gray
Peak Technologies, a New York City-based network technologies consulting firm.
He is a graduate of Holy Cross College, Worchester, Massachusetts and received
an MBA in Finance from Syracuse University.
-4-
<PAGE> 7
Susan M. O'Toole is a nominee for election to the Board of Directors.
Ms. O'Toole is Executive Vice President and advisory board member of Retail
Apparel Group, Inc., a privately-held retail apparel company based in Cleveland,
Ohio. From 1987 to 1996, Ms. O'Toole was a senior operating executive with The
Limited, Inc. in Columbus, Ohio, serving as President of its Limited Too
division from 1993-1996. Prior to joining The Limited, Ms. O'Toole was Executive
Vice President of Seifert's, a specialty retailer, from 1971 to 1987.
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. Mr. Zid currently serves on the Board of Directors
of Neoprobe Corporation and Central Benefits Insurance Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company had a total of five meetings
during the year ended December 31, 1997. During 1997, each of the directors
attended 75% or more of the total number of (i) meetings of the Board, and (ii)
meetings of committees of the Board on which such director served. Directors who
are not employees of the Company received no cash compensation or expense
reimbursement for their services. In 1997 and prior years, non-employee
directors received stock options as compensation for their services.
The Board of Directors has an Audit Committee consisting of Messrs.
Richards, Blue and Ferger and a Compensation Committee consisting of 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. 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 OFFICERS
In addition to David J. Richards and John P. Kennedy, the following
persons are executive officers of the Company:
Kenneth B. Leachman, age 44, 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., age 46, 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.
Officers are elected annually by the Board of Directors and serve at
its discretion. There are no family relationships among directors and executive
officers of the Company.
-5-
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's Chief Executive Officer, and the only other executive officers whose
combined salary and bonus exceeded $100,000 for the fiscal year ended
December 31, 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ------------
AWARDS
------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SECURITIES ALL OTHER
($) ($) UNDERLYING COMPENSATION
OPTIONS ($)(1)
(#)
- --------------------------------------- -------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
David J. Richards, President and 1997 $200,000 $50,000 150,000 $16,259
Chief Executive Officer 1996 $125,000 $100,000(2) 0 $ 9,338
1995 $125,000 0 0 $12,228
John P. Kennedy, Vice President- 1997 $147,500 0 102,000 $12,097
Business Development
Kenneth B. Leachman, Vice 1997 $100,000 0 50,000 $8,004
President-Finance and Chief Financial
Officer
</TABLE>
(1) Includes matching contribution to the Company's 401(k) Plan, car
allowance and excess group term insurance.
(2) Consists of a $50,000 cash bonus for 1995, which was paid in 1996 and
$50,000 represented by the forgiveness of indebtedness to the Company,
which was approved by the Board of Directors in 1995 and conditioned on
completion of the merger described below under "Certain Relationships
and Related Party Transactions."
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-6-
<PAGE> 9
OPTION GRANTS IN LATEST FISCAL YEAR
The following table provides certain information regarding stock options
granted during 1997 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------- --------------
(A) (B) (C) (D) (E) (F) (G)
NAME % OF TOTAL
OPTIONS OPTIONS EXERCISE MARKET EXPIRATION GRANT DATE
GRANTED GRANTED TO PRICE PRICE ON DATE PRESENT
(#) EMPLOYEES ($/SH) GRANT DATE VALUE ($)(1)
IN FISCAL ($/Sh)
YEAR
---------- ------------ --------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
David J. Richards(2) 50,000 11.63 $ 6.94 $6.94 4/1/07 $143,500
50,000 11.63 $10.00 $6.94 4/1/07 $106,000
50,000 11.63 $12.00 $6.94 4/1/07 $ 88,500
John P. Kennedy(3) 100,000 23.26 $ 7.01 $9.63 1/30/07 $540,000
2,000 0.46 $ 8.40 $9.63 2/18/07 $ 9,720
Kenneth B. Leachman(4) 50,000 11.63 $ 5.95 $9.63 12/10/06 $276,500
</TABLE>
(1) The amounts under the column labeled "Grant Date Present Value ($)" are
included by the Company pursuant to certain rules promulgated by the
Securities and Exchange Commission and are not intended to forecast
future appreciation, if any, in the price of the Company's Common
Shares. Such amounts are calculated by application of the Black-Scholes
option pricing formula, which yields a valuation based upon certain
assumptions, including that the price volatility of the stock will
follow historic patterns and that the option holders hold the options
granted for their full term. The actual realizable value of the options
will vary in accordance with the market price of the Company's Common
Shares and may differ substantially from the value produced by
application of the formula. As of the date of this Proxy Statement, the
exercise prices of all of the options referenced in this table
substantially exceed the current market value of the Company's Common
Shares, and the market price of the Company's Common Shares would have
to increase substantially over the term of these options for them ever
to have any realizable value.
(2) Mr. Richards' options were granted effective April 1, 1997, pursuant to
the terms of his employment agreement, which is described below. Each
50,000 tranche vests following the completion of a year of employment
during the three year term of the employment agreement.
(3) The 100,000 grant of options to Mr. Kennedy was made effective
January 30, 1997 in connection with his becoming an employee, and vest
at the rate of 25,000 options for the completion of each full year of
employment with the Company. The grant of 2,000 options was made for
service as a Director during 1996.
(4) The grant of options to Mr. Leachman was made effective December 10,
1996, in connection with his becoming an employee, and vest at the rate
of 12,500 options for the completion of each full year of employment
with the Company.
-7-
<PAGE> 10
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 Officers at December 31,
1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END ($)(1)
(#)
------------------------------ -------------------------------
SHARES VALUE
NAME ACQUIRED REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
ON
EXERCISE
(#)
- -------------------------- ----------- ------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David J. Richards - - 287,020 - $342,153 -
John P. Kennedy - - 16,000 - $ 11,000 -
Kenneth B. Leachman - - - - - -
</TABLE>
(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 ($2.25 on December 31, 1997). 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, in consideration of their services during 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 Mr. Massey was
granted options for 25,000 shares (exercisable at $6.16 per share). 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 CONTRACTS WITH NAMED EXECUTIVE OFFICERS
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
-8-
<PAGE> 11
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 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.
REPORT ON 1997 EXECUTIVE COMPENSATION
The Company's compensation policies have been designed to attract,
retain and motivate the executive talent required to achieve the Company's
business objectives and to increase shareholder value. Prior to 1997, the
executive compensation policies and decisions were made by the entire Board of
Directors. During 1997, executive compensation and stock option awards have been
determined by a Compensation Committee (the "Committee"), which currently
consists of Messrs. Blue, Petitti and Massey. The Committee plans to annually
review the competitiveness of the Company's executive compensation programs.
During 1997, the Committee and the Board approved a 3-year employment
contract with Mr. Richards, providing for base salary, incentive bonus, stock
options and other benefits. The Committee and the Board in 1997 approved a
$50,000 cash bonus to Mr. Richards based upon his individual performance during
the year ended 1996, including his efforts toward increasing the Company's
revenues, the successful completion of the Merger, and the Company's successful
transition to becoming an SEC-reporting company listed on a national securities
exchange. Mr. Richards did not participate in any Board deliberations concerning
his compensation or employment contract.
The Company's compensation for executive officers consists of a base
salary, a benefits package, cash bonus and long-term incentives, which have
historically been in the form of stock options. Base salary adjustments are made
after reviewing previous levels of base salary, perceived level of individual
performance, and overall performance of the Company. No specific weight is given
to any of these factors, because each factor is considered significant and the
relevance of each varies depending upon the officer's responsibilities. The
annual cash bonus and stock options are variable, may fluctuate significantly
from year to year, and are based upon the Committee's assessment of Company and
individual performance, rather than a specific formula. The Company believes
that making stock options a significant portion of the total compensation
package serves to align the economic interests of the executive with those of
the Company and its shareholders.
Compensation Committee: Cecil J. Petitti, Michael S. Blue, M.D.,
Robert J. Massey.
-9-
<PAGE> 12
OWNERSHIP OF COMMON SHARES BY MANAGEMENT AND
PRINCIPAL SHAREHOLDERS SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth information regarding beneficial
ownership of the Company's Common Shares by each director, the Company's
executive officers named in the Summary Compensation Table, and the directors
and executive officers of the Company as a group as of March 31, 1998:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
---------------------------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------------------- ---------------------- -------------------------
<S> <C> <C>
David J. Richards(2) 1,181,702 10.02
John P. Kennedy(3) 702,190 5.96
S. Trevor Ferger(4) 299,992 2.54
Cecil J. Petitti(5) 166,643 1.41
Michael S. Blue(6) 293,384 2.49
Robert J. Massey(7) 48,922 *
James F. Zid 3,800 *
Kenneth B. Leachman(8) 14,500 *
William J. Kelly, Jr. 4,000 *
All directors and executive officers as a group
(9 persons) 2,274,789 23.1
</TABLE>
- ----------------------
* Represents beneficial ownership of less than 1% of the Company's
outstanding Common Shares.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange 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 March 31, 1998. 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 337,020 shares which may be purchased under stock options
exercisable within 60 days of March 31, 1998.
(3) Includes 51,000 shares which may be purchased under stock option
exercisable within 60 days of March 31, 1998.
(4) Includes 16,667 shares which may be purchased under stock options
exercisable within 60 days of March 31, 1998.
(5) Includes 16,667 shares which may be purchased under stock options
exercisable within 60 days of March 31, 1998.
(6) Includes 6,667 shares which may be purchased under stock options
exercisable within 60 days of March 31, 1998.
(7) Includes 8,333 shares which may be purchased under stock options
exercisable within 60 days of March 31, 1998.
(8) Includes 12,500 shares which may be purchased under stock options
exercisable within 60 days of March 31, 1998.
-10-
<PAGE> 13
SECURITY OWNERSHIP BY PRINCIPAL SHAREHOLDERS
The following table sets forth information as of March 31, 1998 relating
to the beneficial ownership of Common Shares by each person known by the Company
to own beneficially more than 5% of the outstanding Common Shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
----------------------------------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------------ -------------------------- ---------------------------
<S> <C> <C>
David J. Richards(2) 1,181,702 10.02
John P. Kennedy(3) 702,190 5.96
Rodney M. Kinsey(4) 617,085 5.23
Carl Genberg(5) 767,232 6.51
</TABLE>
- ----------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange 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 March 31, 1998. 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 337,020 shares which may be purchased under stock options
exercisable within 60 days of March 31, 1998. Mr. Richards' address is
6189 Memorial Drive, Dublin, Ohio 43017.
(3) Includes 51,000 shares which may be purchased under stock option
exercisable within 60 days of March 31, 1998. Mr. Kennedy's address is
6189 Memorial Drive, Dublin, Ohio 43017.
(4) 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. Kinsey's
address is 8651 Gairloch Ct., Dublin, Ohio 43017. Also includes 6,667
shares which may be purchased under stock options exercisable within 60
days of March 31, 1998.
(5) Mr. Genberg's address is 101 Convention Center Drive, Suite 1001,
Las Vegas, Nevada 89109.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-11-
<PAGE> 14
The following Performance Graph shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
of the Company's filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
PERFORMANCE GRAPH
COMPARISON OF 43 MONTH CUMULATIVE TOTAL RETURN* AMONG
THE COMPANY, THE AMEX MARKET VALUE INDEX, THE S&P HEALTH CARE
(MEDICAL PRODUCTS & SUPPLIES) INDEX AND A CERVICAL CYTOLOGY PEER GROUP INDEX
The following Performance Graph compares the performance of the Company
with that of the AMEX Market Value Index, the S&P Health Care (Medical
Products & Supplies) Index, and an index composed of a peer group of cervical
cytology companies (the "Peer Group"). The Peer Group consists of Accumed,
International, Inc. (ACMIC), Autocyte, Inc. (ACYT), Cytyc Corp. (CYTC), Neopath,
Inc. (NPTH) and Neuromedical Systems, Inc. (NSIX). The comparison of the
cumulative total return to shareholders for each of the periods assumes that
$100 was invested on May 12, 1994 in the Company's Common Shares, and in the
AMEX Market Value Index, the S&P Health Care (Medical Products & Supplies) Index
and the Peer Group, and that all dividends were reinvested.
<TABLE>
<CAPTION>
5/12/94 12/31/94 12/31/95 12/31/96 12/31/197
<S> <C> <C> <C> <C> <C>
NETMED, INC. 100 93 357 227 64
PEER GROUP 100 100 100 73 43
AMEX MARKET VALUE 100 99 125 133 161
S & P HEALTH CARE 100 125 211 243 302
(MEDICAL PRODUCTS & SUPPLIES)
</TABLE>
-12-
<PAGE> 15
Certain Relationships and Related Party Transactions
On December 16, 1996, the Company completed a merger with Cytology
Indiana, Inc., Indiana Cytology Review Company, ER Group, Inc., CCWP Partners,
Inc., and Carolina Cytology, Inc. (the "Predecessor Companies"), which had held
the rights to market the Papnet Testing 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
767,232 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 Company loaned to
CWI $130,143 to cover certain operating expenses, and expenses associated with
the abandoned merger and the acquisition of new technology. In April 1997 CWI
surrendered 16,331 Common Shares to the Company in satisfaction of the loan.
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.
In January, 1998, the Company entered into a consulting arrangement
with Ferger & Associates ("Consultant"), a company controlled by Mr. Ferger,
under which the Consultant will assist the Company in its marketing and sales
activities, including management of the sales force. Under this arrangement, the
Company has agreed to pay the Consultant $100,000 annually, in monthly
installments, plus reimbursement of reasonable expenses. The term of the
arrangement is three years, but following the first year it is cancellable by
either party on sixty days prior written notice.
Independent Public Accountants
The Board of Directors has appointed Ernst & Young LLP, independent
public accountants, as auditors for the Company for fiscal 1998. Ernst & Young
LLP has served as the independent public accountants for the Company since 1996.
The Board of Directors believes that the reappointment of Ernst & Young LLP for
fiscal 1998, is appropriate because of the firm's reputation, qualifications,
and experience. Representatives of Ernst & Young LLP will be present at the
meeting and will have an opportunity to make a statement if they desire to do
so. Such representatives will be available to respond to appropriate questions.
Annual Report
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997, containing financial statements for such year and the signed
opinion of Ernst & Young LLP, independent auditors, with respect to such
financial statements, is being sent to shareholders concurrently with this Proxy
Statement. The Annual Report is not to be regarded as proxy soliciting material,
and management does not intend to ask, suggest or solicit any action from the
shareholders with respect to such report.
-13-
<PAGE> 16
A COPY OF THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE WITHOUT CHARGE TO SHAREHOLDERS UPON REQUEST TO: KENNETH B. LEACHMAN,
VICE PRESIDENT - FINANCE, NETMED, INC., 6189 MEMORIAL DRIVE, DUBLIN, OHIO 43017.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors, and persons who are beneficial owners of more
than ten percent of the Company's Common Stock ("reporting persons") to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Reporting persons are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms filed
by them. Based on its review of the copies of Section 16(a) forms received by it
and written representations from reporting persons, the Company believes that
all filing requirements applicable to its reporting persons were complied with
during 1997.
COST OF SOLICITATION OF PROXIES
The cost of this solicitation will be paid by the Company. In addition
to the solicitation of proxies by mail, the directors, officers and employees of
the Company may solicit proxies personally or by telephone. The Company may
request persons holding shares in their names for others to forward soliciting
materials to their principals to obtain authorization for the execution of
proxies, and the Company may reimburse such persons for their expenses in doing
so.
PROPOSALS BY SHAREHOLDERS FOR 1998 ANNUAL MEETING
If any shareholder of the Company wishes to submit a proposal to be
included in next year's Proxy Statement and acted upon at the annual meeting of
the Company to be held in 1999, the proposal must be received by the Secretary
of the Company at the principal executive offices of the Company, 6189 Memorial
Drive, Dublin, Ohio 43017, prior to the close of business on December 31, 1998.
Any proposal submitted after that date may be omitted by the Company from the
Proxy Statement and form of proxy relating to that meeting.
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no other
business that will come before the meeting. Should any other matter requiring a
vote of the shareholders arise, the proxy in the enclosed form confers upon the
persons designated to vote the shares discretionary authority to vote with
respect to such matter in accordance with their best judgment.
All proxies received duly executed will be voted. You are requested to
sign and date the enclosed proxy and mail it promptly in the enclosed envelope.
If you later desire to vote in person, you may revoke your proxy, either by
written notice to the Company, Attention: Kenneth B. Leachman, or in person at
the meeting, without affecting any vote previously taken.
By Order of the Board of Directors,
David J. Richards
President and Chief Executive Officer
-14-
<PAGE> 17
NETMED, INC.
6189 Memorial Drive
Dublin, Ohio 43017
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 1998
The undersigned hereby appoints DAVID J. RICHARDS and KENNETH B. LEACHMAN,
or either of them, my attorneys and proxies, with full power of substitution,
in the name, place and stead of the undersigned, to vote at the Annual
Meeting of Shareholders of NetMed, Inc. to be held on May 18, 1998 and at any
adjournment thereof, with all of the powers I would have if personally
present, for the following purposes:
1. The election of Class II directors
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
for nominees listed below
(except as marked to the contrary).
INSTRUCTIONS: Do not check "WITHHOLD AUTHORITY" to vote for only certain
individual nominees. To withhold authority to vote for any individual
nominee, strike a line through the nominee's name below and check "FOR").
James F. Zid Robert J. Massey Susan M. O'Toole
2. Ratification of the selection of Ernst & Young LLP as auditors for the
current fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To transact such other business as may properly come before the meeting
and any adjournment thereof. This proxy, when executed, will be voted in
the manner directed herein by the undersigned shareholder(s). If no
direction is made, this proxy will be voted FOR proposals 1, and 2.
(Continued and to be signed on other side)
<PAGE> 18
(Continued from other side)
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders dated April 15, 1998, the Proxy Statement
furnished therewith, and the Annual Report to Shareholders of the Company
for the fiscal year ended December 31, 1997. Any proxy heretofore given
to vote said shares is hereby revoked.
Dated:
________________________________, 1998
________________________________
(Signature)
________________________________
(Signature)
Signature(s) must agree with the
name(s) printed on this Proxy.
If shares are registered in two
names, both shareholders should
sign this Proxy.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
