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As filed with the Securities and Exchange Commission on December 18, 1998
Registration No. 333-66679
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NETMED, INC.
(Exact name of Registrant as specified in its charter)
Ohio 5047 31-1282391
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
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6189 Memorial Drive
Dublin, Ohio 43107
(614) 793-9356
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
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David J. Richards, President
NetMed, Inc.
6189 Memorial Drive
Dublin, Ohio 43017
(614) 793-9356
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of Correspondence to:
William J. Kelly, Jr., Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
(614) 227-2136
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Approximate date of commencement of proposed sale of the securities to the
public:___________________ From time to time after the Effective Date of this
Registration Statement, as determined by market conditions.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any 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, other
than securities offered only in connection with dividend or interest
reinvestment plans, 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, please 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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration
Securities to be Registered Registered Per Share* Price* Fee*
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<S> <C> <C> <C> <C>
Common stock, without par value.....................8,000,000 $ .375 $3,000,000 $834
========================================================================================================================
</TABLE>
* Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average high and low prices of the
Common Stock as reported on the American Stock Exchange on October 27,
1998.
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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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION - DECEMBER 18, 1998
PROSPECTUS
8,000,000 SHARES
NETMED, INC.
6189 Memorial Drive
Dublin, Ohio 43017
(614) 793-9356
COMMON STOCK
(without par value)
This prospectus relates to the sale of up to 8,000,000 shares of our common
stock which we may issue to holders of Series A, 6% Convertible Preferred Stock
who convert that preferred stock into shares of common stock. The issuance of
common stock upon conversion of the preferred stock is not covered by this
prospectus, but rather only the resale of such common stock. The shares of
common stock which are the subject of this prospectus also include 511,653
shares of common stock that were issued upon conversion of certain debentures
previously sold by us.
Our common stock is currently listed on the American Stock Exchange under the
symbol "NMD." On December 17, 1998, the last reported sale price of our common
stock on the American Stock Exchange was $0.25 per share.
THERE ARE CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING
SHARES IN THIS OFFERING. SEE "RISK FACTORS" BEGINNING ON PAGE 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is December __, 1998.
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TABLE OF CONTENTS
PAGE
Prospectus Summary .................................................... 3
Risk Factors........................................................... 3
Available Information.................................................. 7
Information Incorporated By Reference.................................. 8
Forward Looking Statements............................................. 9
The Company............................................................ 9
Recent Developments.................................................... 10
Use of Proceeds........................................................ 10
Selling Shareholder.................................................... 10
Plan of Distribution................................................... 12
Description of Capital Stock........................................... 12
Certain Provisions Of Articles and Regulations......................... 13
Experts................................................................ 15
Legal Matters.......................................................... 16
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PROSPECTUS SUMMARY
The shares offered by this prospectus consist of up to 8,000,000 common
shares (the "Shares"), without par value (the "Common Stock") of NetMed, Inc.,
an Ohio corporation. We may issue the Common Stock to investors who convert
their Series A, 6% Convertible Preferred Stock ("Preferred Stock"). The
Preferred Stock will be issued on or about the date of this prospectus. As of
the date of this prospectus, 100,000 shares of the Preferred Stock are
outstanding. Pursuant to an exchange agreement between us and the holders of the
Preferred Stock, the Preferred Stock was issued in exchange for certain
debentures issued by us in August, 1997. The number of shares registered for
sale by the registration statement equals 150% of the number of shares into
which the Preferred Stock was convertible as of October 27, 1998, assuming the
Preferred Stock was fully converted on that date plus shares of Common Stock
previously issued to the holders on conversion of the debentures. We have
registered 150% of the number of shares which may be converted at this time
since the number of shares of Common Stock which can be obtained from the
conversion of the Preferred Stock increases as the price of the Common Stock
decreases. For a further description of the terms of the Preferred Stock, see
"Selling Shareholders."
This prospectus covers the sale of the Shares by the selling
shareholders. The Shares may be offered from time to time by the selling
shareholders. We will pay all expenses of the registration. However, any
brokers' or underwriters' fees or commissions will be paid by the selling
shareholders. We will not receive any proceeds from the sale of the Shares by
the selling shareholders.
The selling shareholders have not advised us of any specific plans for
the distribution of the Shares covered by this prospectus. However, we
anticipate that the Shares will be sold from time to time primarily in
transactions on the American Stock Exchange at the then current market price,
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."
RISK FACTORS
Investment in the securities being sold 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 sold.
RISKS RELATING TO NEW OPERATIONS
We are in the early stage of our operations. Therefore we are subject
to risks incident to any new business, including the absence of earnings. We
have to date had limited income from operations, and as of September 31, 1998
have a retained deficit of $6,380,911. While we intend to complete development
and begin selling the OxyNet(R) oxygen concentration system, we have to date
focused our efforts primarily on the marketing of the PAPNET(R) Testing System.
Until a successful commercial launch of the oxygen product (which is not
assured) we will be dependent upon the successful marketing of the PAPNET System
for revenues.
RISKS RELATING TO FUTURE CAPITAL NEEDS
We cannot accurately predict the extent of our future capital needs.
However, we will likely incur substantial expenditures during 1998 and 1999 to
complete development and commercialization of the OxyNet oxygen concentrator. We
do not currently have adequate funds to accomplish this objective, and
anticipate that we may need to raise additional capital in 1999. We are unsure
whether capital will be available at that time.
RISKS RELATING TO SHAREHOLDER DILUTION, PREFERENCES
If we issue equity securities to raise funds, each current shareholder's
interest may be reduced.
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Further, such equity securities may have rights, preferences or privileges
senior to the Common Stock.
RISKS RELATING TO DIVIDENDS
We have not paid and do not anticipate paying any cash dividends in the
foreseeable future. We intend to retain future earnings for the development and
expansion of our business. We have accumulated substantial losses since our
inception. There can be no assurance that our operations will result in
sufficient revenues to enable us to operate at profitable levels or to generate
positive cash flow.
RISKS RELATING TO KEY EMPLOYEES
The success of our operations is highly dependent upon David J.
Richards, our founder and President, as well as its other key executive
officers. The loss of any of these persons could have a materially adverse
effect on us.
RISKS RELATING TO NEUROMEDICAL SYSTEMS, INC.
We obtain all of the information relating to the PAPNET Testing System
and service from Neuromedical Systems, and in most cases cannot independently
verify this information. Therefore, we are dependent on Neuromedical Systems to
accurately report the results of clinical studies and other data relating to the
capabilities and performance of the PAPNET Testing System.
We have no ownership rights in the PAPNET technology. Neuromedical
Systems has granted us exclusive rights with respect to the marketing of the
PAPNET Testing System and service in certain geographic territories. Therefore,
our business is dependent upon a number of factors, many of which are controlled
by Neuromedical Systems. These factors include:
o maintaining the PAPNET Testing System's compliance with FDA and other
regulatory requirements
o maintenance of the technological advantages of the PAPNET Testing
System
o maintenance of product liability insurance
o the ability to manufacture and deliver the equipment required to
operate the PAPNET Testing System
Further, Neuromedical Systems is in a stage of development that may require
additional funding for its operations. In the event that Neuromedical Systems
should fail to perform in any of these areas, or in any others that could affect
its licensees, such failure could have an adverse effect on us and our business.
Additional risks relating to the business of Neuromedical Systems which
may have an impact on us are set forth in Neuromedical Systems's periodic
reports filed with the SEC, including its Annual Report on Form 10-K.
RISKS RELATING TO LICENSE AGREEMENTS
Our marketing rights for the PAPNET Testing System and the revenues
generated by these activities are governed by the terms of our licenses from
Neuromedical Systems (the "Licenses"). The Licenses impose significant
territorial and other restrictions on our marketing rights, and place certain
limitations on the amounts of royalty revenues which we can generate through the
marketing of the PAPNET Testing System and Service.
RISKS RELATING TO PATENTS
The technologies underlying the PAPNET System and the OxyNet oxygen
concentrator are protected by various patents. There can be no assurance that
these patents will afford protection from material infringement by third parties
or that such patents will not be challenged. We and Neuromedical Systems also
rely on trade secrets and proprietary know-how, which we seek to protect, in
part, through confidentiality agreements with employees, consultants and other
parties. All of our employees, with the exception of clerical employees, are
required to sign a confidentiality agreement with us. To date, all employees
required to sign confidentiality agreements have done so. There can be no
assurance that these agreements will not be breached, that there will be
adequate remedies for any breach or that our trade secrets will not otherwise
become known to, or independently developed by, competitors. Litigation is
currently pending between
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Neuromedical Systems and a competitor over alleged infringement of Neuromedical
Systems's patents.
There has been extensive litigation in the medical device industry
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. There can be no assurance that necessary
licenses would be available to Neuromedical Systems or us on satisfactory terms
or at all. Adverse determinations as to the PAPNET and OxyNet patents could:
o limit or destroy the value of our license rights to these technologies
o subject us to significant liabilities from third parties
o require us to seek licenses from third parties
o prevent us from manufacturing or selling these products
Any of these determinations could have a material adverse effect on our
business, financial condition and results of operations.
RISKS RELATED TO THE COMMON SHARES
Our directors, executive officers and principal shareholders (5% or
greater) collectively beneficially own or have the right to acquire under
currently exercisable options approximately 25% 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 change in control.
We had 11,987,605 common shares outstanding as of December 16, 1998.
Approximately 1,925,000 shares are held by affiliates of NetMed who will be
entitled to resell them only pursuant to a registration statement under the
Securities Act or an applicable exemption from registration. In August 1997, we
sold $3 million in principal amount of Debentures convertible into Common Stock
at a discount to the market price at the time of conversion. These Debentures
will be exchanged for Preferred Stock pursuant to the exchange agreement on or
about the time this Registration Statement becomes effective. If the $1,502,000
in stated value of the Preferred Stock issued in the exchange were converted at
the prevailing market price on that date approximately _________ additional
shares of Common Stock would be issued. This registration statement will cover
all such shares to be resold to the public. Such resales may adversely affect
the pricing and volatility of trading in the Common Stock. See "Selling
Shareholders."
RISKS RELATING TO OUR LISTING ON THE AMERICAN STOCK EXCHANGE
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 us or our competitors may
have a significant impact on the market price of the Common Stock.
In addition, the staff of the American Stock Exchange (the "Exchange")
has recommended that the Common Stock be delisted from trading on the Exchange
because of our failure to meet minimum financial requirements for continued
listing. We have appealed this determination to the Board of Governors of the
Exchange. The Board of Governors has extended our listing on the Exchange until
March 31, 1999. However, there can be no assurance that our Common Stock will
continue to be listed on the Exchange. If the Common Stock is delisted, it is
likely that the Common Stock will be quoted on the National Association of
Securities Dealers, Inc. (Nasdaq) Bulletin Board.
RISKS RELATING TO MEDICAL TECHNOLOGY COMPANIES
Market prices of securities of medical technology companies, including
the Common Stock, have experienced significant volatility from time to
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time. There may be volatility in the market price of the Common Stock due to
factors that may not relate to our performance. Various factors and events, such
as announcements by us or our 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.
RISKS RELATING TO LOW STOCK PRICE
If the Exchange delisted our Common Stock, it could become subject to
Rule 15g-9 under the Securities Exchange Act of 1934 (the "Exchange Act"). This
rule imposes additional sales practice requirements on broker-dealers who sell
so-called "penny" stocks to persons other than established customers and
"accredited investors." Generally, accredited investors are individuals with a
net worth of more than $1,000,000 or annual incomes exceeding $200,000, or
$300,000 together with their spouses. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction before
sale. Consequently, the rule may adversely affect the ability of broker-dealers
to sell our shares in the secondary market.
Subject to some exceptions, the Commission's regulations define a
"penny stock" to be any non-exchange listed equity security that has a market
price of less than $5.00 per share, or with an exercise price of less than $5.00
per share. Unless exempt, the rules require delivery, prior to any transaction
in a penny stock, of a disclosure schedule relating to the penny stock market
and the associated risks. The rules also require disclosure about commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, the rules require that broker-dealers
send monthly statements disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
If our Common Stock became subject to the rules applicable to penny
stocks, the market liquidity for the Common Stock could be adversely affected.
RISKS RELATING TO GOVERNMENT REGULATION
Both our and Neuromedical Systems' services, products and manufacturing
activities are subject to extensive and rigorous government regulation,
including the provisions of the Medical Device Amendment to the Federal Food,
Drug and Cosmetic Act. Sales to certain foreign countries are 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
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 us or Neuromedical
Systems 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 we or Neuromedical Systems may develop and/or impose
costly requirements on us or Neuromedical Systems. There can be no assurance
that either we or Neuromedical Systems 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 Neuromedical Systems' and our 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 Neuromedical Systems or NetMed.
RISKS RELATING TO THIRD PARTY REIMBURSEMENT
In the United States, many Pap smears are currently paid for by the
patient. Further, the level of reimbursement by third-party payers that do
provide reimbursement differ considerably. Third-party
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payers (Medicare/Medicaid, private health insurance, health maintenance
organizations, health administration authorities in foreign countries and other
organizations) may affect the pricing or relative attractiveness of our products
and services by regulating the maximum amount of reimbursement for products or
services provided by us or by not providing any reimbursement at all.
Restrictions on reimbursement may limit the price which we can charge for our
products and services or reduce the demand for them. In the case of PAPNET
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 us may be reduced. There can be no assurance of the extent
to which costs of PAPNET testing will become reimbursable or that the level of
reimbursement will be sufficient to permit us to generate substantial revenues
in our PAPNET business.
RISKS RELATING TO MARKETABILITY
Until successful completion and sale of the OxyNet system (if ever),
our performance will depend upon sale of the PAPNET System. The extent of, and
rate at which, market acceptance and penetration are achieved are functions of
many variables including, but not limited to:
o price
o effectiveness
o acceptance by patients, physicians and laboratories
o manufacturing
o slide processing and training capacity
o reimbursement practice
o marketing and sales efforts
There can be no assurance that the PAPNET System will achieve or maintain
acceptance in our target markets.
RISKS RELATING TO COMPETITION
We are aware of several companies that either have developed or are
developing systems that are competitive with the PAPNET System and other
technologies targeted for development by us. The sale of such products could
have a material adverse effect on our 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
Neuromedical Systems or us. 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 Neuromedical Systems' or our 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.
RISKS RELATING TO PRODUCT LIABILITY
Our business could expose us to the risks inherent in the production
and distribution of medical diagnostic and treatment equipment. Although
Neuromedical Systems has attempted to reduce the exposure to product liability
risk by disclosing the demonstrated range of accuracy of the PAPNET Testing
System, there can be no assurance that we will not be exposed to liability
resulting from the failure or inaccuracy of the PAPNET System. We currently
carry no product liability insurance. However, Neuromedical Systems is required,
under the terms of the Licenses, to name us as an additional insured on its
product liability policies. There can be no assurance that Neuromedical Systems
will have the resources necessary to purchase and maintain the insurance, that
such insurance will be sufficient to cover potential claims, or that
Neuromedical Systems will have adequate resources to indemnify us from any
uninsured loss.
AVAILABLE INFORMATION
This prospectus, which constitutes a part of a Registration Statement
on Form S-3 (the "Registration Statement") filed by us 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 us 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.
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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.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith file 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:
Securities and Exchange Commission
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
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.
Our Common Stock is listed on the American Stock Exchange, and copies
of our reports, proxy statements and other information filed with the Commission
under the Exchange Act, and other information concerning us, can be inspected at
the American Stock Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We hereby incorporate by reference into this prospectus the following
documents previously filed with the Commission pursuant to the Exchange Act:
(1) Our Annual Report on Form 10-K for the fiscal year ended December
31, 1997, filed with the Commission on March 27, 1998, and our Form 10-K/A,
filed with the Commission on April 30, 1998 (the information under the heading
"Recent Developments" should be read in conjunction with our financial
statements contained in our annual report on Form 10-K for the fiscal year ended
December 31, 1997);
(2) Our Definitive Proxy Statement for the Annual Meeting of the
Shareholders, filed with the Commission on April 16, 1998;
(3) Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, filed with the Commission on May 15, 1998, the quarter ended June 30,
1998, filed with the Commission on August 14, 1998, and the quarter ended
September 30, 1998, filed with the Commission on November 13, 1998; and
(4) Our Current Reports on Form 8-K, filed with the Commission on April
14, 1998, July 21, 1998, September 9, 1998, September 10, 1998, and November 5,
1998.
In addition, all documents filed by us pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus
and prior to termination of the offering of the Shares offered hereby shall be
deemed to be incorporated by reference into this prospectus and to be a part
hereof from the respective date of fling of such documents with the Commission.
Any statement contained herein, or any document, all or a portion of
which is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this prospectus to the extent that a statement contained herein, or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of the Registration Statement or this prospectus. All
information appearing in this prospectus is qualified
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in its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference. This
prospectus incorporates documents by reference which are not presented herein or
delivered herewith. These documents (other than exhibits thereto, unless such
exhibits are specifically incorporated by reference in such documents) are
available without charge, upon written or oral request by any person to whom
this prospectus has been delivered, by directing such request to NetMed, Inc.,
6189 Memorial Drive, Dublin, Ohio 43017, Attention: President, telephone:
(614) 793-9356.
FORWARD LOOKING STATEMENTS
Statements in this prospectus which relate to other than strictly
historical facts, including statements about our plans and strategies, as well
as management's expectations about new and existing products, technologies and
opportunities, market growth, demand for and acceptance of new and existing
products (including the Papnet(R) Testing System and the OxyNet(R) oxygen
concentration device), are forward looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward- looking statements that speak only as of the date
hereof. Investors are cautioned that such statements involve risks and
uncertainties that could cause actual results to differ materially from
historical or anticipated results due to many factors including, but are not
limited to, our current reliance on a single product marketed under license from
Neuromedical Systems, the corresponding dependence on Neuromedical Systems'
patents and proprietary technology, government regulation, continuing losses
from operations and negative cash flow, limited marketing and sales history, the
impact of third party reimbursement decisions, the challenges of research and
development of new products, and other risks detailed herein under the caption
"Risk Factors." We undertake no obligation to publicly update or revise any
forward-looking statements.
THE COMPANY
We are an Ohio corporation engaged in the business of acquiring,
developing and marketing medical and health-related technologies. Our principal
business activity is the marketing of the PAPNET(R) Testing System, which is a
proprietary product of Neuromedical Systems. The PAPNET Testing System is a
semi-automated cancer detection system for the review of cell, tissue or body
fluid specimens, including cervical cytology specimens. Slides containing
cytology specimens are processed using the PAPNET Testing System (either by the
laboratory at its own facilities or at one of Neuromedical Systems's central
facilities) which produces processed images for evaluation by the laboratory's
cytotechnologists. Neuromedical Systems provides approximately one week of
training to cytotechnologists from laboratories using the PAPNET System on the
operation of the image review equipment and the interpretation of the images.
We were originally organized in 1989 for the purpose of acquiring the
exclusive territorial rights to market Neuromedical Systems' proprietary
products in Ohio. In 1990, we acquired from Neuromedical Systems marketing
rights for Kentucky and the Chicago, Illinois metropolitan area. On December 16,
1996, we 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. We were the
surviving corporation in the Merger. Upon completion of the Merger, we changed
our name from Papnet of Ohio, Inc. to NetMed, Inc.
In addition to exploiting our rights under the license agreement with
Neuromedical Systems, our corporate mission is to become a well diversified
health care technology company founded upon proprietary products that offer a
distinct market advantage. Our intention is to follow the example of our initial
investment, the PAPNET technology, in pursuing other opportunities in healthcare
technology. Specifically, we intend to make early investments in selected
healthcare technologies and apply our management and marketing resources to
develop and implement strategies designed to significantly increase the value of
the investment over a period of two to four years.
In pursuit of this strategy, in early 1997 we entered into an agreement
with CeramPhysics, Inc. of Westerville, Ohio ("Ceram"), pursuant to which we
obtained the right to acquire 95% ownership of a
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Ceram subsidiary that holds an exclusive world-wide license to Ceram's patented
oxygen generation technology for all applications of the technology except
oxygen sensors and fuel cells. Our acquisition of this interest was completed on
April 3, 1998. It is our intention to incorporate the element into an oxygen
generation device (the OxyNet(R) System) that we expect to manufacture and
market to the home health care industry. See "Recent Developments."
Our principal offices are located at 6189 Memorial Drive, Dublin, Ohio
43017, and our telephone number at that address is (614) 793-9356.
RECENT DEVELOPMENTS
On April 3, 1998, we acquired from Ceram Oxygen Technologies, Inc.
("COTI") 95 common shares, representing 95 percent of COTI's outstanding common
shares immediately following the closing, in exchange for a cash payment of
$50,000 and delivery of a note in the principal amount of $150,000 (the "Note").
The Note provides for three equal principal payments of $50,000 on each of June
1, July 1, and August 1, 1998, together with interest at the rate of 8.5 percent
per annum. Following this transaction, COTI's name was changed to "OxyNet, Inc."
("OxyNet"). The remaining 5 percent of OxyNet's outstanding common equity is
owned by CeramPhysics, Inc. ("Ceram") of Westerville, Ohio. COTI holds an
exclusive world-wide license to Ceram's patented oxygen generation technology
for all applications of the technology except oxygen sensors and fuel cells. The
consideration was applied by OxyNet to payment of a $200,000 license fee owed to
Ceram, with $50,000 being paid in cash, and the balance by assignment of the
Note.
The acquisition was made pursuant to a February, 1997 agreement among
us, COTI and Ceram, whereby we agreed to make advances to COTI to complete the
fabrication and testing of a ceramic element incorporating the licensed
technology. Pursuant to the agreement, through April 3, 1998, we had advanced
$363,470 to COTI for this purpose. The agreement also provided that upon
completion of an acceptance test of the ceramic element satisfactory to us, we
had the right to acquire 95% of the equity of COTI for $200,000.
It is our intention to incorporate the ceramic element into an oxygen
generation device (the OxyNet(R) System) that we expect to manufacture and
market to the home health care industry. We believe this system will be lighter,
quieter, more reliable and less costly to operate than current systems. We
expect to demonstrate a prototype of the system before the end of 1998 and to
begin marketing a commercial version of the device in 1999. We also expect to
develop other applications for the technology, including military and industrial
applications. In August, 1998, OxyNet completed the private placement of 500
shares of Series A 8% Convertible Preferred Shares (the "OxyNet Shares") for
gross proceeds of $500,000. These proceeds will be used for further development
of the OxyNet product. The OxyNet Shares are convertible into Common Shares of
OxyNet on a one share for one share basis. If there is not an initial public
offering of the Common Shares of OxyNet within 18 months from the date of
issuance of the OxyNet Shares (the "Issuance Date"), the OxyNet Shares may be
exchanged at their original stated value, plus accrued dividends, for our Common
Stock. This is a one time right to exchange the OxyNet Shares for our Common
Stock and is only available for a period of 30 days following the Issuance Date.
In December, 1998, we entered into a letter of intent with McGeneron, a
member of the Messer Group of Companies, to jointly develop applications of the
OxyNet technology. The letter of intent contemplates that the parties will
execute a definitive agreement within 60 days.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Shares by the
selling shareholders.
SELLING SHAREHOLDERS
The 8,000,000 shares of our Common Stock described in this prospectus
represent approximately 150% of the aggregate number of shares of our Common
Stock which the selling shareholders would be entitled to acquire upon
conversion of the Preferred Stock still outstanding, assuming the entire
remaining principal balance of the outstanding Preferred Stock was converted on
the date of this prospectus, plus 511,653 shares previously issued to the
selling shareholders upon conversion of the Debentures. Except for the ownership
of the
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Preferred Stock (and any Shares on conversion thereof and Shares acquired upon
conversion of the debentures), the selling shareholders have not had any
material relationship within the past three years with us. 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 selling shareholders are under the common management and control of
Banque CPR, a French broker-dealer. The selling shareholders are precluded from
converting shares of Preferred Stock which would, at any point in time, allow
the selling shareholders to own more than 4.99% of our Common Stock. However,
the selling shareholders may, over time, convert Preferred Stock into Common
Stock representing, in the aggregate, more than 4.99% of the Common Stock so
long as they do not exceed 4.99% ownership in the Common Stock at any one point
in time. Column two of the following table, entitled "Number of Shares
Beneficially Owned", represents 4.99% of the outstanding Common Stock as divided
proportionately between the selling shareholders. Column three, entitled "Number
of Shares Being Offered Hereby", reflects the aggregate number of shares of
Common Stock that could be issued to the selling shareholders during the
effectiveness of this Registration Statement. The selling shareholders have
confirmed to us in writing that they disclaim beneficial ownership of the
Preferred Stock (and the Common Stock issuable upon conversion) by each other
selling shareholder.
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Number of Shares Being Offered Owned After
Name of Selling Shareholder Beneficially Owned Hereby Offering
- --------------------------- ------------------ ------ --------
<S> <C> <C> <C>
CPR (USA), Inc. 436,672 5,840,000 0
LibertyView Fund, LLC 122,627 1,640,000 0
LibertyView Plus Fund 38,882 520,000 0
</TABLE>
The Shares being offered by the selling shareholders hereby are
issuable by us to the selling shareholders upon conversion of the Preferred
Stock. The Preferred Stock and any dividends accrued thereon may be converted
into Shares at any time. The Preferred Stock is entitled to cumulative annual
dividends at the rate of 6% of stated value payable in Common Stock at the time
of each conversion, and is convertible into shares of our Common Stock based on
the "Conversion Price" at the time of conversion. 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.
A selling shareholder is prohibited from converting any portion of the
Preferred Stock which would result in the Selling Shareholder being deemed the
beneficial owner, in accordance with the provisions of Rule 13d-3 under the
Exchange Act, of 4.99% or more of the then issued and outstanding Common Stock.
As required by the exchange agreement and related Registration Rights
Agreement, in recognition of the fact that selling shareholders may wish to be
legally permitted to sell any Shares acquired upon conversion of the Preferred
Stock when they deem appropriate, we have filed with the Commission under the
Act a Registration Statement on Form S-3, 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.
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<PAGE> 13
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.
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 us 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
Our authorized capital stock 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 11,673,422 shares
of Common Stock, and 100,000 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 our Articles
of Incorporation ("Articles") or Code of Regulations ("Regulations"). Our
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 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 us of dividends, if any, rests within the
discretion of its Board of Directors and will depend upon our operating results,
financial condition and capital expenditure plans, as well as other factors
considered relevant by the Board of Directors. We may enter into bank credit
agreements which include financial covenants restricting the payment of
dividends. See "Dividend Policy."
Upon our liquidation, dissolution or winding-up, the assets legally
available for distribution to shareholders are distributable ratably among the
holders of Common Stock at that time outstanding, subject to prior distribution
rights of our creditors and preferential rights of any outstanding shares of
Preferred Stock.
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<PAGE> 14
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 our shareholders. The issuance of Preferred Stock by the
Board of Directors could be used, under certain circumstances, as a method of
delaying or preventing a change in control 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, our
future capital needs, the then-existing market conditions and other factors
that, in the judgment of the Board of Directors, might warrant the issuance of
Preferred Stock.
On October 27, 1998, the directors authorized the creation of 100,000
shares of Voting Preferred Stock to be known as the "Series A, 6% Convertible
Preferred Stock." These shares were used pursuant to the exchange agreement
whereby holders of the Debentures received an equal number of Preferred Stock
for their interests in the Debentures.
CERTAIN PROVISIONS OF ARTICLES AND REGULATIONS
The following brief description of certain provisions of our 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
Our 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 us.
DIRECTORS' RESPONSE TO ACQUISITION PROPOSALS
Our Articles provide that the Board of Directors must base our response
to any "Acquisition Proposal" on the Board of Directors' evaluation of what is
in our best interest. In evaluating what is in our best interest, 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 our
stock, but also in relation to our current value in a freely negotiated
transaction and in relation to the Board of Directors' then estimate of our
future value 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, our long-term and short-term interests
and our 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 we and our subsidiaries operate or are located.
"Acquisition Proposal" is defined in the Articles as any proposal for our
consolidation or merger with another corporation, any share exchange involving
our outstanding capital stock, any liquidation or dissolution of us, any
transfer of all or a material portion of our assets and any tender offer or
exchange offer for any of our outstanding stock.
DIRECTOR AND OFFICER INDEMNIFICATION
The Articles provide that we may indemnify any director, officer, or
any former director or officer, and any person who is or has served at our
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<PAGE> 15
request 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 our right 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 liabilities asserted against them or
expenses incurred by them arising out of their service to us, 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 us as contemplated herein.
REMOVAL OF DIRECTORS
Our 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 our outstanding
shares of capital stock 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 our capital stock 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 our shareholders 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, our principal executive office, 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
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<PAGE> 16
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 our
outstanding shares of capital stock entitled to vote on such matter at a meeting
of shareholders called for that purpose.
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 our own slate of directors or to approve our
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to us and our 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 our
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. We have not included such an exemptive
provision in the Articles.
EXPERTS
Our financial statements as of December 31, 1996 and 1997, and for each
of the three years in the period ended December 31, 1997, appearing in our 1997
Annual Report on Form 10-K have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
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<PAGE> 17
LEGAL MATTERS
The validity of the Shares offered hereby has been passed upon for us
by Porter, Wright, Morris & Arthur, 41 South High Street, Columbus, Ohio 43215.
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<PAGE> 18
===============================================================================
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON, OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
REGARDS TO THE OFFER MADE IN THIS PROSPECTUS. ANY SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US, THE
SELLING SHAREHOLDERS OR ANY UNDERWRITER, DEALER, OR AGENT. THIS PROSPECTUS ONLY
OFFERS THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS IS NOT AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME AFTER THE DATE OF THIS PROSPECTUS.
---------------------------
8,000,000 SHARES
NETMED, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
December __, 1998
===============================================================================
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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 Registrant. The following table shows the amount of such expenses
in connection with the sale and distribution of the Shares:
Item Amount
---- ------
Securities and Exchange Commission
Registration Fee $834.00
Legal Fees and Expenses 10,000.00
Accounting Fees and Expenses 2,500.00
Miscellaneous Expenses 1,500.00
Total $14,834.00
ITEM 15. 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.
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<PAGE> 20
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 our entirety by such Articles of Incorporation and
statute.
ITEM 16. EXHIBITS.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------ -----------
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.)
4.2 Certificate of Amendment to Registrant's Amended and
Restated Articles of Incorporation. (Previously filed
as Exhibit 4.2 to the Registration Statement on Form
S-3, Registration No. 333-66679, and incorporated
herein by reference.)
5 Opinion of Porter, Wright, Morris & Arthur.
(Previously filed as Exhibit 5 to the Registration
Statement on Form S-3, Registration No. 333-66679,
and incorporated herein by reference.)
23 Consent of Ernst & Young LLP.*
24 Powers of Attorney. (Previously filed as Exhibit 24
to the Registration Statement on Form S-3,
Registration No. 333-66679, and incorporated herein
by reference.)
99.1 Convertible Debenture Exchange Agreement, dated
October 27, 1998, among the Registrant, CPR (USA)
Inc., LibertyView Fund, LLC, and LibertyView Plus
Fund. (Previously filed as Exhibit 99.1 to the
Registration Statement on Form S-3, Registration No.
333-66679, and incorporated herein by reference.)
99.2 Registration Rights Agreement, dated October 27,
1998, among the Registrant, CPR (USA) Inc.,
LibertyView Fund, LLC, and LibertyView Plus Fund.
(Previously filed as Exhibit 99.2 to the Registration
Statement on Form S-3, Registration No. 333-66679,
and incorporated herein by reference.)
99.3 Amended and Restated Agreement, dated November 23,
1998, between Neuromedical Systems, Inc. and the
Registrant.*
* Filed with this Amendment.
II-2
<PAGE> 21
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 our counsel the matter has been settled by controlling precedent,
submit to a 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.
PROVIDED, HOWEVER, that the undertakings set forth in
paragraphs 3(i) and (ii) above do not apply if information required to
be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in this Registration Statement.
II-3
<PAGE> 22
(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.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Act Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
II-4
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 to be
signed on our behalf by the undersigned, thereunto duly authorized, in the City
of Dublin, State of Ohio, on December 18, 1998.
NETMED, INC.
By: /s/ Kenneth B. Leachman
-----------------------------------
Kenneth B. Leachman, Vice
President - Finance and
Treasurer
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>
*David J. Richards President, Director ) December 18, 1998
- ----------------------------------------- (Principal Executive Officer) )
David J. Richards )
)
)
/s/ Kenneth B. Leachman Vice President-Finance, Treasurer ) December 18, 1998
- ----------------------------------------- (Principal Financial and Accounting )
Kenneth B. Leachman Officer) )
)
)
)
*S. Trevor Ferger Director ) December 18, 1998
- ----------------------------------------- )
S. Trevor Ferger )
)
)
*Cecil J. Petitti Director ) December 18, 1998
- ----------------------------------------- )
Cecil J. Petitti )
)
)
*Michael S. Blue Director ) December 18, 1998
- ----------------------------------------- )
Michael S. Blue )
)
)
*Robert J. Massey Director ) December 18, 1998
- ----------------------------------------- )
Robert J. Massey )
)
)
*James F. Zid Director ) December 18, 1998
- ----------------------------------------- )
James F. Zid )
)
</TABLE>
*By: /s/ Kenneth B. Leachman
---------------------------------------------------
Kenneth B. Leachman
Attorney-in-fact for each of the persons indicated
II-5
<PAGE> 24
EXHIBIT
NUMBER DESCRIPTION
------ -----------
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.)
4.2 Certificate of Amendment to Registrant's Amended and
Restated Articles of Incorporation. (Previously filed
as Exhibit 4.2 to the Registration Statement on Form
S-3, Registration No. 333-66679, and incorporated
herein by reference.)
5 Opinion of Porter, Wright, Morris & Arthur.
(Previously filed as Exhibit 5 to the Registration
Statement on Form S-3, Registration No. 333-66679,
and incorporated herein by reference.)
23 Consent of Ernst & Young LLP.*
24 Powers of Attorney. (Previously filed as Exhibit 24
to the Registration Statement on Form S-3,
Registration No. 333-66679, and incorporated herein
by reference.)
99.1 Convertible Debenture Exchange Agreement, dated
October 27, 1998, among the Registrant, CPR (USA)
Inc., LibertyView Fund, LLC, and LibertyView Plus
Fund. (Previously filed as Exhibit 99.1 to the
Registration Statement on Form S-3, Registration No.
333-66679, and incorporated herein by reference.)
99.2 Registration Rights Agreement, dated October 27,
1998, among the Registrant, CPR (USA) Inc.,
LibertyView Fund, LLC, and LibertyView Plus Fund.
(Previously filed as Exhibit 99.2 to the Registration
Statement on Form S-3, Registration No. 333-66679,
and incorporated herein by reference.)
99.3 Amended and Restated Agreement, dated November 23,
1998, between Neuromedical Systems, Inc. and the
Registrant.*
* Filed with this Amendment.
II-6
<PAGE> 1
Exhibit 99.3
AMENDED AND RESTATED AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT, dated as of November 23, 1998
(this "Agreement"), is by and between Neuromedical Systems, Inc., a Delaware
corporation ("NSI"), and NetMed, Inc., an Ohio corporation ("Licensee"). This
Agreement supersedes and replaces any and all prior agreements by and between
NSI and Licensee and any of its predecessors-in-interest, including, without
limitation, Papnet of Ohio, Inc., an Ohio corporation ("Papnet of Ohio"), Papnet
Indiana Limited Partnership, an Ohio limited partnership, Papnet West Limited
Partnership, an Ohio limited partnership, ER Group, Inc., an Ohio corporation
and Carolina Cytology Licensing Company, an Ohio general partnership.
WHEREAS, NSI has designed, developed and produces the PAPNET(R) Testing
System ("PAPNET(R)," "PAPNET(R) System" or "PAPNET(R) Testing"), which is a
semiautomated system for the review of cell, tissue or body fluid specimens
("Slides") including, but not limited to, cervical cytology specimens;
WHEREAS, the PAPNET(R) System consists of a scanning system (the
"Scanner"), which processes Slides and stores digital images of certain portions
of such Slides on a digital tape ("PAPNET(R) Images"), and a proprietary review
station (the "Review Station"), which, among other things, permits a
cytotechnologist trained by NSI to review the images stored on the digital tape;
WHEREAS, NSI, markets and sells PAPNET(R) Testing as a service, by
which, end-user laboratories submit Slides to one of NSIs central facilities for
processing on a Scanner ("Scanning Centers"), and NSI returns such Slides and
the related digital tape containing PAPNET(R) Images to such laboratories so
that NSI-trained cytotechnologists employed by such laboratories may review the
Slides and the related PAPNET(R) Images using a licensed, leased or purchased
Review Station (the scanning of Slides and the use of the Review Station
(whether by license, lease or purchase) are collectively referred to herein as
the "PAPNET(R) Service");
WHEREAS, NSI has been granted patents #4,965,725, #5,257,182,
#5,287,272, #5,333,207 and #5,544,650 by the United States government, covering
the use of neural networks for the classification of cell, tissue or body fluid
specimens, and has certain other patents and patent applications issued and
pending in the United States and elsewhere and has or will have certain other
patents in development relating to the PAPNET(R) System or the PAPNET(R) Service
(the "Patents"); and
WHEREAS, NSI has used the trademarks and trade names "Neuromedical
Systems", " NSI", "PAPNET(R)" and its "box" logo and may use other names or
marks to identify or describe the PAPNET(R) Service (the Patents and all pending
and future worldwide patents and patent rights, copyrights, trademarks, trade
names, trade secrets, know-how, utility models, improvements thereon and other
intellectual property rights in and to the PAPNET(R) System or the PAPNET(R)
Service, including without limitation, all applications and registrations with
respect thereto, are collectively referred to as the "Intellectual Property");
and
<PAGE> 2
WHEREAS, Licensee acknowledges NSI's exclusive right in and to the
Intellectual Property and the use thereof and NSI acknowledges Licensee's
limited rights to use the Intellectual Property as provided herein; and
WHEREAS, NSI wishes, to enter into this Agreement with Licensee to
amend and restate its previous agreement with Licensee and any of its
predecessors-in-interest and to reflect the business combination into Licensee
as a result of the merger of Papnet of Ohio, Inc., Papnet Indiana Limited
Partnership, Papnet West Limited Partnership, Carolina Cytology Licensing
Company and ER Group, Inc., which were formerly licensees of NSI; and
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is hereby agreed as
follows:
1. DEFINITIONS.
For purposes of this Agreement, capitalized terms shall have the
meanings set forth below:
"Agreement" shall have the meaning set forth under the preamble hereto.
"Client" shall mean the ultimate laboratory purchaser of the PAPNET(R)
Service from NSI and the Licensee.
"End User License" shall mean the form of agreement attached hereto as
Exhibit A, as the same may be amended from time to time.
"FDA" shall mean the United States Food and Drug Administration.
"Indemnifying Party" shall have the meaning set forth under Section
10.3 of this Agreement.
"Indemnified Person" shall have the meaning set forth under Section
10.3 of this Agreement.
"Intellectual Property" shall have the meaning set forth under the
fifth recital of this Agreement.
"Lease Service Costs" shall mean the charges to Licensee per Slide for
all service provided by NSI in processing slides from Clients in the Licensed
Territory. This charge will cover all costs of NSI related to the processing of
Slides by the laboratory, including but not limited to Slide processing, review
stations, CDs, DATs, upgrades, software, hardware, transportation costs (except
Slide Transportation Costs), training costs and all other such costs. The charge
shall be the lower of: a) $1.00 per Slide, or b) NSI's average actual equipment
cost per Slide for the acquisition of Scanners and related equipment used in
rendering the PAPNET(R) Service. The per Slide charge under this paragraph in
any year shall be calculated by dividing the average capitalized cost to NSI
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<PAGE> 3
as recorded on its books of account of the Scanners and related equipment (i) by
the average useful life thereof for depreciation purposes and (ii) then by the
actual annual average processing volume of such equipment. The foregoing
calculation shall be made annually, based upon cost, depreciation and processing
volume data from the preceding fiscal year. This method will be the same method
used to determine the cost to Licensee of any future equipment or service.
"Licensed Territory" shall mean the States of Ohio, Georgia, Kentucky,
Missouri and North Carolina and the consolidated metropolitan statistical area
("CMSA") of Chicago, Illinois, provided, however, that for purposes of this
Agreement, the CMSA Chicago excludes the primary metropolitan statistical area
("PMSA") of Gary, Indiana, and includes only the PMSAs of Chicago, Illinois,
Kankakee, Illinois and Kenosha, Wisconsin, as defined by the United States
Office of Management and Budget source information files of the Population
Estimates Program, Population Division, U.S. Bureau of the Census.
"Licensee" shall have the meaning set forth under the preamble of this
Agreement.
"Loss" shall have the meanings set forth under Section 10.1 and 10.2 of
this Agreement.
"Multistate National Laboratories" shall mean any customers of NSI that
process more than 750,000 Slides annually, and which either (i) have Slide
processing laboratories both within and without the Licensed Territory, or (ii)
have ten percent (10%) or more of their annual Slide volume originating from
patients located within the Licensed Territory. The parties will annually
evaluate the Slide volumes of clinical laboratory companies in the United States
to identify the laboratory companies that meet this definition.
"Notice" shall have the meaning set forth under Section 10.3 of this
Agreement.
"Notice of Defense" shall have the meaning set forth under Section 103
of this Agreement.
"NSI" shall mean Neuromedical Systems, Inc. and its subsidiaries.
"NSI Technology" shall mean any and all applications, modifications,
refinements and improvements of the Patents and Intellectual Property, whether
or not patented, including but not limited to the application of neural network
technology to the classification of Slides and any patents, patent rights,
copyrights, trademarks, trade names, trade secrets, know-how, utility models,
improvements thereon and other intellectual property rights developed or
acquired by NSI to assist in the sale, processing or enhancement of the
PAPNET(R) System or the PAPNET(R) Service or products related thereto.
"PAPNET(R)" shall have the meaning set forth under the first recital of
this Agreement.
"PAPNET(R) Images" shall have the meaning set forth under the second
recital of this Agreement.
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<PAGE> 4
"Papnet of Ohio" shall have the meaning set forth under the preamble to
this Agreement.
"PAPNET(R) Service" shall have the meaning set forth under the third
recital of this Agreement.
"PAPNET(R) System" shall have the meaning set forth under the first
recital of this Agreement.
"PAPNET(R) Testing" shall have the meaning set forth under the first
recital of this Agreement.
"Patents" shall have the meaning set forth under the fourth recital of
this Agreement.
"Person" shall have the meaning ascribed to such term under Section
13(d) of the Securities Exchange Act of 1934.
"Proprietary Materials" shall have the meaning set forth under Section
9.1 of this Agreement.
"Revenue Slide" shall mean a Slide processed using the PAPNET(R) System
or the PAPNET(R) Service for which any charge is made by NSI.
"Review Station" shall have the meaning set forth under the second
recital of this Agreement.
"Royalties" shall have the meaning set forth under Section 3.1 of this
Agreement.
"Sales Materials Credit" shall have the meaning set forth under Section
2.2(a) of this Agreement.
"Scanner" shall have the meaning set forth under the second recital of
this Agreement.
"Scanning Centers" shall have the meaning set forth under the third
recital of this Agreement.
"Slides" shall have the meaning set forth under the first recital of
this Agreement.
"Slide Transportation Costs" shall mean the actual costs to NSI of
transporting Revenue Slides between the Clients in the Licensed Territory and
the applicable Scanning Center.
"Term" shall have the meaning set forth under Section 12(a) of this
Agreement.
"Territory Gross Revenues" shall mean all sales, revenues or receipts
recognized by NSI as sales or revenue under generally accepted accounting
principles consistently applied, arising directly or indirectly from the sale,
licensing or use of the PAPNET(R) System, PAPNET(R), Service, and/or any NSI
Technology within the Licensed Territory, without any allowances) credits or
deductions
-4-
<PAGE> 5
(other than such as would constitute price rebates, in the form of discounts or
other reductions in the effective price per Slide charged to Clients),
regardless of whether such sales, revenues or receipts are attributable to
Licensee's activities within the Licensed Territory.
"Worldwide Gross Revenues" shall mean all sales, revenues (regardless
of whether such revenues are characterized as operating or non-operating
revenues on NSI's consolidated financial statements) or receipts recognized by
NSI as sales or revenue under generally accepted accounting principles
consistently applied (and expressed in U.S. Dollars), without any allowances,
credits or deductions (other than such as would constitute price rebates, in the
form of discounts or other reductions in the effective price per Slide charged
to Clients).
2. DISTRIBUTION AND MARKETING.
2.1 DISTRIBUTION RIGHTS. Upon the terms and subject to the conditions
of this Agreement, NSI hereby grants to Licensee during the Term of this
Agreement an exclusive right and license to sell the PAPNET(R) Service and any
and all other NSI Technology in the Licensed Territory. Notwithstanding the
foregoing, the grant of exclusive rights to Licensee hereunder shall not
prohibit NSI from conducting sales activities in the Licensed Territory directly
through NSI's national sales force and marketing in the Licensed Territory,
provided that NSI gives Licensee reasonable advance notice of such activities.
2.2 MARKETING AND SALES.
(a) Licensee agrees to use reasonable efforts to promote and sell
the PAPNET(R) Service within the Licensed Territory. Licensee will conduct such
activities as it undertakes in accordance with marketing and sales policies and
procedures of uniform national application promulgated from time to time by
NSI's Vice President of Marketing and Sales, its Director of Sales, or such
other person as NSI shall appoint for such purpose. Licensee will provide
periodic sales reports and other sales-related information and internal reports
to NSI as provided in such uniform policies adopted by NSI from time to time,
and otherwise on the same basis as such information and reports are provided to
Licensee's management, including assistance to NSI's Director of Sales in the
preparation of monthly master production schedules. Licensee's Sales Manager
shall also have access to such NSI sales data on the same basis as NSI's
Director of Sales and shall promptly receive copies of internal NSI reports
related to same. Notwithstanding the foregoing, NSI data relating to regions
outside of the Licensed Territory (including aggregate national data) for any
fiscal period of NSI shall not be required to be made available to Licensee
until after NSI has filed its applicable periodic report as required under
Section 13 of the Securities Exchange Act of 1934, and any material nonpublic
sales information of Licensee for any fiscal period of Licensee shall not be
required to be made available to NSI until after Licensee has filed its
applicable periodic report as required under Section 13 of the Securities
Exchange Act of 1934. All data and reports of a party provided to the other
under this Section 2.2(a) shall be received by such other party subject to
reasonable policies of the providing party regarding the use and disclosure of
confidential information as the same are applicable to the providing party's
officers and employees.
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<PAGE> 6
(b) NSI shall have authority over the marketing and selling
materials and methods relating to the PAPNET(R) Service. Licensee shall provide
only NSI-approved marketing materials to Clients. NSI shall make available to
Licensee, for a charge not to exceed NSI's actual per-unit incremental cost
(exclusive of charges for design and other creative services), all such
brochures, pamphlets, reprints and other marketing and sales materials as are
available to NSI, in sufficient quantities for Licensee to conduct efficient
marketing activities in the Licensed Territory; provided, however, that if use
of any such materials is mandated by NSI, NSI shall bear the entire costs
thereof. Licensee may also reproduce marketing materials obtained from NSI for
use in conducting Licensee's marketing activities, provided that such
reproduction shall be of equal or better quality. As requested by Licensee, NSI
will use reasonable efforts to make available to Licensee other information,
data, reprints and public speakers to aid in the promotion of the PAPNET(R)
Service within the Licensed Territory, on reasonable terms and conditions,
For purposes of this Agreement, NSI grants to Licensee a credit of
$50,000 per year applicable for Licensee to acquire NSI produced sales and
marketing materials (the "Sales Materials Credit"). The Sales Materials Credit
may be applied by Licensee as payment for the acquisition of any NSI sales and
marketing materials that NSI provides to its own sales force and customers. The
Sales Materials Credit shall be valid during each year of the term of this
Agreement, but cannot be carried over from one year to the next. No part of the
Sales Materials Credit may be paid directly to Licensee or otherwise credited to
Licensee in payment of any other obligations of Licensee. Orders from and
payments to any third party with respect to the Sales Materials Credit may be
made only by NSI. Shipping costs for NSI sales and marketing materials requested
by Licensee are included in the annual Sales Materials Credit amount (i.e., the
Sales Materials Credit is valid for the aggregate of all NSI materials and
shipping costs requested by Licensee up to the $50,000 annual limit). The Sales
Materials Credit will be effective as of December 7, 1995.
(c) Licensee shall obtain prior written approval from NSI for the
use of any marketing materials for the PAPNET(R) Service which may be
independently developed by Licensee. Any such request shall be made in writing
to NSI's Vice President of Marketing, with a copy to NSI's General Counsel. NSI
will promptly respond in writing to any such request; failure to respond within
30 days of receipt of any such request which has been delivered by certified
mail shall constitute approval by NSI of such materials. NSI will have the
ability to approve or deny use of such materials in the exercise of its
reasonable discretion. All marketing materials independently developed by
Licensee incorporating the Intellectual Property or relating to the PAPNET(R)
System or the PAPNET(R) Service shall clearly indicate Licensee's relationship
with NISI.
(d) Should NSI engage in advertising in visual, audio or print
media or direct mail or direct response campaigns, or other similar methods of
promoting the PAPNET(R) Service, which are substantially national in scope and
tenor, NSI shall conduct a level of such promotional efforts in the Licensed
Territory proportionate to the level of population within the Licensed
Territory. NSI shall bear the cost of any such advertising or promotional
activities which it conducts within the Licensed Territory.
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<PAGE> 7
(e) NSI agrees to use reasonable efforts to inform Licensee of its
marketing and sales efforts in the Licensed Territory. NSI will use reasonable
efforts to provide Licensee the opportunity to participate in the implementation
of marketing policies, strategies, and programs and will use its best efforts to
provide a representative of Licensee the opportunity to attend, either by phone
or in person, all relevant meetings and other programs of NSI that relate to
implementation of such policies, strategies and programs, or to any marketing,
sales or customer relations activities in the Licensed Territory.
(f) NSI agrees to cooperate with Licensee and to provide without
charge its facilities and employees in arranging and conducting product
demonstrations, tours of NSI facilities, meetings with NSI executives, and
similar activities in connection with Licensee's marketing, sales and public
relations efforts, upon reasonable prior notice and during normal business
hours.
2.3 SALES PERSONNEL. Licensee will consult with and give reasonable
consideration to NSI's evaluations and recommendations regarding the employment
and retention of sales representatives of Licensee who market and sell the
PAPNET(R) Service, and such evaluations and recommendations will be based upon
criteria similar to those employed by NSI in the hiring and retention of its own
sales force. NSI shall provide without cost to Licensee initial and periodic
training of Licensee's sales personnel to the same extent and on the same basis
that such training is provided to NSI's sales personnel, and shall keep
Licensee's sales personnel updated with appropriate sales materials and other
information. Licensee agrees to cause its sales personnel to participate in
periodic marketing or sales meetings and conference calls conducted by NSI for
its national sales force, and NSI shall bear the costs of travel and lodging for
meetings or other programs at which attendance by Licensee's sales personnel is
requested by NSI.
2.4 INTELLECTUAL PROPERTY. NSI hereby grants Licensee an irrevocable
right to use during the Term of this Agreement, for the purpose of Licensee's
marketing and sale of the PAPNET(R) Service in accordance with and subject to
the terms of this Agreement, the copyrights, trademarks, and trade names used by
NSI to identify PAPNET(R) or the PAPNET(R) Service. Licensee agrees to comply
with such written policies of general application which NSI shall from time to
time adopt concerning the use of NSI's copyrights, trademarks and trade names by
NSI personnel, distributors and other representatives. Licensee shall have the
right to reproduce NSI's trademarks and logos on its business cards, letterhead
stationery, and corporate communications, provided that such materials indicate
Licensee's relationship with NSI. Licensee shall not use NSI's copyrights,
trademarks or trade names in a disparaging manner. Licensee shall not take any
action which is inconsistent with NSI's ownership of its copyrights, trademarks
and trade names, and agrees that each of the foregoing shall inure to the
benefit of NSI. NSI agrees to include correct trademark, trade name, copyright,
trade secret and patent notices for the PAPNET(R) System and the PAPNET(R)
Service on all materials and equipment where appropriate. Licensee shall not
remove, alter, cover, obfuscate or otherwise deface any NSI trademark, trade
name, patent, trade secret or copyright notice on the PAPNET(R) System or any
part thereof or on any promotional or advertising material used in conjunction
with or for the PAPNET(R) System or the PAPNET(R) Service. The foregoing
provisions shall also apply to any other NSI Technology licensed to Licensee
hereunder. Licensee agrees not to represent that
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<PAGE> 8
any product or service sold by it in conjunction with the PAPNET(R) System or
the PAPNET(R) Service, and which is not licensed by NSI, is a product or service
manufactured, provided or endorsed by NSI.
2.5 NATURE AND SCOPE OF APPOINTMENT. Licensee shall not knowingly
market, distribute, sell or license the PAPNET(R) System or the PAPNET(R)
Service outside of the Licensed Territory or for any use, other than as
permitted by NSI; provided, however, that activities of Licensee outside the
Licensed Territory reasonably incidental to marketing and sales activities
within the Licensed Territory shall not be a violation of this Section 2.6.
Licensee shall not, nor shall it encourage or assist any third party to, make
use of the PAPNET(R) System other than as permitted or recommended by NSI and
indicated by the PAPNET(R) System's labeling. Nothing contained in this
Agreement shall prohibit NSI from making, using, licensing, distributing,
selling or granting any rights in and to the PAPNET(R) System or the PAPNET(R)
Service outside of the Licensed Territory so long as there is no material effect
on Licensee's exclusive rights within the Licensed Territory.
2.6 REGULATORY COMPLIANCE. NSI agrees to promptly advise Licensee in
writing of its policies with regard to governmental regulations affecting the
PAPNET(R) System or the PAPNET(R) Service and any changes in such policies which
may occur from time to time. Licensee agrees that any marketing or use of the
PAPNET(R) System or the PAPNET(R) Service shall conform to NSI's practices or
policies with respect to compliance with governmental regulations. Licensee
agrees to use its reasonable efforts to cause its sales force to operate in
strict compliance with NSI's policies and practices, and generally with all
applicable governmental regulations applicable to their activities.
2.7 GOVERNMENTAL RESTRICTIONS. To the extent that any court,
governmental body or regulatory agency with jurisdiction over NSI or Licensee
restricts or prohibits the marketing, distribution, provision or licensing of
the PAPNET(R) System or the PAPNET(R) Service, Licensee's rights hereunder shall
be subject to and limited by any such restriction or prohibition without
liability to NSI of any type or nature except as expressly provided herein to
the contrary.
2.8 UPGRADES; IMPROVEMENTS. The provisions of this Agreement and the
marketing and royalty rights of Licensee hereunder shall apply to any and all
upgrades and improvements of the PAPNET(R), System or the PAPNET(R) Service,
whether or not patented, as well as any other product or service marketed or
sold by NSI which is defined as "NSI Technology" hereunder.
3. ROYALTIES.
3.1 AMOUNT AND PAYMENT.
(a) With respect to each fiscal month during the Term of this
Agreement NSI shall be obligated to pay Licensee Royalties equal to fifty
percent (50%) of the amount by which Territory Gross Revenues recognized by NSI
during such month exceeds the sum of the Lease Service Costs and Slide
Transportation Costs associated with the Slides processed during such
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<PAGE> 9
month; provided, however, that the total amount of Royalties payable under this
Section 3.1(a) with respect to any fiscal year of NSI shall not exceed the
amount of Royalties determined with respect to Territory Gross Revenues
recognized by NSI from the processing of the first 9,736,735 Revenue Slides for
such fiscal year which originate in the Licensed Territory.
(b) Notwithstanding the provisions of Section 3.1(a), in the event
that the aggregate amount of monthly Royalties paid with respect to any fiscal
year of NSI shall be less than three and one-half percent (3.50%) of NSI's
Worldwide Gross Revenues for such fiscal year, NSI shall pay to Licensee as
additional Royalties the amount of such difference; provided, however, that the
total amount of Royalties payable under this Section 3.1(b) with respect to any
fiscal year of NSI shall not exceed $18,385,087 (eighteen million, three hundred
eighty five thousand, eighty seven dollars).
(c) The Royalties due with respect to any fiscal month shall be
reported by NSI to Licensee within fifteen (15) days after the conclusion of
such month, and shall be paid by NSI to Licensee as soon as possible, but not
later than thirty (30) days, after the conclusion of such month. Any additional
Royalties payable pursuant to Section 3.1(b) shall be reported and paid by NSI
to Licensee not later than ninety (90) days after the end of the fiscal year
with respect to which such additional Royalties are due. Royalty reports
furnished by NSI to Licensee pursuant to this Section 3.1(c) shall set forth the
calculation of the Royalties in reasonable detail so that Licensee can determine
the accuracy thereof. Royalties shall be paid by check or wire transfer.
(d) NSI's obligation to pay any Royalties due under this Section
3.1 shall not be subject to any conditions or limitations other than as provided
in this Section.
(e) For purposes of determining Licensee's share of Territory Gross
Revenues during any applicable period, there shall be included in Territory
Gross Revenues during such period a proportionate share of gross revenues
recognized by NSI arising directly or indirectly from the sale, licensing or use
of the PAPNET(R) System, PAPNET(R) Service, and/or any NSI Technology to
Multistate National Laboratories, without any allowances, credits or deductions
(other than such as would constitute price rebates, in the form of discounts or
other reductions in the effective price per Slide charged to Clients),
regardless of whether the Revenue Slides attributable to such Multistate
National Laboratories actually originate in the Licensed Territory. Such
proportionate share shall be equal to the ratio which the population of the
Licensed Territory bears to the population of the United States, as determined
from time to time from the most recently available United States census data. As
of the date of this Agreement, such ratio is 16.23%. In determining the amount
of Royalties payable during any applicable period with respect to such
proportionate share of gross revenues, an amount representing Lease Service
Costs and Slide Transportation Costs will be deducted from Territory Gross
Revenues. Such costs shall be determined by multiplying the average per Revenue
Slide Lease Service Costs and Slide Transportation Costs in the Licensed
Territory times the number of Revenue Slides represented by the proportionate
share of gross revenues from Multistate National Laboratories included in the
Territory Gross Revenues.
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(f) In the event that the PAPNET(R) System, PAPNET(R) Service,
and/or any NSI Technology is ever applied by NSI to the processing of Slides
other than cervical cytology specimens (i.e., "PAP" smears), the parties will in
good faith negotiate an increase in the Royalties cap contained in Section
3.1(a) above to accord Licensee a share of the additional Territory Gross
Revenues attributable to such new Slide processing business, which is
proportionate to the ratio which the population in the Licensed Territory bears
to the total population of the United States at the time.
3.2 BOOKS AND RECORDS. NSI agrees to keep full and accurate books and
records showing all billings, Territory Gross Revenues, Worldwide Gross
Revenues. Lease Service Costs, Slide Transportation Costs and Revenue Slide
geographic origin in sufficient detail to enable Royalties to be determined and
paid by it under this Article 3. NSI further agrees that Licensee and its
representatives shall be permitted to inspect such books and records from time
to time during regular business hours and to make such copies thereof as
reasonably appropriate. Licensee shall be entitled to have such books and
records audited by a certified public accountant at Licensee's expense, and NSI
agrees to place at the disposal of Licensee's accountant all books and records
necessary or desirable in connection with such audit and to give such auditor
reasonable assistance and cooperation. The cost of any such inspection or audit
shall be borne by Licensee.
3.3 CALCULATION OF GROSS REVENUES. The determination of NSI's
independent auditor as to Worldwide Gross Revenues for any fiscal year shall be
deemed presumptively correct. If disputed, Licensee shall have the right to make
reasonable inquiry as to the method by which Worldwide Gross Revenues have been
calculated and NSI shall instruct its auditor to provide a prompt and thorough
response to such inquiry. Any and all disputes concerning the determination of
Territory Gross Revenues or Worldwide Gross Revenues shall be subject to
arbitration as provided in Section 13 of this Agreement.
3.4 REMEDY FOR NON-PAYMENT OF ROYALTIES. Without limiting any other
Rights or remedies to which Licensee may be entitled hereunder, in the event of
the failure of NSI to pay Licensee any Royalties when required to be paid under
Section 3.1(c), interest thereon shall accrue monthly at the rate of 1.5% (18%
per annum).
4. CONTRACT TERMS AND PROCEDURES, CLIENT TRAINING AND SERVICE.
4.1 GENERAL. NSI shall provide Licensee with its standard form or forms
of End User License and other forms of contracts to be executed between NSI and
Clients, which shall be used by Licensee and NSI in the Licensed Territory.
Licensee and NSI shall cooperate in negotiating the definitive terms of such
contracts between NSI and Clients in the Licensed Territory. NSI agrees to
comply with the terms of any End User License it enters into with Clients.
4.2 CONTRACTING OBLIGATIONS OF NSI. NSI shall enter into contracts with
Clients in the Licensed Territory under the same terms, conditions, charges,
added customer benefits, and exceptions as it does in the remainder of the
United States. NSI shall not refuse to enter into or delay
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entering into any contract with a Client in the Licensed Territory except upon
grounds stated in NSI's written policies and procedures of uniform national
application which have been provided to Licensee. In the event of such a delay
or refusal, NSI shall promptly provide written notice to Licensee of such delay
or refusal and the detailed grounds therefor, and shall cooperate with
Licensee's efforts to remedy any noted deficiencies.
4.3 NONDISCRIMINATION. NSI agrees that pricing, discounts and
concessions, delivery schedules, and other contract terms of the PAPNET(R)
Service provided to Clients within the Licensed Territory, as well as the
quality and timeliness of service to them, will be no less favorable to such
Clients than for laboratories, insurance companies or other purchasers in any
other region or locality than in the United States, except to the extent that
NSI can demonstrate that any variance in pricing, discounts and concessions, or
other contract terms is proportionate to differences in the cost of servicing a
particular customer. Notwithstanding the foregoing, if NSI shall enter into
agreements with laboratories, insurance companies or other purchasers on
economic, or business terms materially different than provided to Clients within
the Licensed Territory, at Licensee's request, NSI shall extend such differing
terms to Clients in the Licensed Territory with comparable costs of service. In
order to assess NSI's compliance with this Section 43, NSI will permit Licensee
to inspect, during normal business hours, NSI's contract files for Clients
located outside of the Licensed Territory. The provisions of this Section 4.3
shall not impose any obligation on NSI to extend pricing, discounts,
concessions, or other contract terms applicable to Multistate National
Laboratories to Clients in the Licensed Territory.
4.4 TRAINING AND REVIEW STATIONS. NSI shall provide training in the
operation and maintenance of the Review Station and the evaluation of PAPNET(R)
Images to personnel of Clients in the Licensed Territory, on terms and schedules
comparable to those offered to Clients outside the Licensed Territory. NSI will
notify Licensee of any anticipated delays in the delivery of Review Stations or
in training of Client personnel of greater than thirty (30) days after execution
and delivery of the End User License and other standard contract forms required
by NSI.
6. REPRESENTATIONS AND WARRANTIES OF NSI.
NSI (which term, for purposes of this Article 6, does not include
subsidiaries) hereby represents and warrants to Licensee as follows:
6.1 ORGANIZATION. NSI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. NSI has the
corporate power to own or lease its properties and assets and to carry on its
business as now conducted.
6.2 AUTHORITY RELATIVE TO THIS AGREEMENT. NSI has the right, power and
authority to enter into this Agreement and to perform all of its obligations
hereunder. This Agreement has been authorized by all necessary corporate action
of, has been duly executed and delivered by, and constitutes the valid and
binding obligation of, NSI, and is enforceable in accordance with its terms.
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6.3 NO CONFLICTS; NO CONSENTS. The execution, delivery and performance
of this Agreement will not result in a breach in the terms or conditions of, or
constitute a default under, or violate, or conflict with, or require, as the
case may be: (i) any provision of any law, regulation or ordinance; (ii) the
Certificate of Incorporation or Bylaws of NSI; (iii) any agreement, lease,
mortgage or other instrument or undertaking, oral or written, to which NSI is a
party or by which it or any of its properties or assets is or may be bound or
affected; (iv) any judgment, order, writ, injunction or decree of any
governmental authority, or (v) any action of or by, or filing with, any
governmental authority. The execution and delivery of this Agreement do not and,
except for any approvals, permits and licenses required to market the PAPNET(R)
Service in the Licensed Territory, the performance of this Agreement will not,
require any action, consent or approval of any person, entity or governmental
authority.
6.4 LITIGATION. Except as disclosed in reports publicly filed with the
Securities Exchange Commission pursuant to the Securities Exchange Act of 1934,
as amended, there is no pending or, to the knowledge of NSI, threatened legal,
administrative, arbitration or other proceeding or governmental investigation
which is likely to have a material adverse effect on NSI or the performance by
NSI of its obligations under this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF LICENSEE.
Licensee hereby represents and warrants to NSI as follows:
7.1 ORGANIZATION. Licensee is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio. Licensee has
the corporate power to own or lease its properties and assets and to carry on
its business as now conducted.
7.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Licensee has the right, power
and authority to enter into this Agreement and to perform all of its obligations
hereunder. This Agreement has been authorized by all necessary corporate action
of, has been duly executed and delivered by, and constitutes the valid and
binding obligation of, Licensee, enforceable in accordance with its terms.
7.3 NO CONFLICTS; NO CONSENTS. The execution, delivery and performance
of this Agreement will not result in a breach in the terms or conditions of, or
constitute a default under, or violate, or conflict with, or require, as the
case may be: (i) any provision of any law, regulation or ordinance, (ii) the
Certificate of Incorporation or Bylaws of Licensee, (iii) any agreement, lease,
mortgage or other instrument or undertaking, oral or written, to which Licensee
is a party or by which it or any of its properties or assets is or may be bound
or affected, (iv) any judgment, order, writ, injunction or decree of any
governmental authority, or (v) any action of or by, or filing with, any
governmental authority. The execution and delivery of this Agreement do not, and
except for any approvals, permits and licenses required to market the PAPNET@
Service in the Licensed Territory, the performance of this Agreement will not,
require any action, consent or approval of any person, entity or governmental
authority.
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7.4 LITIGATION. There is no pending or, to the knowledge of Licensee,
threatened legal, administrative, arbitration or other proceeding or
governmental investigation which is likely to have a material adverse effect on
Licensee or the performance by Licensee of its obligations under this Agreement.
8. LIMITATIONS ON WARRANTIES AND LIABILITY.
8.1 NO WARRANTIES. EXCEPT AS OTHERWISE PROVIDED HEREIN, NEITHER NSI NOR
LICENSEE MAKES ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE PAPNET(R)
SYSTEM OR THE PAPNET(R) SERVICE, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
OR THAT THE PAPNET(R) SYSTEM OR THE PAPNET(R) SERVICE AS DEVELOPED AND DESIGNED
WILL MEET ANY REQUIREMENTS OF OR WILL PERFORM ERROR FREE OR IN CONFORMANCE WITH
THE NEEDS OR REQUIREMENTS OF LICENSEE OR ANY CLIENT.
8.2 INSURANCE COVERAGE. NSI agrees to obtain and maintain insurance
coverage as is appropriate to cover any claims arising out of any injury to
person or property resulting from use of the PAPNET(R) System, the PAPNET(R)
Service, or other NSI Technology. NSI shall maintain coverage in the amount of
$1,000,000 per claim and $5,000,000 in the aggregate. NSI agrees to name
Licensee as an additional insured under the terms of the insurance policy or
policies and to provide a copy of the insurance policy or policies to Licensee.
9. OWNERSHIP AND INTELLECTUAL PROPERTY PROTECTION.
9.1 OWNERSHIP OF PAPNET(R) SYSTEM. Licensee acknowledges and agrees
that NSI is the sole and exclusive owner of the Intellectual Property embodied
in the PAPNET(R) System, all information, materials, clinical and test data
reports and filings produced in connection any required regulatory approvals,
permits and licenses, and all information reports, specifications, source code,
object code, documentation, diagrams, flow charts and any other tangible or
intangible materials of any type whatsoever relating to the PAPNET(R) System and
derived or produced by or on behalf of NSI (collectively, the "Proprietary
Materials"). No provision contained in this Agreement shall be construed to
transfer to Licensee any title or ownership interest in the Proprietary
Materials or any Intellectual Property embodied in the PAPNET(R) System or the
PAPNET(R) Service.
9.2 SCOPE OF USE. Licensee shall not, and shall not knowingly assist
any third party to, (a) modify or alter, create or attempt to create, by reverse
engineering or otherwise, translate or decompile, translate or transfer, or
otherwise attempt to derive the source code, structure or algorithms of, the
PAPNET(R) System or any part thereof, (b) use or adapt the PAPNET(R) System or
any part thereof in any way, otherwise than in connection with the marketing or
sale of the PAPNET(R) Service, (c) use the PAPNET(R) System or any part thereof
to create a derivative work of the PAPNET(R) System or (d) rent, lease or
otherwise provide temporary access to the PAPNET(R)
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System or any part thereof, except as incidental to marketing and sales
activities otherwise permitted under this Agreement.
9.3 CONTROL OF INTELLECTUAL PROPERTY PROTECTION. NSI shall at all times
retain the sole and exclusive right to pursue, secure, maintain, protect and
enforce its Intellectual Property rights in and to, or arising out of or related
to, the PAPNET(R) System or the PAPNET(R) Service.
9.4 PAPNET(R) SYSTEM NAME. NSI shall have the right in its sole
discretion to select and include any trademark or trade name to identify the
PAPNET(R) System, provided that Licensee will have only the same rights with
respect to any such trademark or trade name as it does to other trademarks and
trade names of NSI hereunder.
9.5 PROTECTION OF INTELLECTUAL PROPERTY. Licensee shall use its
reasonable efforts to protect and maintain the protection of the Intellectual
Property, as the same may be modified, upgraded or enhanced from time to time.
Upon NSI's request, Licensee shall, at NSI's sole cost and expense, assist NSI
in securing, maintaining and enforcing NSI's Intellectual Property rights in and
to the PAPNET(R) System or the PAPNET(R) Service, including, but not limited to,
undertaking any and all necessary and appropriate actions in accordance with
NSI's requests,
9.6 NOTICE OF INFRINGEMENT. Licensee shall promptly notify NSI of any
infringement of any Intellectual Property right of NSI with respect to the
PAPNET(R) System or the PAPNET(R) Service which is known to Licensee. Upon
reasonable notice of infringement, NSI shall have the right, but not the
obligation, to bring any suit or action for infringement of its Intellectual
Property at its own expense. Licensee shall, if requested by NSI, actively
assist in the prosecution of such action. All costs for such assistance shall be
paid by NSI.
9.7 INFRINGEMENT. If, as a result of any claim of infringement,
Licensee or NSI is permanently enjoined from selling the PAPNET(R) Service or
using the PAPNET(R) System, as the case may be, by a final, nonappealable decree
of a court of competent jurisdiction, NSI shall, if possible, replace or modify
the PAPNET(R) System or PAPNET(R) Service so that the PAPNET(R) Service or
PAPNET(R) System is noninfringing, or procure for Licensee the right to continue
to sell the PAPNET(R) Service or use the PAPNET(R) System that is subject to
such decree. In the event that Licensee or NSI is either preliminarily or
permanently enjoined from marketing and distributing the PAPNET(R) Service in
the Licensed Territory, but NSI is legally free to offer the PAPNET(R) Service
in other parts of the United States or the world, then Licensee shall continue
to be entitled for the period it is so enjoined during the Term of this
Agreement to Royalties as provided in Section 3.1(b) of this Agreement. Except
for the indemnification provided in Section 10.1(ii), the foregoing states the
entire liability of Licensee or NSI, as the case may be, to the other with
respect to infringement of any proprietary rights of any third party, and
Licensee and NSI hereby expressly waive any other such liabilities that each may
have against the other and its directors, officers, employees, agents,
representatives and affiliates.
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10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY NSI. NSI shall, at its sole cost and expense,
indemnify and hold Licensee and its directors, officers, employees, agents,
representatives and affiliates harmless with respect to any liabilities,
damages, losses, costs and expenses, including reasonable attorney's fees (any
or all of the foregoing being hereinafter referred to as a "Loss"), insofar as
such Loss arises out of or is based upon (i) a misrepresentation or breach (or
alleged misrepresentation or breach) by NSI of its warranties, covenants and
agreements contained herein, (ii) a claim that the PAPNET(R) System, the
PAPNET(R) Service, the Intellectual Property, the Patents, or the NSI Technology
licensed hereunder, as used within the scope of this Agreement, infringes or
violates any proprietary rights of any third party; or (iii) any injury to
person or property resulting from use of the PAPNET(R) System, the PAPNET(R)
Service, or other NSI Technology, except to the extent that such injury is
proximately caused by the gross negligence or intentional misconduct of Licensee
or Licensee's employees.
10.2 INDEMNIFICATION BY LICENSEE. Licensee shall, at its sole cost and
expense, indemnify and hold NSI and its directors, officers, employees, agents,
representatives and affiliates harmless with respect to any liabilities,
damages, losses, costs and expenses, including reasonable attorney's fees (any
or all of the foregoing being hereinafter referred to as a "Loss"), insofar as
such Loss arises out of or is based upon a misrepresentation or breach (or
alleged misrepresentation or breach) by the Licensee of its warranties,
covenants and agreements contained herein.
10.3 NOTICE OF CLAIM; DEFENSE. Each person indemnified under Sections
10.1 and 10.2 above (an "Indemnified Person") agrees that, upon the service of a
summons or other initial legal process upon the Indemnified Person in any action
or proceeding, or upon the Indemnified Person's receipt of written notification
of the commencement of any investigation, inquiry, or proceeding in respect of
which indemnity may be sought by the Indemnified Person under Section 10.1 or
10.2 above, the Indemnified Person will promptly give written notice (the
"Notice") of such service or notification to the party from whom indemnification
may be sought hereunder (the "Indemnifying Party"). No indemnification provided
for in Section 10.1 or 10.2 above shall be available to any Indemnified Person
who shall fail so to give the Notice, if the Indemnifying Party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related, to the extent the
Indemnifying Party was prejudiced by the failure to give the Notice; but the
omission so to notify such Indemnifying Party of any such service or
notification shall not relieve such Indemnifying Party from any liability which
it may have to any Indemnified Person for contribution or otherwise than on
account of such Sections. An Indemnifying Party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an Indemnified Person. An Indemnifying Party
shall be entitled, if it so elects within a reasonable amount of time after
receipt of the Notice, by giving written notice (herein called the "Notice of
Defense") to all Indemnified Persons, to assume the entire defense of such
action, suit, investigation, inquiry or proceeding, in which event such defense
shall be conducted, at the expense of the Indemnifying Party, by counsel chosen
by the Indemnifying Party reasonably satisfactory to the Indemnified Persons;
provided, however, that (i) if any Indemnified Person reasonably determines that
there may be a conflict between the positions of the Indemnifying Party and of
such Indemnified Person in conducting the defense of such action,
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suit, investigation, inquiry or proceeding or that there may be legal defenses
available to such Indemnified Person different from or in addition to those
available to the Indemnifying Party, then counsel for the Indemnified Person
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the Indemnified Person
and (ii) in any event, the Indemnified Person shall be entitled to have counsel
chosen by such Indemnified Person participate in, but not conduct, the defense.
If, within a reasonable time after receipt of the Notice, an Indemnifying Party
gives a Notice of Defense and the counsel chosen by the Indemnifying Party is
reasonably satisfactory to the Indemnified Person, the Indemnifying Party will
not be liable under Section 10.1 or 10.2 for any legal or other expenses
subsequently incurred by the Indemnified Person in connection with the defense
of the action, suit, investigation, inquiry or proceeding, except that (A) the
Indemnifying Party shall hear the legal and other expenses incurred in
connection with the conduct of the defense as referred to in clause (i) of the
proviso to the preceding sentence and (B) the Indemnifying Party shall bear such
other expenses as it has authorized to be incurred by the Indemnified Person.
If, within a reasonable time after receipt of the Notice, no Notice of Defense
has been given, the Indemnifying Party shall be responsible for any legal or
other expenses incurred by the Indemnified Persons in connection with the
defense of the action, suit, investigation, inquiry or proceeding. No
Indemnifying Party will, without the prior written consent of an Indemnified
Person, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder unless such settlement, compromise or
consent includes an unconditional release of such Indemnified Person and each
controlling person thereof from all liability arising out of such claim, action,
suit or proceeding.
11. CONFIDENTIALITY.
During the Term of this Agreement and thereafter, each of NSI and
Licensee shall keep strictly confidential all information of the other which is
secret and proprietary. The parties shall not reveal or disclose the same to any
person or entity without the prior written consent of the other party; provided,
however, that either party may disclose such information pursuant to a subpoena,
order, statute, rule or other legal requirement promulgated or imposed by a
court or by a judicial, regulatory or legislative body or agency in which such
party is involved; and provided, further, that either party may disclose to the
extent its counsel determines in good faith that such disclosure is necessary to
comply with applicable securities laws. In the event that either party discloses
such confidential information in accordance with the previous sentence, such
party shall immediately notify the other party.
12. TERM AND TERMINATION.
(a) The initial Term of this Agreement shall continue from the date
hereof until December 31, 2025. The Term of this Agreement may be extended by
the Licensee for an additional twenty (20) year Term upon written notice to NSI
within six (6) months preceding the expiration of the initial Term, and the
payment to NSI of a renewal fee equal to the net present value of twenty (20)
years of annual Royalties at the average monthly rate payable in the twelve
months immediately
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preceding the date of the notice, determined by using a discount rate equal to
the prevailing prime rate on the date of the notice, as published in the Wall
Street Journal.
(b) This Agreement may not be terminated or cancelled except upon the
expiration of its initial or additional Term other than by written agreement of
the parties.
(c) Upon termination of this Agreement (i) Licensee shall, at its
expense, return to NSI any of NSI's marketing literature, packaging or
Confidential Information and all copies thereof in its possession and certify in
writing that the same have been returned and deliver to NSI all information as
is necessary and useful for NSI to market the PAPNET(R) Service, including,
without limitation, information in possession of Licensee relating to Clients,
(ii) Licensee shall immediately cease representing itself as authorized to sell
NSI products and services, and (iii) the parties shall otherwise cooperate in
order to effect an orderly termination.
13. ARBITRATION.
Except as otherwise provided herein, the parties hereto agree that the
sole and exclusive remedy for any dispute between the parties arising out of or
relating to this Agreement shall be resolved by arbitration conducted in the
City of Columbus, Ohio in accordance with the Commercial Arbitration Rules then
obtaining of the American Arbitration Association, except that the arbitrators
shall have no power to alter or modify any express provision of this Agreement,
or to render any award which by its terms effects any such alteration or
modification. Judgment upon the award rendered may be entered by any court
having jurisdiction in the State of Ohio. If any action or proceeding is brought
to enforce the decision of the arbitrators, the prevailing party shall be
entitled to recover its reasonable attorney's fees and other costs incident to
such action or proceeding. The provisions of this Article 13 shall not affect
the right of any party to seek provisional legal or equitable remedies. The law
of Ohio shall be applied to any dispute under arbitration. The parties warrant
arid represent that the filing of an arbitration demand will not prevent, allow,
or excuse the parties from meeting their obligations under this Agreement during
the time any such dispute is being resolved. Day to day business functions will
continue uninterrupted during the arbitration period.
14. MISCELLANEOUS.
14.1 RULES OF CONSTRUCTION.
(a) As used in this Agreement, neutral pronouns and any variations
thereof shall be deemed to include the feminine and masculine and all terms used
in the singular shall be deemed to include the plural, and vice versa, as the
context may require. The words "hereof', "herein" and "hereunder" and other
words of similar import refer to this Agreement as a whole, including the
Annexes hereto, as the same may from time to time be amended or supplemented,
and not to any subdivisions contained in this Agreement. The word "including"
when used herein is not intended to be exclusive and means "including, without
limitation." References herein to "dollars," "United
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States $" and "$" are to United States dollars. References herein to Article,
Section, subsection or Exhibit shall refer to the appropriate Article, Section,
subsection or Exhibit in or to this Agreement.
(b) The following guiding and primary rules of construction
shall be applied to this Agreement and to any dispute hereunder:
(i) that the terms of this Agreement will be
construed against termination of this Agreement or forfeiture of any
right hereunder;
(ii) that the terms of this Agreement will be
construed in favor of providing Licensee the opportunity to maximize
the economic benefits available hereunder from the promotion of the
PAPNET(R) System, the PAPNET(R) Service and the NSI Technology in the
Licensed Territory, and to realize its proportionate share under
Section 3.1(b) hereof of the worldwide market for the PAPNET(R) System,
the PAPNET(R) Service and the NSI Technology;
(iii) that each term of this Agreement will be
construed, wherever reasonable, in a manner consistent with the
understanding of the term by the parties as manifested by their
established course of dealing; and
(iv) that each term of this Agreement imposes on the
parties an obligation of good faith and fair dealing in its performance
and enforcement.
14.2 NO ADVERSE ACTIONS. Licensee agrees to take no action that could
materially adversely affect the business, operations or prospects of NSI. NSI
agrees to take no action that could materially adversely affect the business,
operations or prospects of Licensee.
14.3 INDEPENDENT CONTRACTORS. It is expressly agreed that the parties
hereto are acting hereunder as independent contractors and not as joint
venturers, and under no circumstances shall any of the employees of one party be
deemed the employees of the other for any purpose. This Agreement shall not be
construed as authority for either party to act for the other party in any agency
or other capacity, or to make commitments of any kind for the account of or on
behalf of the other except to the extent and for the purposes expressly provided
for and set forth herein.
14.4 ASSIGNMENT; SUBLICENSING. This Agreement and the licenses herein
granted are not assignable by either party (nor are the licenses sublicensable
by Licensee) without the prior written consent of the other party, which consent
shall not be unreasonably withheld; provided, however, that Licensee may assign
this Agreement to any corporation which is a wholly-owned subsidiary of Licensee
without such consent. Neither party may pledge or otherwise grant a security
interest in this Agreement or the licenses granted hereby, but may grant a
security interest in any payments to which it is entitled hereunder. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns.
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14.5 WAIVER; REMEDIES. No failure on the part of any party to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
14.6 SEVERABILITY. If any provision of this Agreement is determined by
a court of competent jurisdiction to be invalid or unenforceable, such
determination shall not affect the validity or enforceability of any other part
or provision of this Agreement.
14.7 CHOICE OF LAW. This Agreement and the performance hereof shall be
governed by and construed in accordance with the laws of the State of Ohio
(without giving effect to principles of conflicts of laws).
14.8 NOTICE. All notices, invoices, consents or other communications
required or permitted to be given by either party to the other shall be in
writing (including facsimile or similar writing) and shall be given by
facsimile, Federal Express or similar courier service, or by certified or
registered mail, postage prepaid as follows:
(a) If to NSI:
Neuromedical Systems, Inc.
10 Mountain View Road, Suite C-100
Upper Saddle River, New Jersey 07458-1933
Attn.: Paul R. Sohmer, M. D.
President
Facsimile: (201) 760-2096
With a copy to:
Wuersch & Gering LLP
Attention: Travis L. Gering
330 Madison Avenue - 14th Floor
New York, NY 10017
Facsimile: (212) 856-0829
(b) If to Licensee:
NetMed, Inc.
6189 Memorial Drive
Dublin, OH 43017
Attn.: David J. Richards
Facsimile: (614) 793-9376
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<PAGE> 20
With a copy to:
Porter, Wright, Morris & Arthur
Attn: William J. Kelly, Jr.
2800 Huntington Center
41 South High Street
Columbus, OH 43215
Facsimile: (614) 227-2100
or at such other address or facsimile number (or other similar number) as any
party may from time to time specify to the other party hereto. Any notice,
consent or other communication required or permitted to be given hereunder shall
be deemed to have been given on the date of mailing, personal delivery or
facsimile (provided the appropriate answer back is received) thereof and shall
be conclusively presumed to have been received on the second business day
following the date of mailing or, in case of personal delivery, the actual day
of personal delivery thereof, or, in the case of facsimile delivery, when such
facsimile is transmitted, except that a change of address shall not be effective
until actually received.
14.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
previous proposals, both oral and written, negotiations, representations,
commitments, writings and all other communications between the parties with
respect to such subject matter. It may not be released, discharged, changed or
modified except by an instrument in writing signed by a duly authorized
representative of each of the parties. Notwithstanding the foregoing, this
Agreement shall be subject to the side letter between the parties hereto dated
as of even date herewith,
14.10 HEADINGS. The headings used in this Agreement are for reference
purposes only and shall not be construed to limit or further define any term or
provisions hereof.
14.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
a duly authorized representative as of the date first written above.
NEUROMEDICAL SYSTEMS, INC.
By: /s/Paul R. Sohmer
------------------------------------
Paul R. Sohmer, M.D.
President
NETMED, INC.
By: /s/David J. Richards
------------------------------------
David J. Richards
President
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<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Pre-Effective Amendment No. 1 to the Registration Statement (Form S-3) and
related Prospectus of NetMed, Inc. for the registration of 8,000,000 shares of
its common stock and to the incorporation by reference therein of our report
dated February 16, 1998, with respect to the financial statements of NetMed,
Inc. included in its Annual Report (Form 10-K) for the year ended December 31,
1997, filed with the Securities and Exchange Commission.
/s/Ernst & Young LLP
Ernst & Young LLP
Columbus, Ohio
December 18, 1998
