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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1999
Commission File Number: 1-12529
NETMED, INC.
(Name of small business issuer in its charter)
OHIO 31-1282391
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 KINNEAR ROAD, SUITE 132
COLUMBUS, OH 43212-1155
(Address of principal executive offices,
including zip code)
(614) 675-3722
(Issuer's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, NO PAR VALUE
(Title of Class)
The registrant has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and has been subject to the filing requirements for at least the past
90 days.
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The registrant had no revenues for the fiscal year ended December 31,
1999.
The aggregate market value of the registrant's common equity held by
non-affiliates of the registrant was approximately $1,405,725 on March 22, 2000.
There were 12,868,951 of the Registrant's Common Shares outstanding on
March 22, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is an Ohio corporation engaged in the business of
acquiring, developing and marketing medical and health-related technologies. The
sole business activity of the Company, through its majority owned subsidiary
OxyNet, Inc., is the development and commercialization of products incorporating
a new ceramic-based technology for separation of oxygen from ambient air and
other gases. The first such product targeted for commercialization is an oxygen
concentrator for use in the home health industry.
Prior to March 26, 1999, the Company was also in the business of
marketing of the PAPNET(R) Testing System, an automated cervical cancer
screening product of Neuromedical Systems, Inc. ("NSI"). The Company marketed
the PAPNET(R) Testing System in a five state area under license from NSI. On
March 26, 1999, NSI announced that it had commenced reorganization proceedings
under Chapter 11 of the U.S. Bankruptcy Code. In connection with its Chapter 11
filing, the Company terminated the majority of its U.S. workforce and agreed to
sell its intellectual property and related assets to AutoCyte, Inc. (now Tripath
Imaging, Inc.), for $4,000,000 in cash and 1.4 million shares of AutoCyte common
stock. As of May 6, 1999, NSI, as debtor in possession, rejected the Company's
license and the Bankruptcy Court confirmed the rejection over the Company's
objection. As a result, the Company became an unsecured creditor of NSI with a
breach of contract claim for the termination of the license.
On December 3, 1999, the Company announced that the bankruptcy court
had approved a settlement among the Company, NSI, and the official committee of
unsecured creditors. The agreement provided for the settlement and release of
the Company's claims in exchange for 175,000 shares of common stock of Tripath
Imaging, Inc. (NasdaqNM: TPTH), and the allowance in the bankruptcy proceeding
of an unsecured claim by the Company in the amount of $1.5 million. The 175,000
Tripath shares were issued to the Company in late December, 1999, and the
balance of its settled claim will be included with other allowed claims of
unsecured creditors to be paid out of liquidation proceeds in the bankruptcy
proceeding. The Company is unable to predict the amount and timing of any
payments it may ultimately receive in respect of the $1.5 million unsecured
claim.
The Company was originally organized in 1989 for the purpose of
acquiring the exclusive territorial rights to market NSI's proprietary products
in Ohio. In 1990, it acquired from NSI marketing rights for Kentucky and the
Chicago, Illinois metropolitan area. On December 16, 1996, the Company completed
a merger with licensees that had held the rights to market the PAPNET Testing
System in the states of Missouri, Georgia and North Carolina. The Company was
the surviving corporation in the merger. Upon completion of the merger, the
Company changed its name from Papnet of Ohio, Inc. to NetMed, Inc.
Currently, the Company's sole business is limited to research and
development activities related to the oxygen separation and concentration
technology of its subsidiary, OxyNet, Inc.
DEVELOPMENT OF OXYGEN TECHNOLOGY
In early 1997 the Company entered into an agreement with CeramPhysics,
Inc. of Westerville, Ohio ("Ceram"), pursuant to which the Company obtained the
right to acquire 95% ownership of Ceram Oxygen Technologies, Inc. ("COTI"), a
Ceram subsidiary that held an exclusive world-wide license to Ceram's patented
ceramic oxygen generation technology for all applications of the technology
except oxygen sensors and fuel cells. On April 3, 1998, the Company acquired
from 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
provided 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. The cash payment and note were assigned by COTI to Ceram in payment of a
$200,000 license fee for the technology. Following this transaction, COTI's name
was changed to "OxyNet, Inc."
The Company is currently engaged in litigation with Ceram and its
principals over a purported termination of the license for this technology, as
well as disputes concerning the scope of the license and the payment of
royalties. See "Legal Proceedings."
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It is the Company's intention to incorporate the technology into
products that separate and concentrate oxygen from ambient air and other gases,
with the first product being an oxygen concentrator for use in the home health
industry. Since acquisition of the rights to the technology, the Company has
proceeded with the scale-up of early demonstration modules incorporating the
technology, and has developed other components necessary to construct a
prototype oxygen concentrator system. Since 1997, the Company has experienced a
number of technical challenges that have delayed the completion of a prototype
device. However, the Company believes that it has overcome most of these
difficulties, and expects to complete and demonstrate the prototype by the end
of the second quarter of 2000.
Assuming successful completion of the prototype, it is the Company's
intention to pursue the development of a commercial version of the device.
Although it is possible that the Company will proceed to do so unilaterally, the
Company lacks the financial and other resources necessary to do so, and it is
more likely that the Company will pursue commercialization through a licensing,
joint venture or similar relationship with a larger company.
On March 7, 2000, the U.S. Patent Office issued patent No. 6,033,457 on
the Company's medical oxygen concentrator system. The patent has been assigned
to the Company's subsidiary, OxyNet, Inc.
The Company is also pursuing other applications of the technology
beyond the generation of medical oxygen. On April 30, 1999, the Company and
OxyNet, Inc. entered into a joint development agreement and a licensing
agreement with MG Generon, Inc., a subsidiary of Messer Group, to pursue
development of a device that will use the technology to produce highly
concentrated nitrogen from gas mixtures through the removal of oxygen from such
mixtures. The Company granted a first security interest in the license agreement
between the Company, OxyNet and Ceram, and if joint development efforts are
successful, MG Generon would have exclusive rights to the nitrogen purification
technology and the Company would be paid a royalty. MG Generon made a payment of
$250,000 to the Company upon execution of the joint development agreement, and
agreed to fund additional development costs based upon a project schedule to be
approved by MG Generon. Under certain conditions relating to the litigation with
Ceram, payments made by MG Generon could be refundable.
PERSONNEL
As of March 17, 2000, the Company employed two full time employees.
None of the Company's employees are subject to a collective bargaining
agreement, and the Company considers its relationship with its employees to be
good.
BUSINESS RISKS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The following factors, among
others, could cause actual results to differ materially from those contained in
forward-looking statements made in this report, including without limitation,
the sections entitled "Business," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Legal Proceedings." When
used in this report and the documents incorporated by reference herein, the
words "estimate," "project," "anticipate," "expect," "believe" and words of
similar import are intended to identify forward-looking statements.
WE MAY NEVER HAVE POSITIVE EARNINGS
Our current business is limited to research and development activities
relating to our OxyNet(R) technology, from which we have yet to derive any
revenues. Therefore we are subject to risks incident to any early stage
business, including the absence of earnings. As of December 31, 1999, we had a
retained deficit of $7,830,287. Until a successful commercial launch of a
product incorporating our OxyNet(R) technology (which is by no means assured) we
will realize little, if any, revenue, and will be dependent upon the proceeds of
the NSI bankruptcy settlement to fund operations.
LACK OF SALES AND REVENUES AND HISTORY OF LOSSES; ANTICIPATED FUTURE LOSSES
Historically, the Company's only revenues were derived from sales of
NSI's Papnet product. Since termination of the NSI license, the Company has been
engaged primarily in the research, development and testing of our OxyNet(R)
technology. The Company has not had any commercial sales or generated any
significant revenues from the OxyNet(R) technology to date and has experienced
operating losses since its inception, with those for fiscal
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year 1999 totaling $1,039,279. The Company expects to incur substantial
operating losses and the rate at which such losses are incurred is expected to
increase relative to prior years as the Company prepares for the
commercialization of a product incorporating the technology. Until a successful
commercial launch of a product incorporating our OxyNet(R) technology, which is
by no means assured, we will realize little, if any, revenue, and will be
dependent upon the proceeds of the NSI bankruptcy settlement to fund operations.
There can be no assurance that the Company will ever generate revenues or
achieve profitability.
PRODUCT DEVELOPMENT RISKS; UNCERTAINTY OF REGULATORY APPROVAL
Our OxyNet(R) oxygen concentrator device is under development and,
accordingly, its safety and efficacy has not yet been established. The
production and marketing of the OxyNet(R) oxygen concentrator, and the Company's
ongoing research and development activities are subject to regulations by
numerous government authorities in the United States and other countries. The
manufacture and sale of the oxygen concentrator and future products are subject
to FDA review and approval, which can be an expensive, lengthy and uncertain
process.
Failure to complete clinical trials or obtain the necessary FDA
allowances or approvals, or to obtain such allowances or approvals on a timely
basis, would have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the FDA and various state
agencies inspect medical device manufacturers from time to time to determine
whether they are in compliance with applicable regulations, including ones
concerning manufacturing, testing, quality control and product labeling
practices. Noncompliance with applicable regulatory requirements can result in,
among other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant pre-market clearance or approval for devices, withdrawal of marketing
clearances or approvals, and criminal prosecution. The FDA also has the
authority to request recall, repair, replacement or refund of the cost of any
device manufactured or distributed by the Company.
UNCERTAINTY OF MARKET ACCEPTANCE
The OxyNet(R) oxygen concentrator system represents a new approach to
medical oxygen, and there can be no assurance that the we will gain any
significant degree of market acceptance even if we obtain the necessary
regulatory clearances or approvals. We believe that in order to obtain market
acceptance for oxygen concentrators designed for use in the home health
industry, recommendations by physicians may be significant, and there can be no
assurance that any such recommendations will be obtained. In addition, the
medical gas industry is highly competitive. In order to compete successfully
against other products, the Company must maintain competitive pricing.
Insufficient market acceptance of the oxygen concentration system would have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON SINGLE PRODUCT
Although the we intend to pursue other applications of the OxyNet(R)
technology, we expect that if we ever realize any significant revenues from
commercialization of the technology, the first revenues will be derived from the
home health care model of the oxygen concentrator system. Failure to
successfully develop and commercialize the home health care system would have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION AND TECHNOLOGICAL ADVANCES
Our ability to compete in the medical oxygen field will depend
primarily upon physician and consumer acceptance of the home health care model
of the oxygen concentrator, consistency of product quality and delivery, price,
technical capability and the training of health care professionals and
consumers. Other factors within and outside of our control will also affect our
ability to compete, including our product development and innovation
capabilities, our ability to obtain required regulatory clearances, our ability
to protect the proprietary technology included in its products, our
manufacturing and marketing capabilities, our third-party reimbursement status
and our ability to attract and retain skilled employees. Our competitors will
likely have significantly greater financial, technical, research, marketing,
sales, distribution and other resources than the Company. There can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more effective or commercially
attractive than any products that may be offered by the Company, nor can there
be any assurance that such competitors will not succeed in obtaining regulatory
clearance, introducing or commercializing any such products before the Company.
Such developments could have a material adverse effect
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on the Company's business, financial condition and results of operations.
PATENTS AND PRODUCTION OF PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively will depend, in part, on
its ability to develop and maintain proprietary aspects of its OxyNet oxygen
concentrator technology. Although the Company's OxyNet subsidiary has been
issued a United States patent for its home concentrator system, and has
exclusively licensed other patents for the core technology, there can be no
assurance that these patents will not be challenged, invalidated or circumvented
in the future. Legal standards related to the enforceability, scope and validity
of patents are in transition and are subject to uncertainty due to broad
judicial discretion and evolving case law. Moreover, there can be no assurance
that competitors, many of which have substantial resources and have made
substantial investments in competing technologies, will not seek to apply for
and obtain patents that will prevent, limit or interfere with the Company's
ability to make, use and sell its products either inside or outside the United
States. The defense and prosecution of patent litigation or other legal or
administrative proceedings related to patents is both costly and time-consuming,
even if the outcome is favorable to the Company. An adverse outcome could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from others or require the Company to cease
making, using or selling any products. There also can be no assurance that any
licenses required under any patents or proprietary rights would be made
available on terms acceptance to the Company, if at all.
The Company is currently engaged in litigation with the licensor of the
core oxygen generation technology over a purported termination of the license
for this technology, as well as disputes concerning the scope of the license and
the payment of royalties. See "Legal Proceedings."
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. Adverse determinations as to the 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.
The Company also relies on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
proprietary technology. In addition, the Company cannot be certain that others
will not independently develop substantially equivalent or superseding
proprietary technology, or that an equivalent product will not be marketed in
competition with the Company's products, thereby substantially reducing the
value of the Company's proprietary rights. There can be no assurance that any
confidentiality agreements between the Company and its employees, consultants or
contractors will provide meaningful protection for the Company's trade secrets,
know-how or other proprietary information in the event of any unauthorized use
or disclosure of such trade secrets, know-how or other proprietary information.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
If the Company is successful in the commercialization of the OxyNet(R)
technology and embarks on the manufacture or distribution of products
incorporating the technology, it will face exposure to product liability claims.
Although the Company may seek to obtain insurance for such exposure, product
liability insurance is expensive, and there can be no assurance that such
insurance in the future will be available on commercially reasonable terms, or
at all, or that such insurance, even if obtained, would adequately cover any
product liability claim. A product liability or other claim with respect to
uninsured liabilities or in excess of insured liabilities could have a material
adverse effect on the business, financial condition and prospects of the
Company.
LIMITED PUBLIC MARKET-DELISTED FROM THE AMERICAN STOCK EXCHANGE
In August 1998, the staff of the American Stock Exchange recommended
that our common shares be
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delisted from trading on the Exchange because of our failure to meet minimum
financial requirements for continued listing. We appealed this determination to
the Board of Governors of the Exchange, which permitted our continued listing on
the Exchange until March 31, 1999, when it decided to follow the Exchange
staff's recommendation and delist our common shares. Our common shares are
currently traded in the over the counter market and are quoted on the OTC
Bulletin Board. There can be no assurance that our common shares will continue
to be admitted for quotation on the OTC Bulletin Board or that a market for our
common shares will exist in the future. There is no assurance that, if a market
exists in the future, that it will be an active, liquid or continuous 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 companies. Such fluctuations and
volatility have often been related or disproportionate to the operating
performance of such companies. Factors such as announcements of the introduction
or enhanced services or related products by the Company or its competitors may
have a significant impact on the market price of the Company's common shares.
RISKS RELATING TO LOW PRICED STOCKS
The Company's common shares are currently trading at a price
substantially below $5.00 per share, subjecting trading in the stock to certain
rules promulgated under the Act requiring additional disclosures by
broker-dealers. These rules generally apply to any non-Nasdaq equity security
that has a market price share of less than $5.00 per share, subject to certain
exceptions (a "penny stock"). Such rules require the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth in excess of $1,000,000 or annual income exceeding $200,000
individually or $300,000 together with a spouse). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. The broker-dealer also must disclose the
commissions payable to the broker-dealer, current bid and offer quotations for
the penny stock and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Such information must be provided to the customer orally or in
writing before or with the written confirmation of trade sent to the customer.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. The additional burdens imposed upon broker-dealers by such requirements
could discourage broker-dealers from effecting transactions in our common shares
which could severely limit the market liquidity of our common shares and the
ability of holders of our common shares to sell them.
NO DIVIDENDS
We have not paid and do not anticipate paying any cash dividends in the
foreseeable future. If we do not pay dividends, the only way you can benefit
from owning our stock is through appreciation of the stock's value. 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.
ISSUANCE OF ADDITIONAL EQUITY SECURITIES COULD DILUTE YOUR INTEREST
Terms of our preferred shares issued by our OxyNet subsidiary include
the right to exchange these for our common stock. This may have a dilutive
effect on our common shareholders. See "Market For Common Equity And Related
Stockholder Matters."
If we issue equity securities to raise funds, each current
shareholder's interest may be reduced. Further, such equity securities may have
rights, preferences or privileges senior to the common shares.
THE CONCENTRATION OF OWNERSHIP OF THE COMMON SHARES MAY LIMIT YOUR ABILITY TO
INFLUENCE MATTERS
Our directors, executive officers and principal shareholders (5% or
greater) collectively beneficially own or have the right to acquire under
currently exercisable options approximately 20% of the outstanding common
shares. 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.
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We had 12,868,951 common shares outstanding as of December 31, 1999.
Approximately 1,623,148 shares are held by affiliates of NetMed.
VOLATILITY OF MEDICAL TECHNOLOGY COMPANIES' SECURITIES MAY ADVERSELY EFFECT THE
MARKET PRICE OF YOUR STOCK
Market prices of securities of medical technology companies, including
our common shares, have experienced significant volatility from time to time.
There may be volatility in the market price of our common shares 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 our common
shares.
WE NEED TO RAISE ADDITIONAL CAPITAL IN 2000 IN ORDER TO BE SUCCESSFUL
We will likely incur substantial expenditures during 2000 to further
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 2000. We are unsure whether capital
will be available at that time.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located in Columbus, Ohio, and
consist of 1,275 square feet of office and laboratory space subleased from
Business Technology Center, Inc., at an annual rental of $15,120. The prime
lessor for the premises is The Ohio State University. The term of the lease is
for one year, ending October 31, 2000.
ITEM 3. LEGAL PROCEEDINGS.
On March 1, 1999, the Company and OxyNet commenced a lawsuit in the
Common Pleas Court of Franklin County, Ohio against Ceram and its principals
over Ceram's purported termination of the license for the ceramic oxygen
generation technology, as well as over other issues, including whether oxygen
"scrubbing" applications are included in the scope of the license and whether
minimum royalties are payable prior to the manufacture or sale of products
incorporating the technology, and asserting claims for damages for fraud and
negligent misrepresentation. On March 3, 1999, the Company and OxyNet obtained a
temporary restraining order prohibiting Ceram from taking any action to
terminate the license or that otherwise is inconsistent with the rights of the
Company under the license. On March 24, 1999, the court issued a decision
finding that the license had not been terminated and granting a preliminary and
permanent injunction against Ceram from taking any action inconsistent with the
Company's rights under the license. While the Company is confident that it will
prevail in any appeal from that decision, and that its other claims will be
found meritorious, it is unable to predict the ultimate outcome of the
litigation. The Company expects that the case will be tried in June, 2000.
On March 26, 1999, NSI announced that it had commenced reorganization
proceedings under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. On December 1, 1999, the United
States Bankruptcy Court for the District of Delaware approved a settlement
agreement among NetMed, NSI, and the official committee of unsecured creditors
in the NSI's pending Chapter 11 bankruptcy reorganization. The settlement
agreement provided for the settlement and release of NetMed's claims in exchange
for 175,000 shares of common stock of Tripath Imaging, Inc., and the allowance
in the bankruptcy proceeding of an unsecured claim by NetMed in the amount of
$1.5 million. The Company is unable to predict the amount and timing of any
payments it may ultimately receive in respect of the $1.5 million unsecured
claim allowed by the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Until April 19, 1999, the Common Shares were listed for trading on the
American Stock Exchange under the symbol "NMD." The following table sets forth,
for the periods indicated, the high and low last sales prices per share, as
reported on the American Stock Exchange.
<TABLE>
<S> <C> <C>
First Quarter 1998.................... $2.4375 $0.9375
Second Quarter 1998................... 1.25 0.625
Third Quarter 1998.................... 0.8438 0.0625
Fourth Quarter 1998................... 0.5625 0.1875
First Quarter 1999.................... 0.218 0.093
</TABLE>
Effective April 20, 1999, the Common Shares were admitted for quotation on the
NASD OTC Bulletin Board under the symbol "NTMD." The following table sets forth,
for the periods indicated, the high and low bid per share, as reported by Nasdaq
Trading & Market Services. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
<TABLE>
<S> <C> <C>
Second Quarter 1999...................... $0.125 $0.0313
Third Quarter 1999....................... 0.08 0.04
Fourth Quarter 1999...................... 0.05 0.03
</TABLE>
On March 17, 2000, the last reported sale price of the Common Shares
was $0.14 per share. On March 17, 2000, there were 411 holders of record of the
Common Shares. This figure excludes an indeterminate number of stockholders
whose shares are held in "street" or "nominee" name.
The Company has not paid and does not anticipate paying any cash
dividends in the foreseeable future and intends to retain future earnings for
the development and expansion of its business. Any future determination to pay
dividends will be at the discretion of the Board and subject to certain
limitations under the Ohio General Corporation Law and will depend upon the
Company's results of operations, financial condition, contractual restrictions
and other factors deemed relevant by the Board.
In September, 1998, the Company's OxyNet subsidiary completed the
private placement of 500 shares of convertible preferred shares for net proceeds
of $491,000. These proceeds have been and will continue be used for further
development of products incorporating OxyNet's ceramic oxygen generation
technology. The OxyNet preferred shares are convertible into common shares of
OxyNet on a one share for one share basis. In addition, purchasers of the OxyNet
preferred shares were given the right to exchange them for NetMed Common Shares
if a public offering of the common shares of OxyNet did not occur 18 months from
the date of issuance of the OxyNet shares. The number of NetMed Common Shares
issuable on exercise of this right would be determined by dividing the aggregate
original stated value of the OxyNet preferred shares, plus accrued dividends, by
the market price of the NetMed Common Shares at the time of exercise. This one
time right to exchange the OxyNet shares for NetMed Common Shares was available
only for a period of 30 days following the expiration of the 18 month period
referenced above. The 18 month period expired in March, 2000 without a public
offering having occurred, but holders of 350 of the OxyNet shares have agreed to
extend the period for an additional 12 months. The exercise of these exchange
rights may result in substantial dilution to holders of the NetMed's common
shares. A holder of 50 preferred shares has notified the Company of the exercise
of the exchange right, which will require the Company to issue the holder
approximately 845,000 Common Shares.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
OVERVIEW
The Company is an Ohio corporation engaged in the business of
acquiring, developing and marketing medical and health-related technologies. The
sole business activity of the Company, through its majority owned subsidiary
OxyNet, Inc., is the development and commercialization of products incorporating
a new ceramic-based technology for separation of oxygen from ambient air and
other gases. The first such product targeted for commercialization is an oxygen
concentrator for use in the home health industry.
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Prior to March 26, 1999, the Company was also in the business of
marketing of the PAPNET(R) Testing System, an automated cervical cancer
screening product of Neuromedical Systems, Inc. ("NSI"). The Company marketed
the PAPNET(R) Testing System in a five state area under license from NSI. On
March 26, 1999, NSI announced that it had commenced reorganization proceedings
under Chapter 11 of the U.S. Bankruptcy Code. In connection with its Chapter 11
filing, the Company terminated the majority of its U.S. workforce and agreed to
sell its intellectual property and related assets to AutoCyte, Inc. (now Tripath
Imaging, Inc.), for $4,000,000 in cash and 1.4 million shares of AutoCyte common
stock. As of May 6, 1999, NSI, as debtor in possession, rejected the Company's
license and the Bankruptcy Court confirmed the rejection over the Company's
objection. As a result, the Company became an unsecured creditor of NSI with a
breach of contract claim for the termination of the license.
On December 3, 1999, the Company announced that the bankruptcy court
had approved a settlement among the Company, NSI, and the official committee of
unsecured creditors. The agreement provided for the settlement and release of
the Company's claims in exchange for 175,000 shares of common stock of Tripath
Imaging, Inc. (NasdaqNM: TPTH), and the allowance in the bankruptcy proceeding
of an unsecured claim by the Company in the amount of $1.5 million. The 175,000
Tripath shares were issued to the Company in late December, 1999, and the
balance of its settled claim will be included with other allowed claims of
unsecured creditors to be paid out of liquidation proceeds in the bankruptcy
proceeding. The Company is unable to predict the amount and timing of any
payments it may ultimately receive in respect of the $1.5 million unsecured
claim.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Royalty revenue decreased from $400,000 for the twelve months ended
December 31, 1998, to zero for the twelve months ended December 31, 1999. This
resulted from NSI being in default on payment of royalties earned for the first
quarter and with NSI's filing for Chapter 11 bankruptcy reorganization on March
26,1999.
Total operating expenses decreased from $1,969,000 for the twelve
months ended December 31, 1998, to $1,039,000 for the same period in 1999. The
decrease was the result of reduced sales representatives, lower development
expenses and certain executives of the Company working for no cash compensation.
The Company recorded a loss on available-for-sale securities in the
amount of $386,000 for the twelve months ended December 31, 1999. The securities
are common shares of NSI and the decline in value is considered permanent. In
August 1997, the Company completed a 6%, $3,000,000 convertible debenture
financing. The Company, as a condition to the financing, has pledged shares of
common stock of NSI that under certain conditions may be used by the purchasers
to convert outstanding debentures as well as accrued interest. For the twelve
months ended December 31, 1998, the purchasers converted $475,000 of principal
plus accrued interest into a total of 352,200 shares of NSI. This resulted in a
loss on available for sale securities of $894,000 for the twelve months ended
December 31, 1998.
Interest income decreased to $12,000 for the twelve months ended
December 31, 1999, from $41,000 for the twelve months ended December 31, 1998.
The decrease is due to lower cash balances to invest.
Interest expense decreased to $5,000 for the twelve months ended
December 31, 1999 from $104,000 for the same period in 1998. The decrease is
primarily the result of the exchange of debentures for convertible preferred
stock described in Note B to the financial statements in January 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily by the sale
of NSI common stock owned by the Company, the sale of Common Shares, the sale of
the convertible debentures and the joint development agreement with MG Generon.
The Company's combined cash and cash equivalents totaled $416,000 at December
31, 1999, a decrease of $97,000 from December 31, 1998.
Cash used in the Company's operations was $940,000 for the twelve
months ended December 31, 1999, versus $1,403,000 used in the same period of
1998. The Company is a development company and anticipates that its cash
requirements will be substantial for the immediate future and believes that it
will be necessary to raise additional capital in order to complete the
development of the OxyNet device and continue funding the negative
9
<PAGE> 10
cash flow from operations.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the resources required to further develop the OxyNet
oxygen device, the resources required and ultimate outcome of the Company's
claims in the NSI bankruptcy hearings and the outcome of the litigation with
Ceram. Additional funding may not be available when needed or on terms
acceptable to the Company, which would have a material adverse effect on the
Company's business financial conditional and results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this document which relate to other than strictly
historical facts, including statements about the Company's plans and strategies,
as well as management's expectations about new and existing products,
technologies and opportunities, demand for and acceptance of new and existing
products (including the OxyNet oxygen concentration device), are forward looking
statements. 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, the Company's lack of revenues, continuing losses from operations
and negative cash flow, the dependence on proprietary technology, government
regulation, absence of marketing and sales history, the challenges of research
and development of products incorporating the OxyNet technology, and other risks
detailed in this report and other Securities and Exchange Commission filings.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS.
The response to this Item is submitted in a separate section of this
Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.
BOARD OF DIRECTORS
S. Trevor Ferger, age 45, is the President and Chief Executive Officer
of the Company, and has served as a director since December, 1996. He is also
President of Ferger & Associates, a sales consulting firm. He started his career
with Procter & Gamble and had sales management responsibilities in Atlanta,
Georgia; Jacksonville, Florida; and Raleigh, North Carolina. After obtaining an
MBA Degree from Xavier University in Cincinnati, he started a sales and
marketing firm specializing in the sales and marketing of consumer goods to
grocery stores, which merged into Acosta Sales of Jacksonville, Florida in
October of 1996.
Cecil J. Petitti, age 46, has been co-owner of Chaney & Petitti
Insurance Agency located in Dublin, Ohio since 1984. Chaney & Petitti specialize
in multiple insurance products, including medical insurance. Prior to merging
with the Chaney Group, Mr. Petitti was associated with the Burke, Kendall &
Petitti Insurance Agency. Mr. Petitti is also President of NetWalk, Inc., a
Columbus-based Internet service provider, and CallTech Communications, Inc., a
company providing telemarketing services and customer care outsourcing. Mr.
Petitti earned a Bachelor of Arts degree in Education from The Ohio State
University. Mr. Petitti has been a director of the Company since June, 1994.
Michael S. Blue, M.D., age 45, has been a practicing physician since
1980. Dr. Blue graduated from Miami University of Ohio in 1976 with a Bachelor
of Science in Zoology and graduated from The Ohio State University with a Doctor
of Medicine in 1979. Dr. Blue has been President of Phoenix Group International,
Ltd. and North
10
<PAGE> 11
American International Trade Group, Inc. since 1994 and 1992, respectively. He
has also been Secretary/Treasurer and member of the Board of Directors of
Columbus Oilfield Exploration, Inc. since 1987. Dr. Blue has been a director of
the Company since December 1996.
Robert J. Massey, age 54, has served on the Board of Directors of the
Company since January, 1997. He is currently Chairman of the Board of CallTech
Communications, LLC, a company providing telemarketing services and outsourced
customer contact management. He formerly was President, Chief Executive Officer
and a director of CompuServe Corporation, culminating an over twenty year career
with the firm as an executive with responsibilities in sales, marketing and
general management. Prior to CompuServe he was a sales executive with the IBM
Corporation. Mr. Massey is a director of Antiqnet, a Columbus-based Internet
company; PWI, a Columbus-based software company; and ITS, an e-Commerce company
also in Columbus. He is a graduate of Holy Cross College, Worcester,
Massachusetts and earned an MBA in Finance from Syracuse University.
Susan M. O'Toole, age 50, has served on the Board of Directors since
May, 1998. Ms. O'Toole is Executive Vice President and advisory board member of
Retail Apparel Group, Inc., a privately-held retail apparel company based in
Cleveland, Ohio. From 1987 to 1996, Ms O'Toole was a senior operating executive
with The Limited, Inc. in Columbus, Ohio, serving as President of its Limited
Too division from 1993-1996. Prior to joining The Limited, Ms. O'Toole was
Executive Vice President of Seifert's, a specialty retailer, from 1971 to 1987.
James F. Zid , age 66, is the Chairman of the Company's Board of
Directors, and has served on the Board since February, 1997. Mr. Zid retired as
the managing partner of the Columbus office of Ernst & Young LLP in 1993. Mr.
Zid currently serves on the Board of Directors of Neoprobe Corporation and
Central Benefits Insurance Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company had a total of five meetings
during the year ended December 31, 1999. During 1999 each of the directors
attended 75% or more of the total number of (i) meetings of the Board, and (ii)
meetings of committees of the Board on which such director served. Directors who
are not employees of the Company received no cash compensation or expense
reimbursement for their services. In 1999 and prior years, non-employee
directors received stock options as compensation for their services.
The Board of Directors has an Audit Committee consisting of Dr. Blue
and Mr. Ferger, and a Compensation Committee consisting of Messrs. Blue,
Petitti, and Massey. The Audit Committee is charged with reviewing the Company's
annual audit and meeting with the Company's independent accountants to review
the Company's internal controls and financial management practices. The
Compensation Committee has the authority and responsibility to determine and
administer the Company's officer compensation policies and to establish the
salaries for executive officers, the formula for bonus awards to executive
officers, and the grant of stock options to executive officers and other key
employees under the Company's 1995 Amended and Restated Stock Option Plan (the
"Option Plan").
EXECUTIVE OFFICERS
In addition to S. Trevor Ferger, the following person is an executive
officer of the Company:
Kenneth B. Leachman, age 46, was elected as Vice President of Finance
in October 1996. Mr. Leachman has held various financial management positions
with several technology based companies, including Corporate Controller for Goal
Systems International from 1989 to 1991 and as Chief Financial Officer of
Sarcom, Inc. from 1992 to 1994. Mr. Leachman has a Bachelor of Science degree in
accounting from The Ohio State University in 1975 and earned his CPA certificate
from the State of Ohio in 1977.
Officers are elected annually by the Board of Directors and serve at
its discretion. There are no family relationships among directors and executive
officers of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors, and persons who are beneficial owners of more
than ten percent of the Company's Common Stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Reporting
persons are required
11
<PAGE> 12
by Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms filed by them. Based on its review of the
copies of Section 16(a) forms received by it and written representations from
reporting persons, the Company believes that all filing requirements applicable
to its reporting persons were complied with during 1999, except that the
statement of changes of beneficial ownership of Robert J. Massey, required to be
filed by January 10, 2000, was not filed until February 14, 2000.
ITEM 10. EXECUTIVE COMPENSATION.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's Chief Executive Officer, and the only other executive officers whose
combined salary and bonus exceeded $100,000 for the fiscal year ended December
31, 1999 (collectively, the "Named Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
AWARDS ALL OTHER
SALARY BONUS ------------ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) SECURITIES ($)(1)
UNDERLYING
OPTIONS
(#)
- ------------------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
S. Trevor Ferger, President and
Chief Executive Officer 1999 $ 59,375 0 150,000(3) --
David J. Richards, President and 1999 $ 0 0 390,775(4) $ 4,000
Chief Executive Officer* 1998 $112,558 0 99,000 $15,435
1997 $200,000 $50,000 150,000(2) $16,259
</TABLE>
(1) Includes matching contribution to the Company's 401(k) Plan, car
allowance and excess group term insurance.
(2) Options granted in 1997 were cancelled with the options granted in 1998
serving as replacement options.
(3) Options to purchase 50,000 common shares issued on each of June 1,
September 1, and December 1, 1999.
(4) In connection with Mr. Richards' resignation as a director and an
officer of the Company as of May 14, 1999, all of his outstanding
options were cancelled, and was granted a 5 year warrant to purchase
390,775 common shares of the Company at $0.10 per share, and a one year
warrant to purchase 100 Series A 8% Convertible Preferred Shares of
the Company's OxyNet subsidiary for $1,000 per share.
* Resigned as President and Chief Executive Officer effective as of May
14, 1999.
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<PAGE> 13
OPTION GRANTS IN LATEST FISCAL YEAR
The following table provides certain information regarding stock options
granted during 1999 to each of the Named Executive Officers.
<TABLE>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------- -------------
<CAPTION>
(A) (B) (C) (D) (E) (F) (G)
% OF TOTAL
OPTIONS MARKET
GRANTED TO PRICE ON
OPTIONS EMPLOYEES EXERCISE GRANT GRANT DATE
GRANTED IN FISCAL PRICE DATE EXPIRATION PRESENT
NAME (#) YEAR ($/SH) ($/SH) DATE VALUE ($)(1)
---------- ---------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
S. Trevor Ferger 50,000(2) 7 $0.092 $0.092 6/1/2009 $ 2,000
50,000(3) 7 $ 0.06 $ 0.06 9/1/2009 $ 1,500
50,000(4) 7 $0.035 $0.035 12/1/2009 $ 1,000
209,357(5) 28 $ 0.10 $0.065 5/14/2004 $13,090
David J. Richards* 390,775(6) 51 $ 0.10 $0.065 5/14/2004 $24,434
</TABLE>
(1) The amounts under the column labeled "Grant Date Present Value ($)" are
included by the Company pursuant to certain rules promulgated by the
Securities and Exchange Commission and are not intended to forecast
future appreciation, if any, in the price of the Company's Common
Shares. Such amounts are calculated by application of the Black-Scholes
option pricing formula, which yields a valuation based upon certain
assumptions, including that the price volatility of the stock will
follow historic patterns and that the option holders hold the options
granted for their full term. The actual realizable value of the options
will vary in accordance with the market price of the Company's Common
Shares and may differ substantially from the value produced by
application of the formula.
(2) Options were granted effective June 1, 1999, pursuant to resolution of
the Board of Directors.
(3) Options were granted effective September 1, 1999, pursuant to
resolution of the Board of Directors.
(4) Options were granted effective December 1, 1999, pursuant to resolution
of the Board of Directors.
(5) Warrant granted in lieu of compensation pursuant to resolution of the
Board of Directors.
(6) In connection with Mr. Richards' resignation as a director and an
officer of the Company as of May 14, 1999, all of his outstanding
options were cancelled, and was granted a 5 year warrant to purchase
390,775 common shares of the Company at $0.10 per share, and a one year
warrant to purchase 100 Series A 8% Convertible Preferred Shares of
the Company's OxyNet subsidiary for $1,000 per share.
* Resigned as President and Chief Executive Officer effective as of May
14, 1999.
13
<PAGE> 14
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information regarding the number
and value of stock options held by the Named Executive Officers at December 31,
1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS AT
(#) FISCAL YEAR-END ($)(1)
---------------------------- ---------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Trevor Ferger 0 0 497,677 6,000 $0 $0
David J. Richards(2) 0 0 390,775 0 $0 $0
</TABLE>
(1) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the
per share option exercise price and the per share fair market value at
year end ($.03 on December 31, 1999). An option is in-the-money if the
fair market value of the underlying shares exceeds the exercise price
of the option.
(2) Resigned as President and Chief Executive Officer effective as of May
14, 1999.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive no cash
compensation or expense reimbursement for their services, but receive stock
options as compensation for their services. For board service during 1999,
Messrs. Petitti, Massey, and Blue and Mrs. O'Toole were each granted options to
purchase 25,000 shares (exercisable at $.04 per share), and Mr. Zid was granted
options for 37,500 shares (exercisable at $.04 per share).
EMPLOYMENT CONTRACTS WITH NAMED EXECUTIVE OFFICERS
By virtue of a Settlement Agreement and Mutual Release effective as of
May 14, 1999, entered into by and among David J. Richards, the Company and
OxyNet, Inc., Mr. Richards agreed to resign as President and as director of the
Company and OxyNet and to terminate voluntarily his employment with the Company.
Pursuant to the agreement, all of Mr. Richards' outstanding options were
cancelled, and he was granted a 5 year warrant to purchase 390,775 common shares
of the Company at $0.10 per share, and a one year warrant to purchase 100
Series A 8% Convertible Preferred Shares of the Company's OxyNet subsidiary for
$1,000 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial
ownership of the Company's Common Shares by each director, the Company's
executive officers named in the Summary Compensation Table, each person known to
the Company to own beneficially more than 5% of the outstanding Common Shares,
and the directors and executive officers of the Company as a group as of March
17, 2000:
14
<PAGE> 15
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ----------------------------------------------- --------- -------
<S> <C> <C>
S. Trevor Ferger(2) 831,502 6.5
Cecil J. Petitti(3) 188,296 1.4
Michael S. Blue(4) 323,717 2.3
Robert J. Massey(5) 54,948 *
James F. Zid(6) 55,300 *
Susan M. O'Toole(7) 37,000 *
Kenneth B. Leachman(8) 59,246 *
David J. Richards(9) 1,247,657 9.0
All directors and executive officers as a group
(7 persons) 1,340,652 11.7
</TABLE>
- ----------------------
* Represents beneficial ownership of less than 1% of the Company's
outstanding Common Shares.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power or as to which the person has the right
to acquire the beneficial ownership within 60 days of March 30, 2000.
Unless otherwise indicated, voting power and investment power are
exercised solely by the person named above or shared with members of
his household.
(2) Includes 547,677 shares which may be purchased under stock options and
a warrant exercisable within 60 days of March 30, 2000.
(3) Includes 38,320 shares which may be purchased under stock options
exercisable within 60 days of March 30, 2000.
(4) Includes 37,000 shares which may be purchased under stock options
exercisable within 60 days of March 30, 2000.
(5) Includes 37,000 shares which may be purchased under stock options
exercisable within 60 days of March 30, 2000.
(6) Includes 49,500 shares which may be purchased under stock options
exercisable within 60 days of March 30, 2000.
(7) Includes 37,000 shares which may be purchased under stock options
exercisable within 60 days of March 30, 2000.
(8) Includes 37,246 shares which may be purchased under stock options
exercisable within 60 days of March 30, 2000.
(9) Includes 390,775 shares which may be purchased under a warrant
exercisable within 60 days of March 30, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In September 1997, the Company entered into a net lease with Muirfield
Square, Ltd. for 4,900 square feet of office space in which the Company's
principal offices were located. The lease term was for 5 years at an annual rent
of $53,900 for the first year, escalating annually at the rate of 3% over the
term, and renewable for an additional 5-year term at an annual net rental of
$60,660. Messrs. Richards, Ferger, and Massey own a majority of the membership
interests in Muirfield Square, Ltd. The Company believes that the lease was on
terms at least as favorable to the Company as available for office space of a
similar size and quality in the locality. Effective July 31, 1999, the Company
terminated the net lease with Murfield Square, Ltd. without further liability to
the Company.
On April 20, 1999, the Company entered into an agreement with the
holders of its 6% Convertible Preferred Stock to redeem all of the outstanding
shares shares of preferred stock for a total payment of $125,000, plus 400
common shares of OxyNet. Additionally, the Company agreed to pay the holders an
amount equal to the lesser of 50% of the net cash proceeds received by the
Company as a creditor in the NSI bankruptcy, or $100,000.
15
<PAGE> 16
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual
Report on Form 10-KSB:
(1) The following financial statements are included in
this report under Item 7:
Balance Sheet as of December 31, 1999.
Statements of Operations for the two years
ended December 31, 1999.
Statements of Stockholders' Equity for the
two years ended December 31, 1999.
Statements of Cash Flows for the two years
ended December 31, 1999.
Notes to the Financial Statements.
Independent Auditors' Report.
(2) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Articles of Incorporation of the
Registrant. (Previously filed as Appendix A to the
Registration Statement on Form S-4, Registration No.
333-8199, and incorporated herein by reference.)
3.2 Amended and Restated Regulations of the Registrant.
(Previously filed as Appendix A to the Registration
Statement on Form S-4, Registration No. 333-8199, and
incorporated herein by reference.)
3.3 Form of Specimen Stock Certificate. (Previously filed as
Exhibit 3(e) to the Registration Statement on Form S-4,
Registration No. 333-8199, and incorporated herein by
reference.)
4.1 Articles FOURTH, SIXTH, SEVENTH, EIGHTH, TENTH, and
ELEVENTH, of the Registrant's Amended and Restated
Articles of Incorporation and Articles I, V and VII
of the Registrant's Amended and Restated Regulations.
(Previously filed as Exhibit 4(b) to the Registration
Statement on Form S-4, Registration No. 333-8199, and
incorporated herein by reference.)
10.1 Amended and Restated 1995 Stock Option Plan of the
Registrant. (Previously filed as Exhibit 10(i) to the
Registration Statement on Form S-4, Registration No.
333-8199, and incorporated herein by reference.)
10.2 * Sublease Agreement between OxyNet, Inc. and the Business
Technology Center, dated March 7, 1999.
10.3 Investment Agreement among the Registrant, CeramPhysics,
Inc. and Ceram Oxygen Technologies, Inc., dated February
28, 1997. (Previously filed as Exhibit 10(j) to
Registrant's 1996 Annual Report on Form 10-K, Commission
file no. 1-12529, and incorporated herein by reference.)
16
<PAGE> 17
10.4 Revolving Loan-Grid Note, between the Registrant as the
lender and Ceram Oxygen Technologies, Inc. as maker, dated
February 28, 1997, as amended December 16, 1997.
(Previously filed as Exhibit 10.7 to Registrant's 1997
Annual Report on Form 10-K, Commission file no. 1-12529,
and incorporated herein by reference.)
10.5 Settlement Agreement and Mutual Release effective as
of May 14, 1999, entered into by and among David J.
Richards, the Company and OxyNet, Inc. (Previously
filed as Exhibit 10(a) to Registrant's Quarterly
Report on Form 10-Q for the quarter ending June 30,
1999, and incorporated herein by reference.)
10.6 * Settlement Agreement among the Registrant, Neuromedical
Systems, Inc. as debtor in possession, and the official
committee of unsecured creditors Case No. 99-00703, United
States Bankruptcy Court, District of Delaware, dated
October 29, 1999.
10.7 * Intellectual Property Development and Ownership Agreement
among the Registrant, OxyNet, Inc. and MG Generon, Inc.
dated April 30, 1999.
10.8 * Exclusive License Agreement among the Registrant, OxyNet,
Inc. and MG Generon, Inc., dated April 30, 1999.
10.9 * Reimbursement and Security Agreement among the Registrant,
OxyNet, Inc. and MG Generon, Inc., dated April 30, 1999.
10.10 * Preferred Stock Redemption Agreement between the Registrant
and the holders of the Registrant's 6% Convertible
Preferred Stock, dated April 20, 1999.
21 * Subsidiaries of the Registrant
23 * Consent of Ernst & Young LLP.
24 * Powers of Attorney.
27 * Financial Data Schedule.
* Filed with this Report.
(b) Reports on Form 8-K
Current Report on Form 8-K, dated December 8, 1999, Reporting
Settlement Agreement in NSI bankruptcy proceeding. No
financial statements were filed.
(c) Exhibits
The exhibits to this report begin on page F-21.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NetMed, Inc.
Date: March 29, 2000 By: /s/ S. Trevor Ferger
---------------------------------
S. Trevor Ferger, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 29th day of March, 2000.
Signature Title
/s/ S. Trevor Ferger President and Director
- ------------------------------
S. Trevor Ferger
*Kenneth B. Leachman Vice President - Finance
- ------------------------------ Treasurer
Kenneth B. Leachman
*Cecil J. Petitti Director
- ------------------------------
Cecil J. Petitti
*James F. Zid Director
- ------------------------------
James F. Zid
*Michael S. Blue Director
- ------------------------------
Michael S. Blue
*Robert J. Massey Director
- ------------------------------
Robert J. Massey
*Susan M. O'Toole Director
- ------------------------------
Susan M. O'Toole
*By: /s/ S. Trevor Ferger
---------------------------------------
S. Trevor Ferger, Attorney in fact
18
<PAGE> 19
Annual Report on Form 10-KSB
Item 7 and Item 13(a)
List of Financial Statements
Certain Exhibits
Year ended December 31, 1999
NetMed, Inc.
Columbus, Ohio
19
<PAGE> 20
NetMed, Inc.
and Subsidiary
Audited Consolidated Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
Report of Independent Auditors............................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheet................................................F-3
Consolidated Statements of Operations.....................................F-4
Consolidated Statements of Stockholders' Equity...........................F-5
Consolidated Statements of Cash Flows.....................................F-6
Notes to Consolidated Financial Statements................................F-7
F-1
<PAGE> 21
Report of Independent Auditors
The Board of Directors and Stockholders
NetMed, Inc.
We have audited the accompanying consolidated balance sheet of NetMed, Inc. and
subsidiary (the Company) as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1999, and the consolidated results of its operations and
its cash flows for each of the two years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles.
As discussed in Note 14 to the consolidated financial statements, the Company's
recurring losses, decreasing revenues, and net capital deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans as to these matters are described in Note 14. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
ERNST & YOUNG LLP
Columbus, Ohio
March 25, 2000
F-2
<PAGE> 22
<TABLE>
NetMed, Inc.
Consolidated Balance Sheet
December 31, 1999
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 416,238
Prepaid assets 25,208
-----------
Total current assets 441,446
Investment in TriPath--available for sale 103,125
Furniture and equipment (net of accumulated
depreciation of $81,154) 29,098
License (net of accumulated amortization
of $64,873) 278,253
Deposits and other assets 4,411
-----------
Total assets $ 856,333
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,611
Accrued expenses 10,779
Other liabilities 58,639
-----------
Total current liabilities 118,029
Preferred stock of subsidiary 491,000
Stockholders' equity:
Common stock, no par value, 20,000,000 shares authorized,
12,868,951 issued and outstanding at December 31, 1999 8,094,466
Accumulated other comprehensive loss (16,875)
Retained deficit (7,830,287)
-----------
Total stockholders' equity 247,304
-----------
Total liabilities and stockholders' equity $ 856,333
===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 23
<TABLE>
NetMed, Inc.
Consolidated Statements of Operations
<CAPTION>
1999 1998
----------------------------
<S> <C> <C>
Royalty revenue $ -- $ 399,848
Operating expenses:
Selling, general and administrative 888,168 1,569,136
Business development 151,111 399,610
----------------------------
Total operating expenses 1,039,279 1,968,746
----------------------------
Operating loss (1,039,279) (1,568,898)
Other income (expense):
Interest income 11,822 40,903
Interest expense (5,023) (103,771)
Loss on sale of available-for-sale securities (385,865) (894,147)
Financing costs -- (118,750)
Income from license settlement 839,951 --
----------------------------
Total other (expense) income 460,885 (1,075,765)
----------------------------
Loss before income taxes and
minority interest (578,394) (2,644,663)
Minority interest (16,936) 5,857
----------------------------
Net loss (595,330) (2,638,806)
Preferred dividend (510,573) --
Gain on redemption of
preferred stock 1,252,142 --
----------------------------
Net income (loss) applicable
to common stockholders $ 146,239 $(2,638,806)
============================
Net income (loss) per share-
basic and diluted $ .01 $ (.23)
============================
</TABLE>
See accompanying notes.
F-4
<PAGE> 24
<TABLE>
NetMed, Inc.
Consolidated Statements of Stockholders' Equity
<CAPTION>
CONVERTIBLE ACCUMULATED OTHER RETAINED
PREFERRED COMPREHENSIVE EARNINGS
STOCK COMMON STOCK INCOME (LOSS) (DEFICIT) TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ -- $5,417,151 $(499,478) $(4,085,578) $ 832,095
Adjustment to unrealized gains net of
tax 138,217 138,217
Net loss (2,638,806) (2,638,806)
-----------
Comprehensive loss (2,500,589)
-----------
Deferred compensation
stock options 148,730 148,730
Warrants issued and discount on
convertible debentures 129,750 129,750
Stock issued 427,673 427,673
Options sold 61,664 61,664
----------------------------------------------------------------------------------
Balance, December 31, 1998 -- 6,184,968 (361,261) (6,724,384) (900,677)
Adjustment to unrealized loss 344,386 344,386
Net loss (595,330) (595,330)
-----------
Comprehensive loss (250,944)
-----------
Deferred compensation
stock options 43,370 43,370
Beneficial conversion charge on
redemption of convertible
debentures in exchange for
convertible preferred stock 489,000 (489,000) --
Issuance of preferred stock in
exchange for convertible
debentures 1,467,634 1,467,634
Conversion of preferred stock (100,686) 100,686 --
Accrued dividends on
preferred stock 21,573 (21,573) --
Redemption of preferred stock (1,388,521) 1,252,142 (136,379)
Warrants issued 24,300 24,300
----------------------------------------------------------------------------------
Balance, December 31, 1999 $ -- $8,094,466 $ (16,875) $(7,830,287) $ 247,304
==================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 25
<TABLE>
NetMed, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
DECEMBER 31,
1999 1998
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(595,330) $(2,638,806)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 52,280 47,010
Write off NSI note receivable 6,757 --
Loss on available-for-sale securities 385,865 894,147
Compensation on extended stock options 43,370 148,730
Warrants issued for consulting -- 38,374
Warrants issued to former officer 24,300 --
Minority interest 16,936 (5,857)
Gain on license settlement (839,951) --
Financing costs -- 118,750
Changes in operating assets and liabilities:
Accounts receivable 30,000 186,356
Prepaid assets 1 (1)
Accounts payable (2,671) (61,894)
Accrued expenses and other liabilities (61,111) (129,908)
--------------------------
Net cash used in operating activities (939,554) (1,403,099)
--------------------------
INVESTING ACTIVITIES
Sale of TriPath stock 719,951 --
Acquisition of OxyNet -- (200,000)
Proceeds from joint development partner 250,000 --
Notes receivable - NSI -- 14,686
Note receivable-COTI -- (84,931)
Purchase of furniture and equipment -- (21,896)
Other assets (2,871) (82)
--------------------------
Net cash provided (used) by investing activities 967,080 (292,223)
--------------------------
FINANCING ACTIVITIES
Sale of options -- 61,664
Sale of preferred stock by subsidiary -- 491,000
Redemption of preferred stock (125,000) --
--------------------------
Net cash (used) provided by financing activities (125,000) 552,664
--------------------------
Net decrease in cash (97,474) (1,142,658)
Cash and cash equivalents at beginning
of period 513,712 1,656,370
--------------------------
Cash and cash equivalents at end of period $ 416,238 $ 513,712
==========================
</TABLE>
See accompanying notes.
F-6
<PAGE> 26
NetMed, Inc.
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BASIS OF PRESENTATION
NetMed, Inc. is engaged in the business of acquiring, developing and marketing
medical and health-related technologies. NetMed currently has no source of
revenue. During 1998 NetMed's revenues were derived principally from the
marketing of the PAPNET(R) Testing System, an advanced computerized test
licensed from Neuromedical Systems, Inc. ("NSI") that pinpoints and magnifies
precancerous and cancerous cells. On March 26, 1999, NSI commenced
reorganization proceedings under Chapter 11 of the U.S. bankruptcy Code (see
Note 14). No revenues were generated from the PAPNET(R) Testing System in 1999.
NetMed is also investigating other medical technologies, including the
development of an oxygen concentrator device to be sold in the home healthcare
market.
The consolidated financial statements include the accounts of NetMed, Inc. and
its majority owned subsidiary OxyNet, Inc. (OxyNet) a 89.7% owned subsidiary,
beginning April 3, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from these estimates.
CASH EQUIVALENTS
The Company considers all short-term deposits and highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment consists of office furniture and computer equipment
recorded at cost which is being depreciated on an accelerated method over
estimated useful lives ranging from three to seven years.
F-7
<PAGE> 27
NetMed, Inc.
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ROYALTY REVENUE
Pursuant to the license agreement with NSI ("License Agreement"), the Company
was entitled to receive 50% of per slide revenues, less certain charges for
equipment and transportation of the slides generated by labs within the
Company's territory. The Company earned and accrued the net per slide revenue on
a monthly basis. This is the method used by the Company to record royalty
revenue in 1998. As of May 6, 1999, NSI, as debtor in possession, rejected the
Company's license and the Bankruptcy Court confirmed the rejection, despite the
Company's argument to preserve the agreement of NSI's intellectual property. As
a result, the Company will receive no further royalties.
INCOME TAXES
The Company accounts for income taxes using the liability method under Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes."
Deferred items are determined based on differences between the financial
reporting and tax basis of assets and liabilities, and are measured using the
enacted rates and laws that will be in effect when the differences are expected
to reverse.
STOCK-BASED COMPENSATION
The Company accounts for stock compensation arrangements in accordance with APB
Opinion No. 25, "Accounting for Stock issued to Employees." The pro forma
information regarding income and earnings per share as required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") is disclosed in "Note 9 - Stock Options and
Warrants."
F-8
<PAGE> 28
NetMed, Inc.
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
<S> <C> <C>
Net income (loss) applicable to
common stockholders $ 146,239 $(2,638,806)
OxyNet preferred dividend charge 40,000 N/A
-------------------------------
$ 186,239 $(2,638,806)
===============================
Weighted average shares 12,709,060 11,477,392
Effect of dilutive stock options
and warrants N/A N/A
Assumed conversion of OxyNet
preferred stock 17,548,387 N/A
-------------------------------
30,257,447 11,477,392
===============================
Basic and diluted income (loss)
per share $ .01 $ (.23)
===============================
</TABLE>
The outstanding convertible debentures (see Note 4) were not included in the
diluted earnings per share calculation for 1998 because the effect would be
antidilutive.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130 requires
unrealized gains or losses on the Company's available-for-sale securities, which
prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive loss.
3. INVESTMENT IN NSI
The Company owns stock in NSI as a result of the exercise of warrants and
settlement of certain claims with NSI. The investment is classified as
available-for-sale and is carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
NSI trades publicly on the NASD OTC Bulletin Board under the symbol "NSIX." The
Company recorded a loss on available-for-sale securities in 1999 in the amount
of $385,865. The securities are common shares of NSI and the decline in value is
considered permanent. In addition, the Company used 352,000 shares in exchange
for a reduction of $470,000 in 1998 in the debentures payable more fully
described in Note 4. The exchange resulted is a loss of $894,147 in 1998.
F-9
<PAGE> 29
NetMed, Inc.
Notes to Consolidated Financial Statements
3. INVESTMENT IN NSI (CONTINUED)
As of December 31, 1998, the Company owned 98,411 shares of NSI stock at a cost
of $385,864. No value has been assigned to the NSI common stock in the
accompanying balance sheet.
4. CONVERTIBLE DEBENTURES
In August 1997, the Company issued $3,000,000 of 6% Convertible Debentures (the
"Debentures") resulting in net proceeds to the Company of $2,743,644 and
recorded associated expenses of $1,106,452 in 1997. Those expenses included
$750,000 representing the 1997 portion of the discount, $100,000 for the cost of
warrants issued to placement agents and the purchasers of the Debentures,
$170,000 in placement fees and $87,000 in professional, stock exchange and
registration fees associated with the Debentures and subsequent registration
statement. The Company recorded an additional $100,000 of finance expense in
1998 to reflect the amortization of the remaining discount on the Debentures.
The Company initially reserved 1,500,000 shares for the conversion of the
Debentures.
The Debentures were originally secured by 475,000 shares of common stock of
Neuromedical Systems, Inc. owned by the Company (the "NSI Shares"). During 1998,
the Company exchanged 352,200 NSI Shares for a reduction of $470,000 in the
Debentures payable.
On January 22, 1999, pursuant to an exchange agreement between the Company and
the holders of the outstanding Debentures, 97,712 Series A, 6% Convertible
Preferred Shares were issued in exchange for the outstanding Debentures, which
at the time of the exchange had a principle balance of $1,350,000 and accrued
interest of $117,634 (see Footnote 5).
In connection with this financing, the Company issued warrants to the purchasers
of the Debentures and to placement agents. The warrants are exercisable at any
time prior to August 13, 2000, at exercise prices of $7.79 per share (for up to
150,000 shares) and $9.35 per share (for up to 65,000 shares).
5. CONVERTIBLE PREFERRED STOCK
On January 22, 1999, pursuant to an exchange agreement between NetMed and the
holders of the Company's outstanding 6% Convertible Debentures ("Debentures"),
97,712 Series A, 6% Convertible Preferred Shares ("Preferred Stock") were issued
in exchange for the outstanding Debentures, which at the time of the exchange
had a principal balance of $1,350,000 and accrued interest of $117,634.
The Preferred Stock was convertible into Common Stock at a conversion price
equal to 75% of the average closing price of the Common Stock for the three
business days immediately preceding the date of conversion. The Preferred Stock
could be redeemed for cash at the Company's option. Dividends were cumulative,
and at the option of the Company could be paid in cash or converted to Common
Stock at the conversion price. The Company recorded a preferred dividend
financing charge to retained earnings in the amount of $489,000 to reflect the
value of the discount as of the closing date.
F-10
<PAGE> 30
NetMed, Inc.
Notes to Consolidated Financial Statements
5. CONVERTIBLE PREFERRED STOCK (CONTINUED)
In May 1999, the Company redeemed the remaining outstanding Preferred Stock
(with an aggregate stated value and accrued dividends of $1,388,521) for an
immediate payment of $125,000 and 400 shares of OxyNet, Inc. common stock owned
by the Company. In addition, the Company agreed to pay as additional
consideration, fifty percent (50%) of any net cash proceeds received by the
Company in respect of claims of the Company allowed in the Chapter 11
reorganization proceedings of Neuromedical Systems, Inc., pending in the United
States Bankruptcy Court for the District of Delaware, but with the maximum
amount of such additional consideration payable capped at $100,000.
6. ACQUISITION OF CERAM OXYGEN TECHNOLOGIES, INC.
On April 3, 1998, the Company acquired from Ceram Oxygen Technologies, Inc.
("COTI") (now known as OxyNet, Inc.) 95 common shares, representing 95% 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 provided 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% per annum. The remaining 5% of COTI's outstanding common equity
is owned by CeramPhysics, Inc. ("Ceram") of Westerville, Ohio. COTI holds an
exclusive worldwide 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 COTI 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 has been accounted for using the purchase method of
accounting with the results of COTI being consolidated with those of NetMed on a
prospective basis beginning April 3, 1998. Unaudited proforma results of
operations, assuming the acquisition had occurred at the beginning of 1998, are
presented below.
The pro forma amounts include adjustments that the Company believes are
reasonable.
<TABLE>
<CAPTION>
Twelve Months Ended
December 31, 1998
-----------------
<S> <C>
Revenue $ 399,848
Net loss $(2,723,777)
Loss per share basic & diluted $ (.24)
</TABLE>
The acquisition was made pursuant to a February 1997, agreement among the
Company, COTI and Ceram, whereby the Company 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, the
Company had advanced $363,470 to COTI for this purpose which was collateralized
by the patents held by Ceram. The agreement also provided that upon completion
of an acceptance test of the ceramic element satisfactory to the Company, the
Company had the right to acquire 95% of the equity of COTI for $200,000.
F-11
<PAGE> 31
NetMed, Inc.
Notes to Consolidated Financial Statements
6. ACQUISITION OF CERAM OXYGEN TECHNOLOGIES, INC. (CONTINUED)
The total cost of the acquisition of $563,470 was allocated to the acquired
assets of Ceram Oxygen Technologies, Inc. (COTI). As the only asset of COTI was
the acquired technology and the underlying license, the entire acquisition cost
was allocated to this asset. The license will be amortized over the remaining
twelve-year life of the patent which underlies the license agreement with
CeramPhysics, Inc. The recorded value of the license will be reviewed quarterly
for indications of impairment. If it is determined that the recorded value is
not fully recoverable, a charge will be recorded in the period that such a
determination is made. In May 1999, the Company received a payment of $250,000
as a result of a joint development and licensing agreement more fully described
in Note 7. The Company recorded the payment as a reduction in the carrying value
of the license on the accompanying balance sheet.
F-12
<PAGE> 32
NetMed, Inc.
Notes to Consolidated Financial Statements
7. JOINT DEVELOPMENT AGREEMENT
On April 30, 1999, the Company and OxyNet completed a joint development
agreement and a licensing agreement with MG Generon, Inc. to pursue development
of a device to produce highly concentrated nitrogen from gas mixtures through
the removal of oxygen from such mixtures. The Company granted a first security
interest in the license agreement between the Company, OxyNet and Ceram, and if
joint development efforts are successful, MG Generon would have exclusive rights
to the nitrogen purification technology and the Company would be paid a royalty.
MG Generon made a payment of $250,000 to the Company upon execution of the joint
development agreement, and agreed to fund additional development costs based
upon a project schedule to be approved by MG Generon. Under certain conditions
relating to the litigation with Ceram as described in Note 8, payments made by
MG Generon could be refundable. As described in Note 6, the Company has recorded
the payment of the $250,000 as a reduction in the carrying value of the license
on the accompanying balance sheet.
8. LITIGATION
On March 1, 1999, the Company and OxyNet commenced a lawsuit in the Common Pleas
Court of Franklin County, Ohio against CeramPhysics, Inc. of Westerville, Ohio
("Ceram") and its principals over a purported termination of the license for the
ceramic oxygen generation technology, as well as over other disputes, including
whether oxygen "scrubbing" applications are included in the scope of the license
and whether minimum royalties are payable prior to the manufacture or sale of
products incorporating the technology. On March 3, 1999, the Company and OxyNet
obtained a temporary restraining order prohibiting Ceram from taking any action
to terminate the license or that otherwise is inconsistent with the rights of
the Company and Ceram under the license. On March 24, 1999, the court issued a
decision finding that the license had not been terminated and granting a
preliminary and permanent injunction against Ceram from taking any action
inconsistent with the Company's rights under the license. Ceram's appeal from
the grant of the preliminary injunction was dismissed on June 17, 1999. The
Company expects that a trial on the merits of this case will be held in the
second quarter of 2000. While the Company is confident that it will ultimately
prevail on the merits in this litigation, it is unable to predict the ultimate
outcome of the litigation.
F-13
<PAGE> 33
NetMed, Inc.
Notes to Consolidated Financial Statements
9. STOCK OPTIONS AND WARRANTS
The Company's 1995 Stock Option Plan (the "Stock Option Plan") provides for the
granting of options that may either meet the requirements of Section 422
("Incentive Options") of the Internal Revenue Code of 1986, as amended (the
"Code") or not meet such requirements ("Nonqualified Options"). Key employees,
officers, and directors of, and consultants and advisors who render services to
the Company are eligible to receive options under the Stock Option Plan.
The following represents the activity for the Stock Option Plan for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
--------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 584,926 $.96 538,667 $7.92
Options granted 572,500 $.04 574,259 $ .83
Options exercised -- --
Options cancelled (267,248) $.87 (528,000) $7.92
Options outstanding, end of year 890,178 $.40 584,926 $ .96
Options exercisable at year end 570,928 $.57 414,126 $1.15
</TABLE>
The number and weighted-average fair value of options granted during 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
Weighted Weighted
Average Average
Fair Value Fair Value
Number of of Options Number of of Options
Options Granted Options Granted
-----------------------------------------------------
<S> <C> <C> <C> <C>
Stock price equal to exercise price 572,500 $.02 574,259 $.28
Stock price greater than exercise price -- N/A -- N/A
Stock price less than exercise price -- N/A -- N/A
</TABLE>
At December 31, 1999, there were 140,178 options granted in excess of the amount
available under the Stock Option Plan. It is the intention of the Company to
seek stockholder approval for an increase in the total available options under
the Stock Option Plan. The number of shares available for grants under the Stock
Option Plan was 165,074 at December 31, 1998.
F-14
<PAGE> 34
NetMed, Inc.
Notes to Consolidated Financial Statements
9. STOCK OPTIONS AND WARRANTS (CONTINUED)
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994, under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998
and 1999: risk-free interest rate of 5.75%, no dividend yield; volatility factor
of the expected market price of the Company's common stock of .44 and expected
lives ranging from 2 to 5 years.
If the Company had elected to recognize compensation cost based on the fair
value of options at the grant date as prescribed by SFAS No. 123, the following
displays what reported net income (loss) and per share amounts would have been:
<TABLE>
<CAPTION>
PRO FORMA YEARS ENDED DECEMBER 31,
1999 1998
--------------------------
<S> <C> <C>
Net income (loss) $35,636 $(2,956,558)
Diluted income (loss) per share $ .00 $ (.26)
</TABLE>
The pro forma financial effects of applying SFAS No. 123 are not likely to be
representative of the pro forma effects on reported results of operations for
future years.
During the second quarter of 1998, officers of the Company agreed to reduce
their cash compensation received in exchange for receiving stock options of the
Company. The officers received 3.125 options for each dollar of compensation
reduced. The value of the options was determined using the Black-Scholes option
pricing model. The Company recorded compensation expense of $61,664 in 1998 as a
result of this transaction.
During the third quarter of 1998, the Company entered into Replacement Option
Agreements, each dated as of July 21, 1998, with certain Company employees
participating in the Stock Option Plan (each such agreement, a "Replacement
Option Agreement"). Pursuant to the terms of the Replacement Option Agreements,
the Company canceled 321,000 employee stock options at exercise prices ranging
from $4.95 to $12.00 per share and issued 230,140 replacement options, each at
an exercise price of $.50 per share representing the fair market value of the
common stock on the grant date (collectively, the "Replacement Options"). Senior
management received Replacement Options covering shares equal only to 66% of
their respective original option grant amounts.
F-15
<PAGE> 35
NetMed, Inc.
Notes to Consolidated Financial Statements
9. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following is a summary of the stock option activity for a prior
non-qualified plan (no additional options may be granted under this plan) for
the two years ended December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-----------------------------
<S> <C> <C>
NON-QUALIFIED PLAN
Outstanding at January 1, 1998 328,000 $1.76
Expired (32,000) $7.13
--------
Outstanding and exercisable
at December 31, 1998 296,000 $1.18
Cancelled (240,000) $1.09
Expired (40,000) $1.55
--------
Outstanding and exercisable
at December 31, 1999 16,000 $1.56
========
</TABLE>
The exercisable options for the non-qualified plan had a remaining contract life
of 4 years.
In May 1999, the Company's president and chief executive officer resigned. As
complete settlement for all contractual obligations the Company owed to the
former officer, the Company issued 390,775 warrants to purchase NetMed common
stock at an exercise price of $.10 per share, the market price at the date of
grant. The warrants may be exercised for a period of 60 months from the date of
issue. In addition, OxyNet issued a warrant to purchase 100 convertible
preferred shares at an exercise price of $1,000 per share. The term of the
OxyNet warrant is 12 months. As a result of issuing the warrants, the Company
recorded a non-cash expense of $24,000 in 1999.
In 1999, the Company issued 209,357 warrants to purchase NetMed common stock at
an exercise price of $.10 per share, the market price at the date of grant, in
lieu of compensation to a current officer. The warrants may be exercised for a
period of 60 months from the date of issue.
F-16
<PAGE> 36
NetMed, Inc.
Notes to Consolidated Financial Statements
9. STOCK OPTIONS AND WARRANTS (CONTINUED)
During 1998, the Company issued a total of 350,000 warrants at exercise prices
ranging from $.75 to $2.50 per share to consultants performing investor
relations activities. The Company recorded consulting expense of $11,000 in
conjunction with the issuance of the warrants. As of December 31, 1999, there
were outstanding warrants to purchase common stock at exercise prices from $.875
per share to $9.35 per share. The following is a summary of warrant activity for
the two years ended December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-----------------------------
<S> <C> <C>
Outstanding at January 1, 1998 286,020 $6.46
Issued during 1998 350,000 $1.39
--------
Outstanding and exercisable at
December 31, 1998 636,020 $3.67
Issued during 1999 600,132 $ .10
Expired during 1999 (300,000) $1.42
Cancelled during 1999 (47,020) $ .88
--------
Outstanding and exercisable at
December 31, 1999 889,132 $2.17
========
</TABLE>
10. INCOME TAXES
Significant components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------
<S> <C> <C>
Loss carryforwards $ 1,958,684 $ 2,007,167
Gain on NSI warrants -- (260,100)
Stock options issued 447,676 430,328
Valuation allowance provided (2,406,360) (2,177,395)
----------- -----------
Net deferred tax liability $ -- $ --
=========== ===========
</TABLE>
At December 31, 1999, the Company had unused NOL carryforwards for tax purposes
of approximately $208,000, $320,000, $211,000, $711,000 $1,151,000 and 2,187,000
which expire in 2007, 2008, 2009, 2010, 2011 and 2012, respectively.
F-17
<PAGE> 37
NetMed, Inc.
Notes to Consolidated Financial Statements
10. INCOME TAXES (CONTINUED)
At December 31, 1999, a full valuation allowance was recorded due to the lack of
deferred tax liabilities, historical income and tax planning strategies.
The reconciliation of income tax computed at the statutory rate to the recorded
tax provision (benefit) is:
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Tax provision (benefit) at statutory rate $(196,654) $(899,185)
Benefit of state loss carryforward (34,345) (158,680)
Permanent differences:
Convertible discount and interest -- 73,525
Other permanent 2,034 4,071
Valuation allowance provided 228,965 980,269
--------- ---------
Total tax provision (benefit) $ -- $ --
========= =========
</TABLE>
11. LEASES
The Company leases facilities and equipment under operating leases. Commitments
for these leases approximate $12,000 for the year ending December 31, 2000. Rent
expense for the years ended December 31, 1999 and 1998 was $51,000 and $48,000,
respectively.
12. PREFERRED STOCK ISSUANCE
In September 1998, OxyNet completed the sale of 500 shares of 8% Cumulative
Convertible Preferred Shares (the "Shares") in a private offering, with net
proceeds to OxyNet of $491,000. The net proceeds of $491,000 has been recorded
as a minority interest in the accompanying financial statements. The Shares are
entitled to cumulative dividends at the rate of 8% per annum payable in
additional shares, and are convertible into common shares of OxyNet, Inc. on a
one share for one share basis (subject to adjustments for dilution in certain
events). The Shares were sold with a one time right to exchange them at their
original stated value, plus accrued dividends, for common shares of NetMed, for
a period of 30 days following a date which is 18 months from the date of
issuance, at the then-prevailing market price of NetMed common shares (not to
exceed $3.00 per share), if there has been no initial public offering for common
shares of OxyNet. The 18 month period expired in March 2000 without a public
offering having occurred, but holders of 350 of the OxyNet shares have agreed to
extend the period for an additional 12 months. A holder of 50 preferred shares
has notified the Company of the exercise of the exchange right, which will
require the Company to issue the holder approximately 845,000 common shares.
NetMed is the parent of OxyNet. NetMed would own approximately 89.1% of OxyNet's
outstanding common shares on a fully converted basis if the preferred shares are
exchanged for OxyNet common stock.
F-18
<PAGE> 38
NetMed, Inc.
Notes to Consolidated Financial Statements
13. SEGMENT REPORTING
The Company has adopted FASB Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information." For 1998, the Company had determined
that it had two reportable segments - the marketing of the PAPNET Testing System
and the pursuit and development of other medical related technologies. In 1999,
the Company had only one reportable segment, the development of Medical
Technologies. All of the Company's business activities are conducted in the
United States, and there is no reliance on foreign customers or suppliers.
The following table presents information about reported segment profit and loss
and segment assets for the year ended December 31, 1998.
<TABLE>
<CAPTION>
DEVELOPMENT OF
MEDICAL
PAPNET TECHNOLOGIES CORPORATE TOTAL
------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 399,848 $ 0 $ 0 $ 399,848
Intersegment revenues 0 0 0 0
Interest expense 100,702 3,069 0 103,771
Depreciation expense 18,980 227 0 19,207
Segment loss (2,229,311) 409,495 0 (2,638,806)
Segment assets 61,630 779,142 631,693 1,472,195
Expenditures for long-lived assets 8,280 13,616 0 21,896
</TABLE>
14. GOING CONCERN
The Company has incurred losses of approximately $6.5 million over the past
three years and has minimal net worth at December 31, 1999. The Company has been
able to fund its operating losses to date through the receipt of royalty
payments from NSI under the license agreement, the sale of its common stock of
NSI, the sale of common stock, the sale of preferred stock of the OxyNet
subsidiary, and the sale of convertible debentures. Many of these sources of
funding are no longer available to the Company in amounts adequate to continue
to fund operating losses at historic levels. The ability of the Company to
reduce its operating expenses to a level that can be financed by existing cash
and investments is therefore critical to the Company's ability to continue
operating as a going concern.
The Company has the ability to reduce operating expenses significantly. The
Company can also discontinue development efforts on the oxygen generation
device. The Company will institute expense reduction measures as necessary to
ensure the solvency of the Company throughout 2000.
F-19
<PAGE> 39
NETMED, INC.
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
F-20
<PAGE> 40
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Articles of Incorporation of the
Registrant. (Previously filed as Appendix A to the
Registration Statement on Form S-4, Registration No.
333-8199, and incorporated herein by reference.)
3.2 Amended and Restated Regulations of the Registrant.
(Previously filed as Appendix A to the Registration
Statement on Form S-4, Registration No. 333-8199, and
incorporated herein by reference.)
3.3 Form of Specimen Stock Certificate. (Previously filed as
Exhibit 3(e) to the Registration Statement on Form S-4,
Registration No. 333-8199, and incorporated herein by
reference.)
4.1 Articles FOURTH, SIXTH, SEVENTH, EIGHTH, TENTH, and
ELEVENTH, of the Registrant's Amended and Restated
Articles of Incorporation and Articles I, V and VII
of the Registrant's Amended and Restated Regulations.
(Previously filed as Exhibit 4(b) to the Registration
Statement on Form S-4, Registration No. 333-8199, and
incorporated herein by reference.)
10.1 Amended and Restated 1995 Stock Option Plan of the
Registrant. (Previously filed as Exhibit 10(i) to the
Registration Statement on Form S-4, Registration No.
333-8199, and incorporated herein by reference.)
10.2 * Sublease Agreement between OxyNet, Inc. and the Business
Technology Center, dated March 7, 1999.
10.3 Investment Agreement among the Registrant, CeramPhysics,
Inc. and Ceram Oxygen Technologies, Inc., dated February 28,
1997. (Previously filed as Exhibit 10(j) to Registrant's
1996 Annual Report on Form 10-K, Commission file no.
1-12529, and incorporated herein by reference.)
10.4 Revolving Loan-Grid Note, between the Registrant as the
lender and Ceram Oxygen Technologies, Inc. as maker, dated
February 28, 1997, as amended December 16, 1997. (Previously
filed as Exhibit 10.7 to Registrant's 1997 Annual Report on
Form 10-K, Commission file no. 1-12529, and incorporated
herein by reference.)
10.5 Settlement Agreement and Mutual Release effective as
of May 14, 1999, entered into by and among David J.
Richards, the Company and OxyNet, Inc. (Previously
filed as Exhibit 10(a) to Registrant's Quarterly
Report on Form 10-Q for the quarter ending June 30,
1999, and incorporated herein by reference.)
10.6 * Settlement Agreement among the Registrant, Neuromedical
Systems, Inc. as debtor in possession, and the official
committee of unsecured creditors Case No. 99-00703, United
States Bankruptcy Court, District of Delaware, dated October
29, 1999.
10.7 * Intellectual Property Development and Ownership Agreement
among the Registrant, OxyNet, Inc. and MG Generon, Inc.
dated April 30, 1999.
10.8 * Exclusive License Agreement among the Registrant, OxyNet,
Inc. and MG Generon, Inc., dated April 30, 1999.
10.9 * Reimbursement and Security Agreement the Registrant,
OxyNet, Inc. and MG Generon, Inc., dated April 30, 1999.
F-21
<PAGE> 41
10.10 * Preferred Stock Redemption Agreement between the Registrant
and the holders of the Registrant's 6% Convertible Preferred
Stock, dated April 20, 1999.
21 * Subsidiaries of the Registrant
23 * Consent of Ernst & Young LLP.
24 * Powers of Attorney.
27 * Financial Data Schedule.
* Filed with this Report.
F-22
<PAGE> 1
Exhibit 10.2
BUSINESS TECHNOLOGY CENTER, INC.
--------------------------------
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made this 7th day of March
1999, between Business Technology Center, Inc., an Ohio not-for-profit
corporation ("Sublessor"), and OxyNet, Inc. ("Subtenant").
1. LEASE OF PREMISES. In consideration of the rent, the Sublessor
subleases to Subtenant, the space ("Premises"), located at the following
address: 1275 Kinnear Road, Columbus, Ohio (the "Real Property"). The Premises
consists of approximately 1512 square feet of space as more particularly
described in Exhibit A.
This Sublease is subject and subordinate to a certain lease dated
January 18, 1994 between the Ohio State University, as "Lessor," and Sublessor,
as "Lessee," (the "Main Lease").
2. PARKING. See attached Rider.
3. TERM. Subtenant shall lease the Premises for a term of 1 YEAR
(months/years) beginning on NOVEMBER 1, 1999, and ending on OCTOBER 31, 2000.
Sublessor shall not be liable for failure to deliver the Premises to Subtenant
on the beginning date of this Sublease for reasons beyond Sublessor's control.
4. RENT/LATE CHARGES/ADDITIONAL RENT.
A. RENT. Subtenant agrees to pay Sublessor rent at the annual rate of
FIFTEEN THOUSAND ONE HUNDRED TWENTY 00/100 Dollars ($15,120.00) in equal monthly
payments of ONE THOUSAND TWO HUNDRED SIXTY 00/100 Dollars ($1,260.00) in
advance, on the first day of each calendar month during the term. In the event
that the term agreed to does not begin on the first day of the month, or end on
the last day of the month, the first and/or last monthly rental payment shall be
prorated.
<PAGE> 2
B. LATE CHARGE. Subtenant agrees to pay Sublessor a late charge of Ten
Dollars ($10.00) per day if the rent is not paid in full by the tenth day of the
month up to a maximum of $600.00.
C. ADDITIONAL RENT. Subtenant agrees to pay all charges incurred for
Business Technology Center services furnished by Sublessor as well as any other
amounts due to Sublessor as additional rent which shall be paid along with the
monthly installments of rent.
5. USE OF PREMISES. The Premises shall only be used for: DEVELOP,
MANUFACTURE, AND MARKET OXYGEN generation systems.
6. SECURITY DEPOSIT. Sublessor acknowledges receipt of a Security
Deposit in the amount of ONE THOUSAND SEVENTY ONE DOLLARS 00/100 ($1,071.00) as
a deposit for the faithful performance by Subtenant of all its obligations under
this Sublease as well as any extensions or renewals thereof. No interest shall
be paid on Subtenant's Security Deposit.
7. REPORTS. Subtenant acknowledges that Sublessor provides space and
business incubation services through grants and subsidies from city, state and
other governmental agencies, and such agencies have various funding requirements
and often require periodic information reports, including information as to the
number of new, full time jobs created by subtenant's business enterprise.
Subtenant further acknowledges that subtenant's participation in sublessor's
business incubation program is subject to sublessor's admission, graduation, and
reporting guidelines as described in Exhibit B, and will require periodic
reporting of business status in areas of planning and finance. Subtenant agrees
to provide such information as required by Sublessor in a timely and accurate
manner, and acknowledges that this Sublease is not binding upon Sublessor if
Subtenant does not qualify for the funding programs of the various governmental
agencies in which Sublessor participates.
2
<PAGE> 3
8. SUCCESS OR FAILURE OF SUBTENANT'S BUSINESS. Subtenant specifically
recognizes and acknowledges that the business venture to be undertaken by
Subtenant under this Sublease depends upon the ability of Subtenant as an
independent business person, as well as other factors, such as market and
economic conditions beyond the control of Sublessor and Subtenant. Subtenant
acknowledges that success or failure of Subtenant's business enterprise will be
dependent on the business acumen and diligence of Subtenant. Subtenant agrees
that success or failure of Subtenant's business will not depend on Sublessor's
performance under this Sublease Agreement, and Sublessor makes no
representations or warranties as to the success of Subtenant's business.
9. RULES AND REGULATIONS. Subtenant shall observe any rules and
regulations regarding the Premises which are enforceable against Sublessor under
the Main Lease. Sublessor shall provide a copy of any such rules and regulations
to Subtenant within 5 days after receipt by Sublessor. Failure to enforce any
rules and regulations shall not constitute a waiver thereof. It shall be
Subtenant's obligation to see that Subtenant's employees, invitees and agents
obey such rules and regulations.
10. SUBTENANT'S PROPERTY. All fixtures, furnishings, equipment,
inventory and other personal property at any time located upon the Premises,
whether such property is owned by Subtenant, Sublessor or any other person, and
any additions, alterations and improvements to the Premises made by Subtenant
shall be kept and maintained by Subtenant at its sole risk, and Subtenant shall
bear all cost, loss and expense for any casualty or theft risk in connection
with such fixtures, furnishings, equipment, inventory and other personal
property. Subtenant shall indemnify and save and hold harmless Sublessor from
and against any and all loss, cost and expense, including but not limited to
reasonable attorney fees, by reason of any
3
<PAGE> 4
damage to or destruction of any fixtures, furnishings, equipment, inventory and
other personal property and any such additions, alterations and improvements
made to the Premises by Subtenant. Sublessor will, however, be responsible for
any damage to the personal property of Subtenant or its invitees or clients,
while such property is in the Premises, that results from the negligent act or
omission of Sublessor's employees or agents while acting within the scope of
their employment.
11. SUBTENANT ALTERATIONS, INSTALLATIONS AND CHANGES IN PREMISES.
Sublessor and Subtenant shall comply with all applicable provisions of Ohio
Revised Code Chapter 4115, entitled Wages and Hours on Public Works, and with
the Americans with Disabilities Act of 1990 (ADA), 42 U.S.C. Section 12131.
Subtenant shall not, without the prior written consent of Sublessor and
the lessor under the Main Lease ("Lessor"), make any additions, alterations or
improvements (other than routine interior redecoration such as painting and
wallpapering) in or to the Premises, including but not limited to the
installation of fixtures, appliances or equipment, or the changing of the
Premises or any part thereof. Prior to the commencement of any permitted
additions, alterations or improvements to the Premises, Subtenant shall submit
plans and specifications therefor to Sublessor for its approval in writing,
which shall not unreasonably be withheld. Said additions, alterations or
improvements shall be made in a good and workmanlike manner, in accordance with
the said plans and specifications therefor and in compliance with all applicable
statutes, ordinances, rules and regulations. Sublessor may, but shall not be
obligated to, inspect such additions, alterations or improvements which
Subtenant shall make to the Premises. Subtenant shall pay all costs of making
any additions, alterations or improvements and shall agree to keep the leased
Premises free from any liens, claims or encumbrances, and shall indemnify and
save
4
<PAGE> 5
Sublessor harmless from and against all loss, cost and expense, including
but not limited to reasonable attorney's fees, arising out of Subtenant's
additions, alterations or improvements.
All additions, alterations and improvements made by Subtenant shall
become the property of Sublessor (or Lessor, as provided in the Main Lease) upon
the expiration or termination of this Sublease; provided, however, that
Sublessor may, at its option and in accordance with Section 26 below, require
Subtenant to remove, at Subtenant's sole cost and expense, any such additions,
alterations and improvements at the end of the Sublease term or any renewal
thereto.
12. MAINTENANCE AND REPAIR. Subtenant shall not damage the Premises and
shall keep and maintain the interior of the Premises and all additions,
alterations, and improvements thereto in good condition and repair, including
but not limited to the exterior doors, windows and window frames, custodial
services, carpet cleaning, window washing, other minor interior repairs and
maintenance, bulb replacement, and reasonable periodic painting as determined by
Sublessor. Subtenant shall, further, keep the Premises in a clean, safe and
healthy condition free of insects, rodents, termites, vermin and other pests so
as to conform to all lawful requirements, laws and ordinances and directions of
the proper public authorities. In the event any portion of the Premises shall be
damaged because of improvements installed by Subtenant or through the fault or
neglect of Subtenant, Subtenant shall promptly and properly repair such damages
at its cost even though it involves foundation or structural repairs. If
Subtenant refuses or neglects to commence or complete said repairs and/or
replacements promptly and adequately, Sublessor may, but shall not be required
to, make or complete said repairs and replacements and Subtenant shall pay the
costs thereof to Sublessor upon demand.
5
<PAGE> 6
Subtenant shall coordinate its trash removal with the Sublessor and
shall deposit its ordinary trash and refuse in the trash dumpster provided by
the Sublessor (or Lessor, as the case may be). Subtenant shall be responsible
for the collection, storage, and disposal of its extraordinary trash and refuse
including, but not limited to, bio-hazardous materials, chemicals, and low level
nuclear materials as provided in Section 23. Said collection, storage, and
disposal shall be in accordance with Section 5 hereof and subject to the general
direction of The Ohio State University's Office of Environmental and
Occupational Health and Safety.
All repairs and replacements made by Subtenant shall be equal or better
in quality to the original work. If Subtenant refuses or neglects to commence or
complete repairs and/or replacements for which Subtenant is responsible,
promptly and adequately, Sublessor may, but shall not be required to, make or
complete said repairs and replacements, and Subtenant shall pay the costs
thereof to Sublessor immediately upon Sublessor giving notice of same to
Subtenant; provided, however, that no such action by Sublessor shall in any way
be deemed to be a waiver by Sublessor of any right Sublessor may have hereunder
on account of any default by Subtenant.
13. MECHANIC'S LIENS. If, as a result of any such additions,
alterations, improvements, repairs or replacements (hereinafter in this section
referred to as the "construction"), the Premises or any part thereof shall at
any time during the Sublease term or any renewal term thereof, become subject to
any vendor's, mechanic's, laborer's, materialmen's or other similar liens based
upon furnishing of materials or labor to the Premises and not contracted for by
Sublessor or Lessor, Subtenant shall cause the same to be discharged at its sole
cost and expense within 45 days after Subtenant shall have actual notice of the
existence thereof. If such liens are not discharged within said 45 day period,
Sublessor may at any time thereafter while the lien remains undischarged,
repossess the Premises and enjoy the same as if this
6
<PAGE> 7
Sublease had not been made, and thereupon Subtenant's rights under this Sublease
shall terminate, without prejudice, however, to any of the rights of Sublessor,
including recovery from Subtenant of all rent reserved hereunder, which will
thereupon accelerate and become immediately due and payable. The foregoing
notwithstanding, Subtenant agrees that in the event any such liens are filed,
they shall affect only the leasehold estate vested in Subtenant and shall in no
way affect the leasehold estate vested in Sublessor or Lessor's fee simple
ownership of the Premises.
14. DAMAGE OR DESTRUCTION. If the Premises shall be so damaged or
destroyed by fire or other casualty that the same, in the opinion of Sublessor
(or Lessor, as the case may be), are untenantable, then Sublessor shall have the
right to terminate this Sublease effective as of the date of such damage or
destruction, which option shall be exercised, if at all, by Sublessor giving
Subtenant written notice of same within thirty (30) days after such damage or
destruction if reasonably possible. If this Sublease shall be terminated in
accordance with this section, the rent hereunder shall be apportioned to the
date of such damage or destruction, and Subtenant shall immediately surrender
and deliver up the Premises to Sublessor. If Sublessor elects not to terminate
this Sublease in accordance with this section, provided, however, that the Main
Lease is not terminated by Lessor, the rent hereunder shall abate from the date
of such damage or destruction to the date the Premises are again tenantable. In
such event, Sublessor shall use its best efforts to enforce the provisions of
the Main Lease requiring Lessor to promptly repair or rebuild the Premises
(except such fixtures, furnishings, equipment and tenant improvements as shall
have been installed by Subtenant), and this Sublease shall remain in full force
and effect.
7
<PAGE> 8
If the Premises shall be so damaged by fire of other casualty that the
Premises (exclusive of such fixtures, furnishings, equipment and tenant
improvements as shall have been installed by Subtenant), in the sole opinion of
Sublessor, is not thereby rendered untenantable, provided, however, that the
Main Lease is not terminated by Lessor, then Sublessor shall use its best
efforts to enforce the provisions of the Main Lease requiring Lessor to promptly
repair the Premises (except such fixtures, furnishings, equipment and tenant
improvements as shall have been installed by Subtenant), and this Sublease shall
remain in full force and effect; provided, however, that until such repairs have
been completed, the refit shall be reduced by the same proportion as that
proportion of the Premises that in the sole reasonable opinion of Sublessor is
untenantable. All decisions of Sublessor in accordance with this section shall
be final and shall be binding upon Subtenant.
Anything in this section to the contrary notwithstanding, if any of the
said damage or destruction shall have been caused by the willful or negligent
act or omission of Subtenant, no right or obligation of Sublessor under this
section nor the exercise of any such right of the performance of any such
obligation shall prejudice or be deemed to constitute a waiver of any rights or
claims Sublessor may have against Subtenant by reason of such willful of
negligent act or omission by Subtenant.
15. SUBTENANT'S CASUALTY INSURANCE. During the term of this Sublease,
Subtenant shall, at its sole cost and expense, carry and maintain for the mutual
benefit of itself and Sublessor, a policy of fire and extended coverage
insurance insuring all fixtures, furnishings, equipment, inventory and other
personal property at any time located upon the Premises, against damage and
destruction by all causes generally insured against in policies of fire and
extended coverage insurance written on properties in Franklin County, Ohio, in
the amount of 80% of the
8
<PAGE> 9
full insurable value thereof, as determined by the insurance company issuing
such policy of insurance. Such policy of insurance shall bear an endorsement to
the effect that the insurer agrees to notify Sublessor not less than ten (10)
days in advance of any modification or cancellation thereof. Such policy of
insurance shall be issued by an insurance company and shall be in form
acceptable to Sublessor. Upon the execution hereof, Subtenant shall deposit with
Sublessor such policy of insurance of a certificate thereof. Not less than ten
(10) days prior to the due date for the payment of premiums upon such policy of
insurance, Subtenant shall deposit with Sublessor evidence satisfactory to
Sublessor of the payment of such premiums. Not less than ten (10) days prior to
the termination date of such policy of insurance, Subtenant shall deposit with
Sublessor evidence satisfactory to Sublessor of the renewal of such policy of
insurance. Sublessor's failure to receive or demand any evidence of insurance
required herein, however, shall in no way diminish or affect Subtenant's
obligation to obtain Such insurance.
Subtenant shall cause each insurance policy carried by it pursuant to
this Sublease to be, written in such a manner so as to provide that insurer
waives all right of recovery by way of subrogation against Sublessor in
connection with any loss or damage covered by the policy. If Subtenant falls to
procure such waiver, it will indemnify Sublessor for all moneys to which any
subrogor hereunder becomes entitled and the cost of reasonable attorney's fees
of any claim for subrogation.
16. LIABILITY INSURANCE. During the initial and any additional term of
this Sublease, Subtenant shall at its sole cost and expense, carry and maintain,
for the mutual benefit of itself, Sublessor and its officers, agents and
employees, a policy of general liability insurance against claims for personal
injuries, wrongful death or property damage occurring on or about the Premises
with minimum amount of coverage of One Million Dollars ($1,000,000.00) on
9
<PAGE> 10
account of bodily injury and/or death of persons and/or on account of damage to
property. Subtenant agrees to deposit said policy or policies (or certificates
thereof) with Sublessor prior to the date of occupancy by Subtenant, said policy
or policies naming as insured both Subtenant and Sublessor. Such policy of
insurance shall be issued by an insurance company acceptable to Sublessor, and
shall bear an endorsement to the effect that the insurer agrees to notify
Sublessor not less than ten (10) days in advance of any modification or
cancellation thereof. Not less than ten (10) days prior to the termination date
of such policy of insurance, Subtenant shall deposit with Sublessor evidence
satisfactory to Sublessor of the renewal of such policy of insurance.
Sublessor's failure to demand or request a Certificate of Insurance shall not
affect Subtenant's obligation to obtain and maintain the required insurance.
Subtenant shall cause to be issued and shall maintain during the term
of this Sublease such Workers' Compensation and disability insurance as may,
from time to time, be required by city, county, state or federal laws. Evidence
of such insurance shall be delivered to Sublessor prior to the date of occupancy
by Subtenant, and thereafter, at such times as Sublessor may require.
17. UTILITIES. Subtenant shall be responsible for telephone and data
communications installation and usage charges. Sublessor shall not be
responsible for the quality, quantity, interruption or failure in the supply of
any utility to the Premises when said supply is so affected as a result of
conditions beyond the control of Sublessor. Sublessor shall use its best efforts
to enforce the provisions of the Main Lease requiring Lessor to provide all
other utilities.
18. ASSIGNMENT AND SUBLETTING BY SUBTENANT. Subtenant shall not,
without the prior written consent of Sublessor and Lessor, assign or transfer
its interests under
10
<PAGE> 11
this Sublease in whole or in part or sublet all or any part of the Premises. If
Subtenant is a corporation, any transfer of this Sublease from Subtenant by
merger, consolidation or liquidation shall constitute an assignment for the
purpose of this Sublease and shall require the written consent of Sublessor and
Lessor. Sublessor shall not unreasonably withhold consent to any such
assignment, sublet or transfer. Any consent by Sublessor to any assignment or
subletting shall not constitute a waiver of the necessity of such consent to any
subsequent assignment or subletting each assignee or transferee shall assume and
be deemed to have assumed this Sublease and shall remain liable jointly and
severally with Subtenant for the payment of all rent and for the due performance
of all the terms, covenants, conditions and agreements herein contained on
Subtenant's part to be paid and performed for the term of this Sublease. No
assignment shall be binding on Sublessor unless such assignee or Subtenant shall
deliver to Sublessor a counterpart of such assignment and instrument in
recordable form which contains a covenant of assumption by the assignee. No
assignment or subletting by Subtenant with the consent of Sublessor and Lessor
shall relieve Subtenant of its obligations hereunder unless Sublessor and Lessor
expressly so agree in writing.
19. INDEMNIFICATION. Subtenant shall indemnify and save and hold
harmless Sublessor and its officers, trustees, agents and employees from and
against any and all loss, liability, damage, cost and expense, including but not
limited to reasonable attorney fees, for injury, death, loss or damage of
whatever nature to any person, property or any other claim by Subtenant or its
officers, employees, agents, customers, licensees, invitees or any other person,
firm or corporation resulting from the Subtenant's occupancy or use of the
Premises. In the event that any action or proceeding is instituted against
Sublessor by reason of any such claim or event, Subtenant shall resist and
defend such action or proceeding at Subtenant's sole cost and
11
<PAGE> 12
expense or cause it to be resisted and defended by an insurer. Notwithstanding
the foregoing, Sublessor shall be responsible for any liability that results
from the negligent, reckless or intentional act or omission or its employees or
agents while they are acting within the scope of their employment.
20. SUBLESSOR'S LIEN FOR RENT. Subtenant hereby grants a lien, to
Sublessor, of Subtenant's interest in all improvements, fixtures or personal
property on the Premises. In the event Subtenant falls to cure a default under
this Sublease, Subtenant authorizes Sublessor to take possession of the property
free and clear of Subtenant's interest therein.
21. SUBORDINATION AND EARLY TERMINATION. Subtenant agrees that this
Sublease and Subtenant's interest in this shall be secondary to any mortgage,
deed of trust or other method of financing or refinancing now or hereafter
placed on the Premises, the property, the land underlying the Premises and/or
the building of which the Premises is a part. Subtenant further agrees that it
will execute and deliver any and all documents necessary to show that
Subtenant's rights are secondary under this Sublease.
If the Main Lease is terminated, this Sublease shall be terminated as
well, in which case, Subtenant shall pay all rent due and perform and observe
all of the covenants hereof up to the time of vacation by Subtenant, and neither
Sublessor nor Subtenant shall have a claim against the other for damages for
such early termination.
22. HOLDING OVER. Should Subtenant hold over after the term of this
Sublease expires, with Sublessor's written approval, Subtenant shall become a
Subtenant on a month-to-month basis upon all of the terms and conditions
specified in this Sublease.
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23. HAZARDOUS SUBSTANCES.
A. SUBLESSOR'S CONSENT REQUIRED. Subtenant shall not cause or
permit any Hazardous Substances, as defined below, to be brought upon or kept or
used in or about the Premises and the Property (the "Real Property") by
Subtenant, its agents, employees, contractors or invitees, unless (a) such
hazardous Substances are necessary for Subtenant's business (and such business
is a permitted use under Section 5) and (b) Subtenant first obtains the written
consent of Sublessor.
B. COMPLIANCE WITH ENVIRONMENTAL LAWS. Subtenant shall at all times
and in all respects comply with all local, state and federal laws, ordinances,
regulations and orders (collectively, "Hazardous Substances Laws") relating to
industrial hygiene, environmental protection, or the use, analysis, generation,
manufacture, storage, disposal, or transportation of any Hazardous Substances.
C. HAZARDOUS SUBSTANCES HANDLING. Subtenant shall at its own
expense procure, maintain in effect and comply with all conditions of any and
all permits, licenses and other governmental and regulatory approvals required
for Subtenant's use of the Premises, including, without limitation, discharge of
(appropriately treated) materials or wastes into or through any sanitary sewer
serving the Real Property. Except as discharged into the sanitary sewer in
strict accordance and conformity with all applicable Hazardous Substances Laws
and only with the proper written consent of the Sublessor, Subtenant shall cause
any and all Hazardous Substances removed from the Premises (or from the Real
Property, if at Subtenant's direction) to be removed and transported solely by
duly licensed haulers to duly licensed facilities for final disposal of such
materials and wastes. Subtenant shall in all respects handle, treat, deal with,
and manage any and all Hazardous Substances in, on, under, or about the
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Real Property in total conformity with all applicable Hazardous Substances Laws
and prudent industry practices regarding management of such Hazardous
Substances. Upon expiration or earlier termination of the term of the Sublease,
Subtenant shall cause all Hazardous Substances to be removed from the Premises
(except such Hazardous Substances, if any, as were located in the Premises prior
to the commencement of Subtenant's occupancy thereof) and the Real Property (if
Subtenant caused such Hazardous Substances to be located on the Real Property)
and to be transported for use, storage or disposal in accordance and compliance
with all applicable Hazardous Substances Laws; provided, however, that Subtenant
shall not take any remedial action in response to the presence of any Hazardous
Substances in or about the Premises, or the Real Property, nor enter into any
settlement agreement, consent, decree, or other compromise in respect to any
claims relating to any Hazardous Substances in any way connected with the
Premises or the Real Property, without first notifying Sublessor of Subtenant's
intention to do so and affording Sublessor ample opportunity to appear,
intervene or otherwise appropriately assert and protect Sublessor's interest
with respect thereto.
D. NOTICES. If at any time Subtenant shall become aware, or
have reasonable cause to believe, that any Hazardous Substance has come to be
located on or beneath the Real Property, Subtenant shall, immediately upon
discovering such presence or suspected presence of the Hazardous Substance, give
written notice of that condition to Sublessor. In addition, Subtenant shall
immediately notify Sublessor in writing of (i) any enforcement, cleanup, removal
or other governmental or regulatory action instituted, completed or threatened
pursuant to any Hazardous Substances Laws, (ii) any claim made or threatened by
any person against Subtenant, the Premises or the Real Property relating to
damage, contribution, cost recovery, compensation, loss or injury resulting from
or claimed to result from any Hazardous
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<PAGE> 15
Substances and (iii) any reports made to any local, state, or federal
environmental agency, fire and safety agency or board of health arising out of
or in connection with any Hazardous Substances in or removed from the Premises
or the Real Property, including any complaints, notices, warnings, or asserted
violations in connection therewith. Subtenant shall also supply to Sublessor as
promptly as possible, and in any event within five (5) business days after
Subtenant first receives or sends the same, copies of all claims, reports,
complaints, notices, warnings, or asserted violations relating in any way to the
Premises, the Real Property, or Subtenant's use thereof. Subtenant shall
promptly deliver to Sublessor copies of hazardous waste manifests reflecting the
legal and proper disposal of all Hazardous Substances removed from the Premises
or the Real Property.
E. DEFINITION OF HAZARDOUS SUBSTANCES. As used in this Sublease,
the term "Hazardous Substance or Substances" means any hazardous or toxic
substances, materials or wastes, including, but not limited to, those
substances, materials, and wastes listed in the United States Department of
Transportation Hazardous Materials Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances, (40 CFR Part 302) and
amendments thereto, or such substances, materials and wastes which are or become
regulated under any applicable local, state or federal law including without
limitation, any materials, waste or substance which is (i) petroleum, (ii)
asbestos, (iii) polychlorinated biphenyls, (iv) defined as a "hazardous waste"
under the laws and regulations of the State of Ohio, (v) defined as a "Hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. 1251, ET
SEQ. (33 U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act
(33 U.S.C. 1317), (vi) defined as a "hazardous waste" pursuant to Section 1004
of the Resource Conservation and Recovery Act, 42 U.S.C. 6901, (42 U.S.C. 6903)
or (vii) defined as a
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"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. 9601, ET SEQ. (42 U.S.C.
9601).
F. INDEMNIFICATION OF SUBLESSOR. Subtenant shall indemnify,
defend (by counsel acceptable to Sublessor), protect, and hold harmless
Sublessor, and each of Sublessor's trustees, officers, and assigns, from and
against any and all claims, liabilities, penalties, fines, judgments,
forfeitures, losses (including, without limitation, diminution in the value of
the Premises or the Real Property, damages for the loss or restriction on use of
rentable or usable space or of any the expiration or earlier termination of the
term of the Sublease. For purposes of the release and indemnity provisions
hereof, any acts or omissions of Subtenant, or by employees, agents, assignees,
contractors, or subcontractors of Subtenant or others acting for or on behalf of
Subtenant (whether or not they are negligent, intentional, willful, or
unlawful), shall be strictly attributable to Subtenant.
G. SUBLESSOR ENVIRONMENTAL COMPLIANCE COSTS. Sublessor and
Subtenant acknowledge that Sublessor may become legally liable for costs of
complying with Hazardous Substances Laws that are not the responsibility of
Subtenant pursuant to Subsection F, including the following:
(i) Hazardous Substances present in the soil or ground water on the
Property of which Sublessor has no knowledge as of the date hereof;
(ii) a change in Hazardous Substances Laws making certain Hazardous
Substances that are present on the Real Property as of the date
hereof, whether known or unknown to Sublessor, a violation of such
new Laws; (iii) Hazardous Substances that migrate, flow, percolate,
diffuse, or in any way move onto or under the Real Property after
the date hereof; (iv) Hazardous Substances present on or under the
Real Property
16
<PAGE> 17
as a result of any discharge, dumping, or spilling (whether
accidental or otherwise) on the Real Property by other lessees of
the Real Property or their agents, employees, contractors, or
invitees, or by others. Accordingly, Sublessor and Subtenant agree
that the cost of complying with Hazardous Substances Laws on the
Real Property for which Sublessor is legally liable and that are
paid or incurred by Sublessor shall not be charged to Subtenant as
any other charge. In the event the Premises becomes uninhabitable,
as so determined by a government agency, for a period in excess of
30 days due to the presence of a Hazardous Substance in violation
of the Hazardous Substances Laws and the Sublessor is responsible
for the presence of such Hazardous Substance, then the Sublease
shall terminate and the Sublessor shall not be liable to the
Subtenant for any damages or costs whatsoever resulting from such
early termination.
H. WITHHOLDING CONSENT TO PROPOSED TRANSFEREES. Subtenant
acknowledges and agrees that it shall not be unreasonable for Sublessor to
withhold its consent to any proposed assignment, subletting, or transfer of
Subtenant's interest in the Sublease if (i) the anticipated use of the Premises
by the proposed assignee, subtenant, or transferee (collectively, a
"Transferee") involves the generation, storage, use, treatment, or disposal of
Hazardous Substances; (ii) the proposed Transferee has been required by any
prior lessor, lender, or governmental authority to make remedial action in
connection with Hazardous Substances contaminating a property, if the
contamination resulted from such transferee's actions or use of the property in
question; or (iii) the proposed Transferee is subject to an enforcement order
issued by any governmental authority in connection with the use, disposal, or
storage of a Hazardous Substance. Subtenant acknowledges and agrees that this
section shall not be
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interpreted to modify the section of the Sublease restricting assignment,
subletting or transfer of the Subtenant's interest in the Sublease, including
implying that such consent cannot be unreasonably withheld.
I. ADDITIONAL INSURANCE OR FINANCIAL CAPACITY. If at anytime
it reasonably appears to Sublessor that Subtenant is not maintaining sufficient
insurance or other means of financial capacity to enable Subtenant to fulfill
its obligations to Sublessor pursuant to this Section 23, whether or not then
accrued, liquidated, conditional, or contingent, Subtenant shall procure and
thereafter maintain in full force and effect such insurance or other form of
financial assurance, with or from companies or persons and in forms reasonably
acceptable to Sublessor, as Sublessor may from time to time reasonably request.
Furthermore, any firm retained by Subtenant to remove Hazardous Substances from
the Premises or the Real Property must provide to the Sublessor a certificate of
insurance designation public liability, comprehensive auto insurance and
environmental impairment liability (or compliance with federal financial
responsibility requirements) with limits to be approved by the Sublessor in each
individual case.
24. ACCESS TO PREMISES. Sublessor and Lessor shall have the right to
enter upon the Premises at all reasonable times for all reasonable purposes.
Except in cases of emergency, Sublessor shall make reasonable efforts, but shall
not be required, to give 24 hours advance notice of its intent to enter the
Premises.
25. SURRENDER OF PREMISES. Upon the expiration of this Sublease, or any
extension thereof, or its termination in any way, Subtenant shall surrender and
deliver up the Premises broom clean and in as good order and condition as the
same shall have been at the commencement of the initial term of this Sublease,
or shall have been put by Subtenant and/or
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<PAGE> 19
Sublessor, except for reasonable wear and tear, repairs and replacements that
Sublessor is required to make and loss by fire or other casualty, and deliver
the keys to Sublessor and inform Sublessor of all combinations of locks, safes,
or vaults, if any.
Subtenant hereby expressly authorizes Sublessor as agent of Subtenant
to remove such debris and make such changes and repairs as may be necessary to
restore the Premises to such condition at the expense of Subtenant without
notice to Subtenant, in the event that this covenant and other covenants of this
Sublease on the part of the Subtenant in respect to repair are not complied with
at the termination of this Sublease, the intent being that the agreement
respecting damages suffered by Sublessor through the breach of said covenants
shall survive the termination of this Sublease.
26. RESTORATION OF PREMISES. Upon the expiration or termination of this
Sublease or any extension thereof, whether due to default or otherwise,
Sublessor shall have the option to have any additions, alterations, and
improvements made to the Premises in accordance with Section 11 hereof removed
and the Premises restored to the condition in which they were delivered to
Subtenant at the beginning of the term of this Sublease. Upon notice to
Subtenant from Sublessor of Sublessor's decision to exercise its option to have
the additions, alterations, and improvements removed and the Premises restored,
Subtenant shall cause the same to be done, at Subtenant's sole expense, no later
than forty-five (45) days after the expiration of Subtenant's leasehold estate.
Sublessor's exercise of this option shall not affect Subtenant's obligations
under Section 25 of the Sublease.
If this Sublease is terminated due to default by Subtenant, then the
notice required from Sublessor to Subtenant under this section shall be served
with Sublessor's notice of default required under Section 27 hereof. Should
termination of the Sublease result from the expiration
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<PAGE> 20
of the original term or any renewal term of the Sublease, Sublessor shall notify
Subtenant of Sublessor's decision to exercise its option to have the additions,
alterations, and improvements removed and the Premises restored at least sixty
(60) days before the date on which Subtenant's leasehold estate will expire.
Should Subtenant fall to cause the additions, alterations, and
improvements to be removed and the Premises restored within forty-five (45) days
after expiration of Subtenant's leasehold, Sublessor may, but shall not be
required to, cause the same to be done, and Subtenant shall pay the costs
thereof to Sublessor immediately upon Sublessor's giving notice of the same to
Subtenant. No such action by Sublessor shall in any way be deemed to be a waiver
by Sublessor of any right Sublessor may have hereunder on account of any default
by Subtenant.
27. DEFAULT. If the said rent or any part thereof shall at any time be
in arrears and remain unpaid for a period of ten (10) days after Sublessor shall
have given notice of same to Subtenant, or if Subtenant shall default in
performance of any of the other terms, covenants or conditions of this Sublease
and such default shall continue for a period of twenty (20) days after Sublessor
shall have given notice thereof to Subtenant, during which period Subtenant
shall not have proceeded forthwith to remedy such default and prosecuted such
effort diligently until such default shall have been remedied, or if Subtenant
shall make an assignment for the benefit of creditors, be adjudged a bankrupt,
suffer a receiver or trustee to be appointed in any action or proceeding by or
against Subtenant and fail to secure the discharge of such receiver or trustee
within forty-five (45) days following such appointment, or if Subtenant shall
make an application for an arrangement or reorganization the bankruptcy laws of
the United States, or if Subtenant shall abandon or vacate the Premises, then
and in any such cases, it shall be lawful for Sublessor to enter into the
Premises and again have, repossess and enjoy the same as if this Sublease had
20
<PAGE> 21
not been made, and thereupon this Sublease and everything contained herein on
the part of Sublessor to be done and performed shall cease, terminate and be
utterly void, without prejudice however to the rights of Sublessor and
obligations of Subtenant (including Sublessor's right to recover from Subtenant
all rent reserved hereunder which will thereupon accelerate and become
immediately due and payable). Sublessor shall be responsible for any damages to
the personal property of Subtenant that both occurs during any such re-entry and
results from the negligent, reckless or intentional act or omission of
Sublessor's employees or agents while they are acting within the scope of their
employment. In the event of an acceleration, the total of all remaining rents to
be paid by Subtenant will be discounted to present value using the then-existing
rate for one-year Treasury Bills. The commencement of a proceeding or suit in
forcible entry and detainer or in ejectment or otherwise after any default by
Subtenant shall be equivalent in every respect to actual entry by Sublessor, and
in case of such default by Subtenant and entry by Sublessor, Sublessor may, but
shall not be obligated to, relet the Premises.
It shall be a default under and breach of this Sublease by Sublessor if
Sublessor shall fail to perform or observe any term, condition, covenant or
obligation required to be performed or observed by it under this Sublease for a
period of thirty (30) days after notice thereof from Subtenant; provided,
however, that if the term, condition, covenant or obligation to be performed is
of such nature that the same cannot reasonably be performed within such 30-day
period, such default shall be deemed to have been cured if Sublessor commences
such performance within said 30-day period and thereafter diligently undertakes
to complete the same. Upon the occurrence of any such default by Sublessor,
Subtenant may (i) take or commence any action to enforce this Sublease that is
permitted under Ohio law, (ii) cure the default and, if such cure requires
Subtenant to make any payment deduct any reasonable such payment from
Subtenant's
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future rent payments to Sublessor, notwithstanding Section 4 of this Sublease,
or (iii) terminate this Sublease, immediately surrender the Premises to
Sublessor and cease paying rent hereunder.
28. RELATIONSHIP OF SUBLESSOR AND SUBTENANT. Subtenant shall not use
any trademark, service mark or trade name of Sublessor, nor shall Subtenant hold
itself out as having any business affiliation with Sublessor without having
specific written consent from Sublessor.
29. ESTOPPEL CERTIFICATE. Subtenant will execute, acknowledge, and
deliver to Sublessor or any proposed mortgagee or purchaser a certificate by
tenant which confirms the terms and conditions of this Sublease within five days
of a written request by Sublessor.
30. NO WAIVER OF BREACH. Any failure or neglect by Sublessor to assert
or enforce any rights or remedies because of any breach or default by Subtenant
under this Sublease shall not (except as to those specific instances when
express time limits are provided for taking action) prejudice Sublessor's rights
or remedies with respect to any existing or subsequent breaches or defaults.
Acceptance of any partial payment from Subtenant will not waive Sublessor's
right to pursue Subtenant for any remaining balance due nor shall any
endorsement or statement on any check or any letter which acknowledges a check
or payment of rent be deemed an accord or satisfaction.
31. TERMINATION BY COURT ORDER. In the event this Sublease is
determined in any court action to be in violation of any state law, Subtenant
shall vacate the Premises as soon as possible, not look to Sublessor for
recovery of any damages or reimbursement of expenses of any kind or of any rent
paid hereunder and, upon vacating the Premises, pay all unpaid rent accruing to
the time of such vacation.
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32. SIGNS. Subtenant will not place or cause to be placed or maintained
on the exterior of the Premises, any sign, advertising matter or other thing of
any kind and will not place or maintain any decoration, lettering or advertising
matter on the glass of any window or door of the Premises without first
obtaining written approval from Sublessor and Lessor, and Subtenant will
maintain such sign, decoration, lettering, advertising matter or other thing as
may be approved in good condition and repair at all times. Subtenant shall
comply with all laws, ordinances, and regulations which shall apply to said
signs.
33. ACTS BEYOND CONTROL OF EITHER PARTY. In the event that either party
shall be delayed or hindered or prevented from the performance of any act
required hereunder by reason of strikes, lock-outs, labor troubles, inability to
procure materials, failure of power, inadequate power, restrictive governmental
laws or regulations, severe weather conditions, disaster, riots, insurrection,
war or other reason of a like nature not the fault of such party in performing
work or doing acts required under the terms of this Sublease, the performance of
such acts shall be excused for the period of the delay. This provision shall not
operate to excuse Subtenant from prompt payment of rent or any other payments
required by the terms of this Sublease.
34. SUCCESSORS AND ASSIGNS. This Sublease shall be binding upon and
shall inure to the benefit of the respective successors and assigns of Sublessor
and Subtenant.
35. APPLICABLE LAW. This Sublease shall be governed and construed
according to the laws of the State of Ohio.
36. NOTICES. Whenever any payment notice, consent, or request is given
or made under this Sublease, it shall be made in writing and delivered in person
or sent by certified mail. Communications and payments to Subtenant shall be
addressed to:
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Trevor Ferger
OxyNet, Inc.
6189 Memorial Drive
Dublin, Ohio 43017
(614) 793-9356
or any other address as may have been specified by prior notice to Sublessor.
Communications and payments to Sublessor shall be addressed to:
Business Technology Center
1275 Kinnear Road
Columbus, Ohio 43212
Checks shall be made payable to the Business Technology Center.
37. ENTIRE AGREEMENT. This Sublease contains all the agreements and
understandings made between the parties and may only be modified in a writing by
the parties or their respective, successors in interest.
38. SEVERABILITY. If any provision of this Sublease shall be invalid,
then the remainder of this Sublease shall not be affected or impaired and shall
remain in full force and effect.
39. HEADINGS. The headings of the various sections of this Sublease are
inserted only for convenience and for reference and in no way define, limit, or
describe the scope or intent of this Sublease or any of its provisions.
40. COUNTERPARTS. This Sublease has been executed by the parties in
several counterparts, each of which shall be deemed to be an original copy.
41. GOVERNMENTAL REGULATIONS. Each party shall comply with all laws,
ordinances and regulations of the Government of the United States, State of
Ohio, and County and municipal authorities applicable to such party with respect
to the use, occupancy, construction, or maintenance of the Premises and site;
provided, however, that Sublessor shall be
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<PAGE> 25
responsible for ensuring compliance with the Americans With Disabilities Act and
any other similar legislation as it affects the common areas of the building and
Subtenant shall be responsible for ensuring such compliance as it affects the
Premises. These laws, ordinances, and regulations include (but are not limited
to) those prohibiting discrimination and those requiring payment of "prevailing
wages" and participation of minority businesses in construction of improvements.
42. NON-DISCRIMINATION. During the term of this Sublease, Subtenant
shall operate the Premises without discrimination as to race, creed, color, age,
sex, religion, national origin or disability with respect to its employees,
vendors, contractors, business invitees, and guests.
IN WITNESS WHEREOF, the parties have caused this Sublease to be
executed as of the day and year first above written.
SUBLESSOR SUBTENANT
BUSINESS TECHNOLOGY CENTER, INC. OXYNET, INC.
By: By: /s/ S. Trevor Ferger
---------------------------- ------------------------------------
Its: Executive Director Its: President
---------------------------- ------------------------------------
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<PAGE> 1
Exhibit 10.6
SETTLEMENT AGREEMENT AND RELEASE
--------------------------------
THIS SETTLEMENT AGREEMENT is made and entered into this 29th day of
October, 1999, by and among Neuromedical Systems, Inc., a debtor and
debtor-in-possession in the Chapter 11 bankruptcy case styled as In re
Neuromedical Systems, Inc., Case No. 99-00703 (PJW) (the "Debtor"), NetMed, Inc.
("NetMed") and the Official Committee of Unsecured Creditors for the bankruptcy
estate of Neuromedical Systems, Inc. (the "Committee"), subject, only, to
approval by the United States Bankruptcy Court for the District of Delaware (the
"Court").
RECITALS
--------
WHEREAS, on March 26, 1999, the Debtor filed a Voluntary Petition for
relief under Chapter 11 of Title 11 of the United States Code (the "Code"); and
WHEREAS, on April 7, 1999, the United States Trustee's Office conducted
an organizational meeting of the Debtor's creditors and, at the conclusion of
that meeting, the Committee was appointed in accordance with Code Section 1102;
and
WHEREAS, prior to the Petition Date, the Debtor operated as a healthcare
technology company that supplied cytology screening and anatomic pathology
diagnostic equipment and services to laboratories using its patented, FDA
approved, PAPNET Testing System. The PAPNET Testing System was developed for the
screening of PAP smears by combining computerized image acquisition with neural
network artificial intelligence to assist in the detection of abnormal cells;
and
WHEREAS, on November 23, 1998, the Debtor and NetMed formally entered
into an Amended and Restated Agreement (the "Distribution Agreement") pursuant
to which NetMed was granted an exclusive right to sell the PAPNET Service, as
defined in the Distribution Agreement and related technology in the territory
described more fully therein; and
WHEREAS, the Debtor, prior to the Petition Date, entered into a
purchase agreement with AutoCyte, Inc. ("AutoCyte) pursuant to which AutoCyte
agreed to purchase the Debtor's intellectual property and certain related assets
for cash and publicly traded stock (the "AutoCyte Stock"); and
WHEREAS, on or about April 6, 1999, the Debtor filed a motion seeking,
inter alia, authorization from the Court to reject the Distribution Agreement;
and
WHEREAS, by Order of this Court dated May 3, 1999, the Court authorized
the Debtor to reject the Distribution Agreement; and
WHEREAS, on or about July 23, 1999, NetMed filed an unsecured proof of
claim in an unliquidated amount but in no event less than $7,163,360.00 arising
from the Debtor's rejection of the Distribution Agreement and NetMed will either
amend (or has amended) this claim by
<PAGE> 2
filing an amended proof of claim in an unliquidated amount but in no event less
than $6,880,008.00 (the "Claim"); and
WHEREAS, subsequent to the filing of the Claim, NetMed also filed a
Motion to Estimate its Claim for Voting Purposes (the "502(c) Motion"), which is
still pending before the Court;
WHEREAS, the Debtor, on or about October 6, 1999, filed an objection to
the Claim (the "Objection") alleging, inter alia, that the Claim was
substantially overstated; and
WHEREAS, the Committee is still in the process of investigating the
Claim the Distribution Agreement and any related documentation thereto in order
to determine the merits of the Claim and the Debtor's Objection thereto; and
WHEREAS, the parties, including, the Committee, in an effort to avoid
the uncertainties and costs associated with protracted litigation, desire to
resolve the Objection, the Claim and the 502(c) Motion on an amicable basis and
have agreed to enter into this Agreement for that purpose.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained herein, subject, only, to approval by the
Court, the parties, intending to be legally bound, hereby agree as follows:
AGREEMENT
1. INCORPORATION. The Recital section set forth above is incorporated
herein as though set forth at length below by this reference.
2. ALLOWANCE OF THE CLAIM. Upon Court approval of this Agreement,
NetMed, on account of the Claim and all other claims, as defined by Code Section
101(5), it has, had or may have against the Debtor or its estate, shall be
allowed in the within bankruptcy case for all purposes: an unsecured claim in
the aggregate amount of $1.5 million (the "NetMed Unsecured Claim") to be
treated equally with the Debtor's other allowed, general, unsecured claims.
3. RECEIPT OF THE NETMED SHARES. In consideration for entering into
this Agreement and for reducing its Claim, as set forth above, NetMed (or its
nominee), upon Court approval of this Agreement, shall receive one hundred and
seventy-five thousand (175,000) shares of the AutoCyte Stock or the number of
shares of stock of TriPath Imaging, Inc. ("TriPath"), being the
successor-in-interest to AutoCyte, Inc. and NeoPath, Inc., for which such
AutoCyte stock was exchanged (hereinafter referred to as the "NetMed Shares").
4. DISTRIBUTION OF THE NETMED SHARES. Upon Court approval of this
Agreement, the Debtor shall promptly provide instructions to the transfer agent
for the AutoCyte/TriPath Stock to transfer the NetMed Shares to NetMed or its
nominee with such transfer to be subject to any and all securities laws, rules
and regulations. Neither the Debtor nor the Committee make any representations
or warranties as to the "transferability" or "tradeability" of such stock, it
being
2
<PAGE> 3
the expressed understanding of the parties hereto that such stock shall be
transferred to NetMed on an "AS-IS, WHERE-IS" basis. Notwithstanding anything
contained herein to the contrary, neither the Debtor nor the Committee, however,
will provide any additional restrictions on either the "transferability" or the
"tradeability" of such stock.
5. RELEASE OF DEBTOR PARTIES. Except for the NetMed Unsecured Claim,
the right to receive the NetMed Shares and its other rights hereunder, NetMed,
upon Court approval of this Agreement and upon receipt of the NetMed Shares,
hereby releases and forever discharges the Debtor, its estate and their
respective attorneys, employees, officers, directors, predecessors, successors
and assigns, and the heirs, executors, administrators, successors or assigns of
any of the foregoing (collectively, the "Debtor Parties"), of and from any and
all pre- or post-petition claims, demands, obligations, actions, causes of
action, damages, costs, losses, debts, expenses of any nature whatsoever, known,
unknown or suspected, whether based in law, equity or otherwise, which NetMed
has, had or may have against the Debtor Parties from the beginning of the world
to the date of this Agreement, including, without limitation, claims arising
from the Debtor's rejection of the Distribution Agreement.
6. RELEASE OF NETMED PARTIES. Upon Court approval of this Agreement,
the Debtor and its estate do hereby release and forever discharge NetMed, its
respective attorneys, employees, officers, directors, predecessors, successors
and assigns, and the heirs, executors, administrators, successors or assigns of
any of the foregoing (collectively, the "NetMed Parties"), of and from any and
all pre- or post-petition claims, demands, obligations, actions, causes of
action, damages, costs, losses, debts, expenses of any nature whatsoever, known,
unknown or suspected, whether based in law, equity or otherwise, which the
Debtor or its estate have, had or may have against the NetMed Parties from the
beginning of the world to the date of this Agreement.
7. NETMED'S REPRESENTATIONS AND WARRANTIES. NetMed represents and
warrants to the Debtor and the Committee as follows:
(a) that NetMed has the full power, authority and legal right to
execute, deliver and comply with this Agreement;
(b) no consent, approval or other authorization of or by any court,
administrative agency or other governmental authority is required in connection
with NetMed's execution and delivery of or compliance with this Agreement; and
(c) NetMed's execution and delivery of and compliance with this
Agreement will not conflict with or result in a breach of any applicable law,
judgment, order, writ, injunction, decree, rule or regulation of any court,
administrative agency or other governmental authority, or of any provision of
any agreement or other document or instrument to which NetMed is a party or by
which it may be bound.
8. COVENANTS OF THE DEBTOR AND COMMITTEE. In consideration for the
mutual promises contained herein and the significant reduction of the Claim, the
Debtor and the Committee agree to:
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(a) complete their "due diligence" and analysis of the Claim, the
Distribution Agreement and any and all related documentation on or before
October 22, 1999;
(b) move for the entry of a final, non-appealable Order of the
Court, or any other court of competent jurisdiction, approving this Agreement on
or before November 4, 1999; and
(c) prepare, file and seek confirmation of a Plan which incorporates
the terms and conditions of this Agreement.
9. COVENANTS OF NETMED. In consideration for the mutual promises
contained herein, the allowance of the NetMed Unsecured Claim and the
distribution of the NetMed Shares, NetMed specifically agrees:
(a) to reasonably cooperate and assist the Debtor and the Committee
in their "due diligence" and analysis of the Claim, the Distribution Agreement
and any and all related documentation. For purposes herein, such cooperation
shall include, without limitation, making witnesses available for interviews and
making documentation available for inspection and copying purposes;
(b) to support the Debtor's and the Committee's motion for the entry
of a final, non-appealable Order of the Court, or any other court of competent
jurisdiction, approving this Agreement;
(c) to vote in favor of any Plan which incorporates the terms and
conditions of this Agreement;
(d) that the Claim is warranted by existing law, is based upon
credible evidentiary support and was not filed for any improper purpose,
including, without limitation, harassment, unnecessary delay or an increase in
the cost of litigation; and
(e) to reasonably cooperate with the Debtor and the Committee
concerning the objections to proofs of claim, among others, of PUI and CWI. For
purposes herein, this cooperation will include, without limitation, making
witnesses available for interviews, for discovery and trial purposes and for
making available to the Debtor, the Committee and their respective
professionals, for inspection and copying purposes, any and all documentation
relevant to these objections, among others.
10. CONDITIONS. This Agreement is specifically conditioned upon the
following:
(a) the Committee completes its analysis of the Claim, the
Distribution Agreement and any and all related documentation on or before
October 22, 1999 and is reasonably satisfied with the results of such analysis;
and
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(b) this Agreement is approved by a final, non-appealable Order of
the Court, or any other court of competent jurisdiction, on or before December
1, 1999.
11. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default hereunder:
(a) the failure by NetMed to observe and perform any of the
covenants or agreements required to be performed hereunder within ten (10) days
after written notice from either the Debtor or the Committee;
(b) the failure by either the Debtor or the Committee to observe
and perform any of the covenants or agreements required to be performed
hereunder within ten (10) days after written notice from NetMed; and
(c) any representation or warranty of NetMed under this Agreement
shall be untrue in any material respect.
12. REMEDIES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. Upon the
occurrence of any event of default hereunder and, if applicable, the failure to
cure within the timeframes specified herein, this Agreement shall be terminated
and the Claim, the Objection and the 502(c) Motion shall be reinstated with the
parties being entitled to engage in discovery and being afforded sufficient time
to prepare for any and all hearings or trials related thereto.
13. NOTICES. All notices required or desired to be given to any of the
parties hereunder shall be in writing and shall be deemed to have been
sufficiently given for all purposes when presented personally to such party or
sent via either certified mail, return receipt requested, or via overnight
delivery with a nationally recognized delivery service (e.g. Fedex or DHL) to
such party or the party's authorized agent at the addresses set forth below:
If to the Debtor:
Josef S. Athanas, Esquire
Latham & Watkins
333 South Wacker Drive
Chicago, IL 60606-6401
If to the Committee:
Lawrence J. Kotler, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
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If to NetMed:
Neil B. Glassman, Esquire
The Bayard Firm
222 Delaware Avenue, Suite 900
Wilmington, DE 19801
Such notice shall be deemed to be given when received if delivered
personally, one (1) day after the date if sent via overnight delivery or two (2)
days after the date mailed if sent by certified mail, return receipt requested.
Any notice of any change in such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived in writing by the party entitled to receive such notice.
14. MISCELLANEOUS.
(a) this Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors, heirs and assigns. No provision
of this Agreement shall be amended, modified, waived or terminated unless each
party consents in writing;
(b) all recitals, representations, covenants and agreements
contained herein shall survive the execution and delivery of this Agreement;
(c) this Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which shall be
an original and all of which taken together shall constitute one and the same
agreement;
(d) this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware;
(e) the Court shall continue to retain jurisdiction over this
matter and shall hear any and all disputes arising out of, related to or in
connection with the interpretation, enforcement or implementation of this
Agreement;
(f) upon Court approval of this Agreement, the Order approving this
Agreement shall be docketed as a settlement of the Claim, the Objection and the
502(c) Motion; and
(g) this Agreement constitutes the entire agreement and
understanding between the parties with respect to the subject matter hereof and
this Agreement and all other documents executed pursuant to this Agreement,
supersede all previous and contemporaneous negotiations, discussions and
agreements between the parties and no parole evidence of any prior or other
agreement shall be permitted to contradict or vary the term hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEUROMEDICAL SYSTEMS, INC.
By:
--------------------------------------
Title:
NETMED, INC.
By:
--------------------------------------
Title:
THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS FOR NEUROMEDICAL
SYSTEMS, INC.
By:
--------------------------------------
Title:
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Exhibit 10.7
INTELLECTUAL PROPERTY DEVELOPMENT
AND OWNERSHIP AGREEMENT
This Intellectual Property Development and Ownership Agreement
("Agreement") is made and entered into effective this 30th day of April, 1999,
by and among MG Generon, Inc., a Delaware corporation ("Generon"), OxyNet, Inc.,
an Ohio corporation formerly named Ceram Oxygen Technologies, Inc. ("OxyNet"),
and NetMed, Inc., an Ohio corporation ("NetMed").
WITNESSETH:
WHEREAS, OxyNet owns and/or licenses certain technology used to remove
or separate oxygen from air and other gases, including certain exclusive patent
rights and technology licensed to OxyNet by CeramPhysics, Inc. pursuant to a
certain License Agreement dated February 28, 1997, as amended by an Amendment To
License Agreement dated March 31, 1998 (as amended, the "CeramPhysics License")
(as more fully defined hereinafter, the "Technology"); and
WHEREAS, OxyNet desires to grant certain exclusive rights to the
Technology for certain applications as more fully described in this Agreement
and Generon desires to acquire and receive such rights; and
WHEREAS, the Parties desire to set forth in writing their respective
rights and obligations in respect of the Technology and certain other matters;
NOW, THEREFORE, INTENDING TO BE LEGALLY BOUND HEREBY, the Parties agree
as follows:
SECTION 1 DEFINITIONS.
------------
1.1 As used in this Agreement, the following terms shall have the
meanings set forth below:
<PAGE> 2
"Affiliate" of a Person means a Person that directly or through one or
more intermediaries, controls, is controlled by or is under common control with
such first Person, where "control" means the power to direct the management or
policies of such Person.
"Agreement" means this Intellectual Property Development and Ownership
Agreement by and among Generon, OxyNet and NetMed.
"Ambient Air" means a gas having a composition consisting approximately
of twenty-one percent (21%) oxygen, seventy-nine percent (79%) nitrogen and
traces of other gases at one (1) atmosphere of pressure.
"Confidential Information" means all knowledge and information, whether
written or unwritten, of or pertaining to this Agreement and the transactions
and Project contemplated hereby, the Technology, OxyNet, NetMed or Generon, and
any and all trade secrets, know-how, methodologies, formulae, plans, inventions,
drawings, discoveries, concepts and ideas, whether or not patentable or
copyrightable, of or relating to any of the foregoing; the nature and results of
any research and/or development activities, including products, applications,
methods and services relating to, used or useful in connection with any of the
foregoing or the commercial exploitation thereof; methods, techniques and
strategies used or useful in manufacturing, developing and/or marketing products
or services; non-public information; and existing or prospective customer lists
and requirements, customer data, pricing matters and marketing techniques.
"Continuation" means, with respect to patents and patent applications,
a refiling of a specification filed in a prior patent application for which
priority is claimed, in whole or in part, with or without the presence of new
matter or of matter or claims divided from the prior patent
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application, and without regard to whether or not a patent has matured from the
prior patent application.
"Covered Period" shall have the meaning set forth in Section 4.2.
"Deoxification Applications" means (a) use of the Technology to remove
oxygen from inert gases where the intended and primary product is the purer
inert gas, including use of the Technology alone or in conjunction with
Generon's membrane or other technology for these purposes; (b) use of the
Technology in connection with Generon's on-site membrane gas generation systems,
including the use of purifying the "oxygen waste air stream"; and (c) so long as
the primary purpose of the use of the Technology is for removing oxygen from a
gas which is being purified, use of the Technology to purify the oxygen waste
stream, provided, however, that Generon may only use the technology in
conjunction with its on-site membrane systems for this purpose.
"Generon Indemnitees" shall have the meaning set forth in Section 8.1.
"Generon Restricted Parties" shall have the meaning set forth in
Section 7.1(b).
"Initial Disclosure Completion Date" shall have the meaning set forth
in Section 2.2. "
Initial Project Schedule" shall have the meaning set forth in Section
2.2.
"License Agreement" means the Exclusive License Agreement, in the form
attached hereto as Schedule A, among OxyNet, NetMed and Generon.
"Licensed Patents" means the patents and patent applications set forth
on Schedule B hereto and the reexamination thereof, and any patents which may
issue from such applications and any Continuations of any of the foregoing, all
patents issued, reissued, reexamined, renewed and/or extended from any of the
foregoing, and all counterparts (that is, corresponding foreign applications and
patents) and equivalents (that is, statutorily protected or designated with the
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status of an invention, characterized as other than a patent or patent
application) of any of the foregoing filed or issued in any country of the
world, which are or were filed, owned (legally or beneficially, in whole or in
part), licensed or acquired by OxyNet or NetMed at any time prior to or during
the term of this Agreement or of the License Agreement.
"Liens and Encumbrances" means and includes any and all liens,
mortgages, pledges, assignments, security interests, charges, encumbrances,
claims, options, and other rights or contingent rights of whatever nature which
might impair or affect title (legal or beneficial) to, or ownership or
possession of, property, and whether contractual, statutory, common law,
express, implied or equitable in nature.
"Losses" shall have the meaning set forth in Section 8.1.
"Oxy Confidential Information" shall have the meaning set forth in
Section 7.1(b).
"Oxy Restricted Parties" shall have the meaning set forth in Section
7.1(a).
"Parties" means OxyNet, NetMed and Generon, collectively.
"Person" means any individual, corporation, firm, proprietorship,
partnership, association, limited liability company or partnership, joint stock
company, joint venture company, trust, unincorporated association, government or
governmental agency or body or any other group or entity no matter how organized
and whether or not for profit.
"Project" means a research and development program consisting of
multiple phases, including a prototype development phase ("Phase I"), a
prototype testing phase ("Phase II"), an economic assessment phase ("Phase
III"), and scale-up and commercial exploitation of the Technology for use in or
relating to Deoxification Applications.
"Project Period Inventions" shall have the meaning set forth in Section
4.2.
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"Reimbursement and Security Agreement" means the Reimbursement and
Security Agreement dated the date hereof between OxyNet and Generon, in which
OxyNet has granted to Generon a first lien and security interest in the
CeramPhysics License, as more fully described therein.
"Related Agreements" means the other agreements and documents executed
and/or delivered pursuant to or in connection with this Agreement, including the
License Agreement, the Reimbursement and Security Agreement, and those other
documents delivered prior to the date hereof regarding the subject matter of
this Agreement.
"Technology" means OxyNet's and/or NetMed's owned and/or licensed
technology (including the Licensed Patents, patents, patent applications,
reissues and Continuations, know-how, Confidential Information, trade secrets,
manufacturing methods, drawings, laboratory notes and other information however
embodied or expressed (and whether oral, in writing or stored on
machine-readable media such as magnetic tapes, compact discs or other means))
relating to, used or useful in the removal, concentration or separation of
oxygen from air and/or other gases.
1.2 Words importing singular number shall include the plural number,
and vice versa, and the masculine shall include the feminine, and vice versa.
Unless expressly indicated otherwise, the use of the words "herein," "hereby,"
"hereunder," "hereof," "hereinafter," or other similar words refer to the entire
Agreement, including the Schedules and Exhibits hereto, if any, and not solely
to the particular Section or Subsection in which such word is used, and the word
"including" means "including, but not limited to," and words of similar import,
such as "includes" mean "includes, without limitation."
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SECTION 2 DEVELOPMENT PROJECT.
-------------------
2.1 Promptly following execution of this Agreement, and in any event
within fourteen (14) days thereafter, and from time to time thereafter as
requested by Generon, OxyNet and NetMed shall disclose, in writing if requested,
to Generon, its designated employees and agents, any and all information
relevant to the Technology, the Confidential Information, the Project or
implementation of this Agreement.
2.2 Following completion of the initial disclosure pursuant to Section
2.1 (the "Initial Disclosure Completion Date"), and based upon such disclosure
and the estimates provided by OxyNet and NetMed, Generon shall promptly prepare
a Project schedule setting forth Generon's best estimate of the tasks to be
performed, the dates by which it expects such tasks to be completed and the cost
thereof (the "Initial Project Schedule"). OxyNet and NetMed shall cooperate with
Generon and provide such assistance as Generon shall reasonably request
regarding the preparation of the Initial Project Schedule. From time to time, as
in Generon's view circumstances warrant, Generon shall revise and update the
Initial Project Schedule, a copy of which revised schedule shall promptly be
delivered to OxyNet and NetMed.
2.3 Generon shall commence work on the Project as soon as reasonably
practicable following completion of the Initial Project Schedule. Thereafter,
subject to the provisions hereof, including Section 6.2, Generon will diligently
pursue completion of Phases I, II and III. Nothing in this Agreement or the
Related Agreements shall require or be construed to require that Generon proceed
with scale-up or commercial exploitation of the Technology or otherwise proceed
beyond Phase III.
2.4 Anything herein to the contrary notwithstanding, Generon shall
control all aspects of the Project, its progress and implementation.
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2.5 Generon shall bear the cost of Phases I, II and III, up to the
amounts set forth in Schedule C hereof.
SECTION 3 CONSIDERATION.
-------------
3.1 Upon the execution and delivery of this Agreement by all Parties,
Generon shall pay to OxyNet and NetMed the aggregate sum of the TWO HUNDRED
FIFTY THOUSAND DOLLARS ($250,000) in consideration of their performance of their
obligations under this Agreement.
3.2 In the event Generon proceeds to exploit commercially the
Technology, it shall pay to OxyNet the royalties set forth in the License
Agreement.
SECTION 4 GRANT OF RIGHTS; OWNERSHIP.
---------------------------
4.1 OxyNet hereby grants to Generon all rights to the Technology for
use or application in or in connection with Deoxification Applications. The
rights granted in this Section 4.1 are (a) exclusive (including as to OxyNet and
NetMed) and worldwide, (b) are in addition to the rights granted Generon
elsewhere in this Agreement and/or in the License Agreement, and (c) are
irrevocable and, except as otherwise may be provided in the License Agreement
respecting royalties if earned, fully paid-up.
4.2 The Parties covenant and agree that all patents (other than the
Licensed Patents) and all inventions, ideas, know-how, discoveries,
improvements, reports, writings, programs, algorithms, documentation, works,
Confidential Information and all property rights, including intellectual
property rights, in or respecting the foregoing and the use and practice thereof
and the derivative use thereof, including all patents, copyrights and
trademarks, patent applications, Continuations and copyright and trademark
registrations, and any and all trade secrets, secret processes, products,
hardware, software and firmware (in whatever form or media) made,
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discovered, invented, created, conceived or acquired by any Party or any
employee, subcontractor or agent of any Party, and whether made jointly or in
collaboration with any other Person, with respect to or in connection with the
Project or any aspect thereof or under or pursuant to this Agreement or related
to the subject matter hereof during the term of this Agreement and for a period
of twelve (12) months thereafter (the "Covered Period") (all of the foregoing
being referred to collectively as the "Project Period Inventions") are, and
shall be, the sole and exclusive property of Generon; provided, however, that
Project Period Inventions shall not include any intellectual property not
related to or useful in respect of Deoxification Applications which is
separately and independently developed by OxyNet or NetMed the costs of
development of which are not funded by Generon. Generon's rights in and to the
Project Period Inventions shall include all rights of reproduction, derivation,
use, practice, distribution and public performance and display by any and all
means, methods and processes now known or hereafter created, invented, conceived
or devised and in all manner, medium or form, now known or hereafter created,
invented, conceived or devised. OXYNET AND NETMED ACKNOWLEDGE AND AGREE THAT
GENERON IS THE SOLE AND EXCLUSIVE OWNER OF THE PROJECT PERIOD INVENTIONS AND ALL
RIGHTS THEREIN.
4.3 OxyNet and NetMed agree to make full and timely written disclosure
to Generon, and to cause their employees, subcontractors and agents to make full
and timely written disclosure to Generon, of all inventions, ideas, know-how,
discoveries, improvements, reports, programs, algorithms, copyrights, trade
secrets, secret processes, programs and other useful information and
documentation with respect to the Project or this Agreement or any aspect
thereof conceived, made or acquired during the Covered Period and shall
otherwise maintain the foregoing in strict confidence. In all events, such
disclosure shall be made within thirty (30) days
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after the inventor first discloses the same to OxyNet or NetMed and shall
include such detail as to enable one skilled in the art to use, make or practice
the invention. To the extent known, such disclosure shall include any statutory
bars to patentability. All such written disclosures shall be marked as
confidential and otherwise shall contain such markings as necessary to protect
and preserve patentability of the invention under any relevant law.
4.4 Generon shall have the exclusive right to apply for and/or register
any and all copyrights, trademarks, patents and other means of protection as
Generon in its sole discretion deems necessary or desirable in respect of all or
any part of the Project Period Inventions. OxyNet and NetMed covenant and agree,
and covenant and agree to use reasonable efforts to cause their employees,
subcontractors and agents, to cooperate and. assist in and in respect of any
such registration or application as requested from time to time by Generon.
4.5 OxyNet and NetMed covenant and agree, and covenant and agree to use
reasonable efforts to cause their employees, subcontractors and agents, to
execute and deliver such documents and writings (including assignments and
affidavits) and provide such assistance and cooperation as from time to time may
be requested by Generon to obtain, perfect and/or to protect the rights and
interests of Generon herein set forth, including assistance in filing patent,
copyright and trademark applications and/or registrations in the United States
or elsewhere in Generon's name or as designated by Generon.
4.6 The Parties intend, regarding copyrights, that the Project Period
Inventions be and be deemed "works made for hire" for Generon as such term is
defined by any applicable law.
4.7 OxyNet and NetMed hereby irrevocably and unconditionally sell,
convey, assign and transfer to Generon (or its designee), without the necessity
of any consideration in addition to that recited herein, and covenant and agree
to cause each of their employees, subcontractors
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and agents to sell, convey, assign and transfer to Generon all right, title and
interest in and to the Project Period Inventions. The foregoing assignment is a
present assignment and shall, without further act or deed, be operative and
effective with respect to all property rights (including intellectual property
rights) in and to, or in respect of, the Project Period Inventions, including
(i) all copyrights in the United States and elsewhere, including all rights of
registration and publication, rights to perform and/or make copies of the
Project Period Inventions and to create derivative works, and all other rights
incident to copyright ownership, (ii) all trademarks, trade secrets, inventions,
discoveries, patents, patent applications, Continuations, know-how, ideas and
Confidential Information relating to and/or embodied or reflected in the Project
Period Inventions, including any and all shop rights and moral rights for the
longest period of protection accorded to such interests under applicable law.
OxyNet and NetMed and their employees, subcontractors and agents shall retain no
rights whatsoever in or in respect of any Project Period Inventions. OxyNet and
NetMed covenant and agree, and covenant and agree to use reasonable efforts to
cause their employees, subcontractors and agents, not to contest or challenge
Generon's rights, including trademarks, copyrights and patents, in and to or in
respect of any Project Period Inventions. The assignments contemplated hereby
include any and all rights to secure any Continuations, reissues, renewals,
extensions of or other rights relating to trademarks, copyrights and patents in
the United States and/or elsewhere relating to Project Period Inventions. OxyNet
and NetMed agree and confirm (and from time to time as requested by Generon
shall reconfirm) and covenant and agree to use reasonable efforts to cause their
employees, subcontractors and agents to agree, confirm and reconfirm, that the
assignments and transfers provided herein include all right, title and interest
in, to or in respect of the Project Period Inventions, all parts, variations,
enhancements, modifications, improvements, developments, prototypes and
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documentation thereof, all property rights (including intellectual property
rights) associated therewith, and all causes of action for any infringement of
such rights, and the right to receive, use and retain any proceeds relating to
such infringements.
4.8 As used herein, "Intentionally Abandon" means a determination by
Generon, in its sole and absolute discretion, to abandon permanently the
Project. "Implied Abandonment" means a failure on the part of Generon lasting
for more than twelve (12) months following completion of Phase III to take
action to proceed with scale-up or commercialization of the Licensed Technology.
Any dispute between the Parties as to whether an Implied Abandonment has
occurred shall be resolved by way of arbitration as provided herein. "Permitted
Partner" means a Person other than a Person engaged in the industrial gas
industry.
In the event Generon determines to Intentionally Abandon the
Project, it may give written notice of such determination to OxyNet (a
"Discretionary Abandonment Notice"), In the event of an Implied Abandonment
OxyNet may give written notice of such occurrence to Generon at any time prior
to Generon's taking any action to proceed with scale-up or commercialization of
the Licensed Technology (an "Implied Abandonment Notice"). Upon OxyNet's receipt
of a Discretionary Abandonment Notice or Generon's receipt of a proper Implied
Abandonment Notice which is not contested by Generon within sixty (60) days
after receipt of such notice by written notice to OxyNet, OxyNet, at its
request, shall be granted an exclusive sublicense of the Licensed Technology
(except as to Generon's continuing rights in and to the Licensed Technology,
which shall not be diminished in any respect by such grant to OxyNet) for
Deoxification Applications, provided that it shall first enter into an exclusive
sublicense agreement with Generon pursuant to which it shall pay to Generon a
royalty of [*] and otherwise be in form and
substance reasonably determined by
* Portion has been omitted pursuant to a request for confidential treatment and
filed separately with the Commission
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Generon (the "Exclusive Oxy Sublicense"). Thereafter, Generon and OxyNet shall
both be free to pursue commercialization of the Licensed Technology.
In the event OxyNet enters into the Exclusive Oxy Sublicense,
as aforesaid, it may also receive an exclusive license to the Project Period
Inventions (except as to Generon's continuing rights in and to the Project
Period Inventions, which shall not be diminished in any respect by such grant to
OxyNet) for Deoxification Applications upon the payment to Generon, at the time
of entering into of the Exclusive Oxy Sublicense, of [*] plus such additional
sum as shall be mutually agreed to by OxyNet and Generon on account of Generon's
costs and expenses paid or incurred in connection with the Project. Such license
shall also bear royalties at the rate of [*].
4.9 At OxyNet's written request, subject to the execution and delivery
of a mutually satisfactory license agreement as provided below, it shall be
granted a non-exclusive, personal, non-transferable and non-assignable (by
agreement, operation of law or otherwise) license of the Project Period
Inventions for use by OxyNet in connection with the use by it of the Technology
in generating oxygen from Ambient Air. In no event shall OxyNet use or be
permitted to use or practice Project Period Inventions in competition with
Generon or its Affiliates. Such license shall be effective only upon execution
and delivery, shall provide for such royalties, shall prohibit sublicensing,
assignment or other transfer by OxyNet and shall contain such other terms and
conditions as the parties may, each in the exercise of their individual
discretion, agree.
4.10 The provisions of Section 4 shall survive any termination or
expiration of this Agreement for any reason.
* Portion has been omitted pursuant to a request for confidential treatment and
filed separately with the Commission
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SECTION 5 REPRESENTATIONS AND WARRANTIES.
-------------------------------
5.1 OxyNet and NetMed, jointly and severally, represent and warrant to
Generon that:
5.1.1 Each of OxyNet and NetMed is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio.
5.1.2 Each of OxyNet and NetMed has all requisite power and
authority to enter into this Agreement and each Related Agreement to which it is
a party, and to perform its obligations hereunder and under any such Related
Agreements. The execution, delivery and performance of this Agreement and the
Related Agreements by OxyNet and/or NetMed have been duly and validly authorized
by all necessary corporate action. This Agreement and each of the Related
Agreements constitutes a legal, valid and binding obligation of OxyNet and/or
NetMed (as appropriate) enforceable against them in accordance with its terms
(except as enforcement may be limited by bankruptcy, insolvency or similar laws
of general application).
5.1.3 Neither the execution and delivery of this Agreement or any
Related Agreement nor the consummation of the transactions contemplated hereby
or thereby (a) will conflict with or result in a breach, default or violation of
(i) the articles of incorporation or regulations of OxyNet or NetMed, or (ii)
any permit, contract or agreement to which OxyNet and/or NetMed is a party or is
subject or by which either or both of them is or are bound. No consent, action,
approval or authorization of, or registration, declaration or filing with, any
Person is required to authorize, or in connection with the execution, delivery
and/or performance of, this Agreement or any Related Agreement by OxyNet and/or
NetMed.
5.1.4 OxyNet owns (of record and beneficially) and/or has licensed
exclusively (as exclusive licensee) the Licensed Patents and Technology free and
clear of any Liens and Encumbrances.
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5.1.5 The Licensed Patents and Technology do not, and the
commercial exploitation thereof by Generon will not to the best knowledge of
OxyNet and NetMed, conflict with, infringe or otherwise violate any rights or
property of any Person.
5.1.6 Except as disclosed on Schedule D hereto, there is no
litigation or proceeding presently pending or threatened, nor to OxyNet's and
NetMed's knowledge is there any basis for any litigation or proceeding,
respecting (i) the ownership, validity or use of the Licensed Patents or
Technology, or (ii) which might adversely affect the ownership, validity or use
of the Licensed Patents or Technology.
5.1.7 None of the representations or warranties contained herein
and, to the best knowledge of OxyNet and NetMed, none of the information
delivered in connection herewith or heretofore provided by OxyNet or NetMed to
Generon, contains any untrue statement of fact or omits any information or fact
necessary to make the statements made herein or therein not misleading.
5.2 Generon represents and warrants to OxyNet and NetMed that:
5.2.1 Generon is a corporation duly organized, validly existing and
in good standing under the laws of Delaware.
5.2.2 Generon has all requisite power and authority to enter into
this Agreement and each Related Agreement to which it is a party, and to perform
its obligations hereunder and under any such Related Agreement. The execution,
delivery and performance of this Agreement and the Related Agreements by Generon
have been duly and validly authorized by all necessary corporate action. This
Agreement and each of the Related Agreements constitutes a legal, valid and
binding obligation of Generon enforceable against it in accordance with its
terms (except as enforcement may be limited by bankruptcy, insolvency or similar
laws of general application).
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<PAGE> 15
5.2.3 Neither the execution and delivery of this Agreement or
any Related Agreement nor the consummation of the transactions contemplated
hereby or thereby (a) will conflict with or result in a breach, default or
violation of (i) the certificate of incorporation or bylaws of Generon, or (ii)
any permit, contract or agreement to which Generon is a party or is subject or
by which it is bound. No consent, action, approval or authorization of, or
registration, declaration or filing with, any Person is required to authorize,
or in connection with the execution, delivery and/or performance of, this
Agreement or any Related Agreement by Generon.
5.2.4 None of the representations or warranties contained
herein and, to the best knowledge of Generon, none of the information delivered
in connection herewith or heretofore provided by Generon to OxyNet or NetMed,
contains any untrue statement of fact or omits any information or fact necessary
to make the statements made herein or therein not misleading.
SECTION 6 CERTAIN COVENANTS.
-----------------
6.1 Contemporaneous with the execution and delivery of this Agreement,
the Parties shall execute and deliver, or cause to be executed and delivered,
the License Agreement, and the other Related Agreements contemplated so to be
executed and delivered at such time.
6.2 OxyNet and NetMed covenant and agree to cooperate fully with
Generon as from time to time reasonably requested by Generon including the
assignment of all personnel and employees of OxyNet and/or NetMed as shall in
Generon's reasonable discretion be necessary or useful to enable Generon to
timely complete and effectuate the Project, including Phases I, II and III
thereof. Without limiting the generality of the foregoing, OxyNet and NetMed
shall use their best efforts to make available to Generon the time and services
of [*] as in Generon's reasonable discretion shall be necessary or useful to
enable
* Portion has been omitted pursuant to a request for confidential treatment and
filed separately with the Commission
15
<PAGE> 16
Generon to timely complete and effectuate the Project, including Phases I, II
and III thereof. In addition, OxyNet and NetMed shall use reasonable efforts to
cause [*] to enter into a consulting agreement with Generon, on the date hereof,
in form and substance acceptable to Generon, to be effective in the event of [*]
termination of employment with NetMed, provided, however, that Generon's
obligations hereunder, including payment of the consideration described in
Section 3.1, shall be subject to and conditioned upon [*] execution and delivery
of such consulting agreement. In the event that [*] is not available to Generon
as it deems necessary or desirable, OxyNet and NetMed shall procure for Generon
the services of another Person, as shall be acceptable to Generon in its sole
discretion, having at least the level of skill an knowledge as [*].
SECTION 7 CONFIDENTIALITY.
---------------
7.1 (a) OxyNet and NetMed acknowledge and agree that before and during
the term of this Agreement they and their Affiliates, employees, subcontractors
and agents (collectively and individually, the "Oxy Restricted Parties") have
been and will continue to be exposed to Confidential Information. During the
term of this Agreement and indefinitely thereafter the Oxy Restricted Parties,
either individually or with or on behalf of any other Person, covenant and agree
that they shall not, directly or indirectly, disclose, disseminate, publish,
reproduce, use or otherwise make available in any manner or media whatsoever any
Confidential Information to or for any Person without the prior written consent
of Generon, nor shall any Oxy Restricted Party use or retain any Confidential
Information for their own account, gain or benefit. OxyNet and NetMed further
covenant and agree, for themselves and for the other Oxy Restricted Parties,
that all copies of all papers, books, records, documents and other property of
whatever kind now or hereinafter in their possession, custody or control which
reflects or contains or is
* Portion has been omitted pursuant to a request for confidential treatment and
filed separately with the Commission
16
<PAGE> 17
derived from any Confidential Information shall be delivered to Generon as from
time to time requested by Generon. OxyNet and NetMed shall cause each of their
employees, subcontractors and agents who have or have access to any Confidential
Information to execute and deliver to Generon a covenant to and for Generon's
benefit confirming the provisions hereof. The foregoing confidentiality covenant
shall not apply to Confidential Information which (i) becomes generally
available to the public other than as a result of disclosure by a Oxy Restricted
Party, (ii) was available to the Oxy Restricted Parties on a non-confidential
basis prior to the date of this Agreement as reflected by written evidence of
such state of affairs existing in such Oxy Restricted Party's files prior
hereto, or (iii) becomes generally available on a non-confidential basis from a
source other than an Oxy Restricted Party or Generon, provided such source is
not obligated to keep such information confidential.
(b) Generon acknowledges and agrees that before and during the term
of this Agreement, it and its Affiliates, employees, subcontractors and agents
(collectively and individually, the "Generon Restricted Parties") have been and
will continue to be exposed to confidential information owned solely by OxyNet
or NetMed and not constituting a part of the Technology or Project Period
Inventions ("Oxy Confidential Information"). Generon's rights respecting the
Technology and Project Period Inventions are and shall continue to be
unrestricted by this Subsection (b). During the term of this Agreement and
indefinitely thereafter the Generon Restricted Parties, either individually or
with or on behalf of any other Person, covenant and agree that they shall not,
directly or indirectly, disclose, disseminate, publish, reproduce, use or
otherwise make available in any manner or media whatsoever any Oxy Confidential
Information to or for any Person without the prior written consent of OxyNet or
NetMed. Generon further covenants and agrees, for itself and for the other
Generon Restricted Parties, that all copies of all
17
<PAGE> 18
papers, books, records, documents and other property of whatever kind now or
hereinafter in their possession, custody or control which reflects or contains
or is derived from any Oxy Confidential Information shall be delivered to OxyNet
and NetMed as from time to time requested by OxyNet and NetMed. Generon shall
cause each of its employees, subcontractors and agents who have or have access
to any Oxy Confidential Information to execute and deliver to OxyNet and NetMed
a covenant to and for OxyNet and NetMed's benefit confirming the provisions
hereof. The foregoing confidentiality covenant shall not apply to Oxy
Confidential Information which (i) becomes generally available to the public
other than as a result of disclosure by a Generon Restricted Party, (ii) was
available to the Generon Restricted Parties on a non-confidential basis prior to
the date of this Agreement as reflected by written evidence of such state of
affairs existing in such Generon Restricted Party's files prior hereto, or (iii)
becomes generally available on a non-confidential basis from a source other than
a Generon, Restricted Party or OxyNet and NetMed, provided such source is not
obligated to keep such information confidential.
7.2 In the event that any Oxy Restricted Party or Generon Restricted
Party becomes legally compelled, or is served with any legal process which may
compel them, to disclose any Confidential Information or Oxy Confidential
Information, respectively, OxyNet and NetMed or Generon, as appropriate, shall
provide the other party with prompt prior written notice so as to enable OxyNet
or Generon, as appropriate to seek to protect, by protective order or otherwise,
the confidentiality of such information.
7.3 The provisions of this Section 7 shall survive any termination or
expiration of this Agreement for any reason. The parties acknowledge and agree
that any breach or threatened breach of any of the provisions of this Section 7
will result in immediate and irreparable harm to
18
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the non-breaching party and that any remedy at law in such event will be
inadequate. Accordingly, the non-breaching party shall be entitled to injunctive
relief in respect of any such breach or threatened breach without the need to
post a bond or provide other security, which are hereby waived. The foregoing
remedies shall be in addition to and not in lieu of any other remedies which may
be available at law or in equity on account of any such breach or threatened
breach.
SECTION 8 INDEMNIFICATIONS: NON-ELECTION OF REMEDY.
----------------------------------------
8.1 (a) OxyNet and NetMed, jointly and severally, covenant and agree
to, and hereby do, indemnify, defend and hold harmless Generon and its
Affiliates, employees, shareholders, officers, directors, and agents (the
"Generon Indemnitees") from and against any and all suits, actions, demands,
damages, losses, claims, liabilities, costs and expenses (including attorneys'
fees and expenses) (collectively, "Losses") arising out of, resulting from in
whole or in part or related to any one or more of the following:
(i) breach of any of OxyNet or NetMed's representations or
warranties in this Agreement or any Related Agreement; or
(ii) breach of any covenant or agreement contained in this
Agreement or any Related Agreement by OxyNet, NetMed or any Restricted Party; or
(iii) any infringement by the Technology or the use or
practice thereof of any intellectual property or contract rights of any other
Person.
(b) Generon covenants and agrees to, and hereby does, indemnify,
defend and hold harmless OxyNet and NetMed and their Affiliates, employees,
shareholders, officers, directors, and agents from and against any and all
Losses arising out of, resulting from in whole or in part or related to any one
or more of the following:
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<PAGE> 20
(i) breach of any of Generon's representations or warranties in
this Agreement or any Related Agreement; or
(ii) breach of any covenant or agreement contained in this
Agreement or any Related Agreement by Generon or any Generon Restricted Party.
8.2 In addition to and not in limitation of any other rights Generon
may have in such event, in the event that Generon is prohibited from using,
practicing or employing the Licensed Patents and/or Technology, in whole or in
material part as a result of any breach by NetMed or OxyNet of any of their
respective obligations herein, or as a result of any infringement by the
Technology or the use or practice thereof of any intellectual property or
contract rights of any Person, then OxyNet and NetMed, jointly and severally,
covenant and agree forthwith to pay to Generon the sum of (i) $250,000 plus
interest at the rate of seven and one-half percent (7.5%) compounded annually
from the date hereof through the date of payment hereunder to Generon, and (ii)
all costs, payments and expenditures made or incurred by Generon pursuant to
this Agreement through the date of such event plus interest thereon at the rate
of seven and one-half percent (7.5%) compounded annually from the date such
cost, payment or expenditure was made or incurred through the date of payment
hereunder to Generon.
8.3 OxyNet and NetMed acknowledge and agree that their compliance and
compliance by their employees, subcontractors and agents with the terms of this
Agreement is necessary to protect the goodwill and business of Generon and the
property rights of Generon in and to the Project Period Inventions and
Confidential Information and that any breach or violation (or threatened breach
or violation) hereof will cause continuing, immediate and irreparable injury to
Generon for which money damages would not be an adequate remedy. Accordingly,
OxyNet and NetMed further agree that Generon shall have the right to enforce the
20
<PAGE> 21
provisions of this Agreement and the Related Agreements by injunctive (both
affirmative and negative) or other equitable relief and waive any right to
assert any claim or defense that Generon has an adequate remedy at law for any
such breach or violation. In such regard, it shall not be required or necessary
that Generon post any bond or provide any security as a condition to such
relief.
8.4 Nothing in this Agreement or otherwise shall constitute an election
of remedies by Generon or otherwise in any way limit Generon's remedies at law
or in equity in respect of any breach or violation hereof by OxyNet, NetMed or
any other Restricted Party. No remedy conferred herein is intended to be
exclusive of any other remedy and each and every remedy shall be cumulative and
in addition to every other remedy now or hereafter available.
8.5 (a) All claims and controversies, whether based in contract, tort
or otherwise, arising out of or relating to this Agreement or any of the Related
Agreements, or the scope, breach, termination or validity of this Agreement or
any of the Related Agreements, and including any claim or dispute concerning a
party's right to indemnification and any dispute as to the existence of an
Implied Abandonment (a "Claim"), shall be submitted to binding arbitration in
accordance with the following provisions. Arbitration shall be the sole and
exclusive remedy of the Parties in connection with any Claims hereunder.
(b) The Party desiring to initiate arbitration in connection with
any Claim shall send, via certified mail, written notice of demand of
arbitration to the other Party and the name of the arbitrator appointed by the
Party demanding arbitration together with a statement of the matter in
controversy.
(c) Within fifteen ( 15) days after receipt of such demand, the
receiving Party shall name its arbitrator. If the receiving Party fails or
refuses to name its arbitrator within such
21
<PAGE> 22
15-day period, the second arbitrator shall be appointed, upon request of the
Party demanding arbitration, by a court of competent jurisdiction in the
Commonwealth of Pennsylvania or such other Person designated by such Court. The
two arbitrators so selected shall within fifteen (15) days after their
designation select a third arbitrator; provided, however, that if the two
arbitrators are not able to agree on a third arbitrator within such fifteen (15)
day period, either Party may request a court of competent jurisdiction in the
Commonwealth of Pennsylvania or such other Person designated by such Court to
select the third arbitrator as soon as possible. In the event the Court declines
to appoint an arbitrator, appointment shall be made, upon application of either
Party, pursuant to the Commercial Arbitration Rules of the American Arbitration
Association. If any arbitrator refuses or fails to fulfill his or her duties
hereunder, such arbitrator shall be replaced by the Party which selected such
arbitrator (or if such arbitrator was selected by another Person, through the
procedure which such arbitrator was selected) pursuant to the foregoing
provisions.
(d) The arbitrators selected by the Parties are not required to be
neutral, but the third arbitrator shall be neutral and shall be a retired judge
who has served either as a trial court judge in a state or federal district
court, or as a state or federal appellate court judge.
(e) The Parties hereto hereby request and consent to the three (3)
arbitrators conducting a hearing in Pittsburgh, Pennsylvania no later than sixty
(60) days following their selection or thirty (30) days after all prehearing
discovery has been completed, whichever is later, at which the Parties shall
present such evidence and witnesses as they may choose, with or without counsel.
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(f) Except as modified by this Agreement, arbitration shall be
conducted in accordance with the Commercial Arbitration Rules and procedures of
the American Arbitration Association.
(g) Adherence by the arbitrators to formal rules of evidence shall
not be required. The arbitrators shall consider any evidence and testimony that
they determine to be relevant.
(h) The Parties hereto hereby request that the arbitrators render
their decision within thirty (30) calendar days following conclusion of the
hearing.
(g) Any decision by a majority of the arbitration panel shall be
final, binding and non-appealable. Any such decision maybe filed in any court of
competent jurisdiction and may be enforced by any Party as a final judgment in
such court.
(j) The statute of limitations and any equitable period of laches
shall be tolled from and after the date a Party gives the other Party written
notice of a Claim as provided in Section 8.5 above until such time as the Claim
has been resolved pursuant to Section 8.5, or an arbitration decision has been
entered pursuant to Section 8.5.
(k) Either Party may apply to the arbitrators seeking injunctive
relief until the arbitration award is rendered or the controversy is otherwise
resolved. Either Party also may, without waiving any remedy under this
Agreement, seek from any court having jurisdiction any interim or provisional
relief that is necessary to protect the rights or property of the Party, pending
the establishment of the arbitral tribunal or pending the arbitral tribunal's
determination of the merits of the controversy.
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SECTION 9 FURTHER ASSURANCES.
------------------
9.1 OxyNet and NetMed covenant and agree that they shall from time to
time, and shall cause their employees, subcontractors and agents to, without
further consideration execute, acknowledge and deliver any and all further
assignments, affidavits, conveyance documents and other assurances, documents
and instruments as may be reasonably requested by Generon and shall take any
other action that may be reasonably requested by Generon for the purpose of
effectuating this Agreement or any Related Agreement or any transaction
contemplated hereby or thereby or to assist or enable Generon to perform its
responsibilities or obligations under this Agreement or any Related Agreement or
to grant, transfer, effect or confirm any right granted or intended to be
granted to Generon pursuant to or in respect of this Agreement or any Related
Agreement.
SECTION 10 OPTION TO PURCHASE: OTHER APPLICATIONS.
---------------------------------------
10.1 [*]
* Portion has been omitted pursuant to a request for confidential treatment and
filed separately with the Commission
24
<PAGE> 25
SECTION 11 NOTICE.
------
11.1 Any notice, request, demand or other communication required or
permitted to be given by one Party to any other Party pursuant to this Agreement
shall be sufficiently given and shall be deemed given when delivered personally
or by courier service or mailed by registered or certified mail, postage
prepaid, or sent by telecopy (with receipt confirmed), addressed as follows:
If to Generon, to:
MG Generon, Inc.
5 Great Valley Parkway
Malvern, Pennsylvania 19033-0739
Attention: President
Fax: (610) 695-7766
If to OxyNet or NetMed:
NetMed
6189 Memorial Drive
Dublin, Ohio 43017
Attention: President
Fax: (614) 793-9376
A Party may, by written notice to the other Parties, designate any
further or different addresses as to which any such communications shall be
sent.
SECTION 12 MISCELLANEOUS.
-------------
12.1 If any section of this Agreement is adjudicated to be invalid or
unenforceable in whole or in part, the Parties agree that any court of
appropriate jurisdiction may modify or
25
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reform such provision or application to make it enforceable in such jurisdiction
and that any other provision or application of this Agreement shall nevertheless
be valid and binding.
12.2 In connection with the enforcement of any arbitration decision as
provided in Section 8.5, each Party hereby irrevocably submits to the
jurisdiction of the courts of the Commonwealth of Pennsylvania. Each Party
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any objection it may now or hereafter have to the laying of venue of any such
court or any defense of inconvenient forum for the maintenance of such action.
Each Party agrees that service of any process, summons, notice or document by
U.S. registered or certified mail to the addresses set forth in Section 11
hereof (or to any other addresses indicated by such Party to the other Parties
in accordance with the terms of that section) will be effective service of
process for any action, suit or proceeding brought against such Party in
enforcing any rights hereunder. The Parties agree that the rights and
obligations of the Parties hereunder shall be governed by the laws of the
Commonwealth of Pennsylvania, without regard to choice-of-law provisions.
12.3 Any waiver by any Party of any breach or violation of any term or
condition in this Agreement shall not operate as a waiver of any other breach of
such term or condition or of any other term or condition, nor shall any failure
to enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof or constitute or be deemed a waiver or release of any
other rights, either at law or in equity.
12.4 This Agreement shall be binding upon, and shall inure to the
benefit of, the Parties hereto and their respective successors and assigns (to
the extent the assignment is permitted hereunder).
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12.5 This Agreement (and the Schedules hereto) together with the
Related Agreements set forth all the promises, covenants, agreements, conditions
and understandings among the Parties hereto, and supersede all prior agreements
and understandings, inducements or conditions, express or implied, oral or
written except as contained herein. This Agreement, the Schedules hereto and the
Related Agreements may not be amended or modified other than by an agreement in
writing, executed by the Parties hereto,
12.6 The Parties agree that the headings of the sections herein are for
the convenience of the Parties only and shall not constitute a part of this
Agreement or affect its meaning or interpretation.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first written above.
MG Generon, Inc.
By. /s/ Barry J. Smith
-------------------------------------------
Name: Barry J. Smith
Title: VP and General Manager
OxyNet, Inc.
By. /s/ David J. Richards
-------------------------------------------
Name: David J. Richards
Title: President
NetMed, Inc.
By. /s/ David J. Richards
-------------------------------------------
Name: David J. Richards
Title: President
27
<PAGE> 1
Exhibit 10.8
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement ("Agreement") is entered into as of
the 30th day of April, 1999 (the "Effective Date"), by and among OxyNet, Inc.,
an Ohio corporation ("OxyNet"), NetMed, Inc., an Ohio corporation ("NetMed"),
and MG Generon, Inc., a Delaware corporation ("Generon"). RECITALS
OxyNet is a majority-owned subsidiary of, and controlled by, NetMed.
OxyNet and NetMed represent that OxyNet owns and/or has exclusively licensed
certain technology, including patent rights, trade secrets, know-how,
confidential information and other intellectual property relating to the removal
or separation of oxygen from air and other gases. OxyNet desires to grant and
Generon desires to obtain and receive an exclusive right and license to develop,
make, use, sell, offer for sale, import, lease and otherwise dispose of products
and provide services incorporating or employing such technology and otherwise
commercially exploiting such technology.
Therefore, in consideration of the foregoing and the mutual terms set
forth herein, and intending to be legally bound hereby, the parties agree as
follows:
1. DEFINITIONS
-----------
1.1 "Ambient Air" means a gas having a composition consisting
approximately of twenty-one percent (21%) oxygen, seventy-nine percent (79%)
nitrogen and traces of other gases at one (1) atmosphere of pressure.
1.2 "CeramPhysics License" means that certain License Agreement
dated February 28, 1997 between OxyNet and CeramPhysics, Inc., as amended by an
Amendment To License Agreement dated March 31, 1998,
<PAGE> 2
1.3 "Confidential Information" means all knowledge and information,
whether written or unwritten, of or pertaining to this Agreement and the
transactions and Project contemplated hereby, the Technology, OxyNet, NetMed or
Generon, and any and all trade secrets, know-how, methodologies, formulae,
plans, inventions, drawings, discoveries, concepts and ideas, whether or not
patentable or copyrightable, of or relating to any of the foregoing; the nature
and results of any research and/or development activities, including products,
applications, methods and services relating to, used or useful in connection
with any of the foregoing or the commercial exploitation thereof, methods,
techniques and strategies used or useful in manufacturing, developing and/or
marketing products or services; non-public information; and existing or
prospective customer lists and requirements, customer data, pricing matters and
marketing techniques.
1.4 "Continuation" means, with respect to patents and patent
applications, a refiling of a specification filed in a prior patent application
for which priority is claimed, in whole or in part, with or without the presence
of new matter or of matter or claims divided from the prior patent application,
and without regard to whether or not a patent has matured from the prior patent
application.
1.5 "Deoxification Applications" means (a) use of the Technology to
remove oxygen from inert gases where the intended and primary product is the
purer inert gas, including use of the Technology alone or in conjunction with
Generon's membrane or other technology for these purposes; (b) use of the
Technology in connection with Generon's on-site membrane gas generation systems,
including the use of purifying the "oxygen waste air stream"; and (c) so long as
the primary purpose of the use of the Technology is for removing oxygen from a
gas which is being purified, use of the Technology to purify the oxygen waste
stream, provided, however, that
2
<PAGE> 3
Generon may only use the technology in conjunction with its on-site membrane
systems for this purpose.
1.6 "Gross Selling Price" or "List Selling Price" mean in either
case the cash consideration received by Generon in respect of the sale, lease or
other disposition of Units.
1.7 "Licensed Methods" means methods relating to the removal,
separation and/or generation of oxygen from air and/or other gases (including
Ambient Air) which, in the absence of this Agreement, would infringe at least
one claim of the Licensed Patents or use the Licensed Technology.
1.8 "Licensed Patents" means U.S. Patent No. 5,205,990 issued on
April 27, 1993 and licensed exclusively to OxyNet, entitled "Oxygen Generator
Having Honeycomb Structure" and any patents which may issue from such
applications and any Continuations of any of the foregoing, all patents issued,
reissued, reexamined, renewed and extended from any of the foregoing, and all
counterparts (i.e., corresponding foreign applications and patents) and
equivalents (i.e., statutorily protected or designated with the status of an
invention, characterized as other than a patent application or patent) of any of
the foregoing filed, licensed or issued in any country of the world, which are
or were filed, licensed, owned (legally or beneficially, in whole or in part) or
acquired at any time during the Term of this Agreement by OxyNet or NetMed
relating to the removal, separation and/or generation of oxygen from air and/or
other gases (including Ambient Air). Any Licensed Patents additional to those
specified by patent number or serial number above will be added to Schedule A
attached to and incorporated herein. 1.9 "Licensed Products" means any system or
apparatus which, in the absence of this Agreement, would infringe at least one
claim of the Licensed Patents or use the Licensed Technology.
3
<PAGE> 4
1.10 "Licensed Technology" means OxyNet's and/or NetMed's technology
(including the Licensed Patents, patents, patent applications, reissues and
Continuations, know-how, Confidential Information, trade secrets, manufacturing
methods, drawings, laboratory notes and other information however embodied or
expressed (and whether oral, in writing or stored on machine-readable media such
as magnetic tapes, compact discs or other means)) relating to, used or useful in
the removal, separation and/or generation of oxygen from air and/or other gases
(including Ambient Air).
1.11 "Licensed Territory" means any and all countries of the world.
1.12 "Unit or Units" means that portion of a Licensed Product which
contains only the ceramic membrane and associated controls and does not include
any other gas separation or generation equipment or other product.
2. GRANT
-----
2.1 EXCLUSIVE LICENSE. OxyNet hereby grants to Generon an exclusive
(including as to OxyNet and NetMed) license under the Licensed Patents and
Licensed Technology to develop, make, have made, market, use, sell, offer for
sale, lease, import, distribute and otherwise dispose of Licensed Products and
to practice Licensed Methods in the Licensed Territory in Deoxification
Applications. The foregoing grant shall automatically include any activity which
is designated by law as patent infringement in any country in which a Licensed
Patent is in force.
2.2 SUBLICENSE. Generon's exclusive license granted herein
includes the right to sublicense the Licensed Patents and Licensed Technology.
Without limiting the generality of the foregoing, Generon shall have the right
to license or sublicense the right to practice the Licensed Methods to end users
of Licensed Products.
4
<PAGE> 5
2.3 EXCLUSIVITY. The licenses granted herein shall be exclusive,
even as to OxyNet and NetMed in all countries of the world.
3. ROYALTY
-------
3.1 PAYMENTS. Generon shall pay to OxyNet a royalty of [*] of the
Gross Selling Price or the List Selling Price, which ever amount is greater, in
respect of each Unit. Generon will develop and provide List Selling Prices to
OxyNet when the Units become available for sale. The List Selling Prices will be
at a minimum [*] above the variable manufacturing cost (materials and labor) of
the Units. Generon will have the right to adjust the List Selling Prices on an
annual basis as it sees fit and submit the revised List Selling Prices to
OxyNet. Royalties shall be due and payable forty-five (45) days after the date
of shipment of the Unit to the end user.
4. ACCOUNTING RECORDS, PAYMENT
---------------------------
4.1 ACCOUNTING AND RECORDS. Generon shall keep accurate records of
the revenue and sales price of all Units sold, leased or disposed of by or for
Generon. OxyNet shall have the right to have Generon's records bearing on its
activities under this Agreement audited by a mutually acceptable firm of
independent accountants provided that such firm shall have theretofore executed
and delivered to Generon a confidentiality and non-disclosure agreement in form
and scope reasonably satisfactory to Generon.
* Portion has been omitted pursuant to a request for confidential treatment and
filed separately with the Commission
5
<PAGE> 6
5. PATENT MARKETING
----------------
Generon shall mark or label the Licensed Products with the
patent numbers of any of the Licensed Patents issued before Generon installs,
sells, leases, or disposes of any of the Licensed Products to a third party
after the Effective Date of this Agreement.
6. WARRANTIES DISCLAIMERS AND INDEMNIFICATION
------------------------------------------
6.1 REPRESENTATIONS AND WARRANTIES. OxyNet and NetMed, jointly and
severally, represent and warrant to Generon, as of the Effective Date, that:
6.1.1 OxyNet is sole and exclusive owner or licensee of the
identified Licensed Patents and Licensed Technology has the power to enter into
this Agreement and to grant the licenses granted herein to Generon, and no
consent of any other person or entity is required therefor;
6.1.2 Neither OxyNet nor NetMed is aware of any information which is
material to the patentability or validity of a Licensed Patent which has not
been brought to the attention of the official patent office of each country in
which a Licensed Patent has been examined or re-examined;
6.1.3 Neither OxyNet nor NetMed is engaged in any (and knows of no
pending or threatened) claims, actions, suits, or proceedings relating to the
Licensed Patents. OxyNet and NetMed will give immediate written notice to
Generon of any such event which becomes known to it during the term of this
Agreement;
6.1.4 Neither OxyNet nor NetMed is a party to any existing agreement
with any other party that conflicts with this Agreement or the licenses granted
herein to Generon; and
6
<PAGE> 7
6.1.5 Neither OxyNet nor NetMed has any knowledge or reason to
believe that the Licensed Products or Licensed Methods infringe any patent or
rights or make use of any trade secrets of any third party.
6.2 RESERVATION TO MODIFY. This Agreement shall not constitute an
acknowledgment, agreement or acquiescence by Generon that any Licensed Patent or
portion thereof is valid or infringed. Generon reserves the right at any time to
modify its technology with respect to the removal, separation and/or generation
of oxygen from air and/or other gases (including Ambient Air) or any other
matter. Without limiting the generality of the foregoing, Generon shall be free
to manufacture, have manufactured, market, use, lease, sell, import, distribute
and otherwise dispose of devices which perform the same function as the Licensed
Products or Units without any duty on its part to prefer the Licensed Products
or Units in any way or to maximize royalties hereunder, provided that such
devices do not in any way incorporate, use or practice the Licensed Technology,
except to the extent expressly permitted hereunder.
7. OXYNET OBLIGATION TO PROSECUTE AND MAINTAIN
-------------------------------------------
Subject to the provisions of the CeramPhysics License, OxyNet shall
be obligated to continue to prosecute and maintain the Licensed Patents. OxyNet
shall keep Generon timely informed as to the prosecution and maintenance of the
Licensed Patents. If at any time Generon determines that OxyNet is not
performing its obligation to prosecute or maintain. the Licensed Patents under
this Section 7, Generon has the right to assume control of (and OxyNet agrees to
assist Generon with) such patent prosecution or maintenance. If Generon should
elect to take over the prosecution or maintenance of the Licensed Patents under
this Section 7, Generon shall be permitted (and OxyNet hereby consents to allow
Generon) to deduct all such reasonable expenses from allocations, dividends,
distributions, or payments due or payable from Generon.
7
<PAGE> 8
8. LITIGATION
----------
8.1 INFRINGEMENT BY THIRD PARTIES. In the event of third party
infringement of a Licensed Patent, Generon shall have the first right and
discretion to take actions (including filing a lawsuit) for the abatement of
such infringement. OxyNet agrees to cooperate and reasonably assist with
Generon's efforts to abate any infringement, including consenting to joinder as
a plaintiff. In any such litigation, Generon shall control all aspects of the
action and shall have the right to settle such litigation by granting a
non-exclusive license under the Licensed Patents. Any award, settlement, license
fees or recovery shall be retained by Generon.
9. OXYNET IMPROVEMENTS
-------------------
From time to time OxyNet may make modifications, enhancements, or
improvements to the Licensed Products or Licensed Methods ("OxyNet
Improvements"). OxyNet will grant and hereby grants to Generon a royalty free
license to Generon to use, sale, lease, sublicense or otherwise practice such
OxyNet Improvements, including Confidential Information, now existing or
developed during the term of this Agreement and to include such OxyNet
Improvements as part of such Licensed Technology under the terms of this
Agreement.
10. TERM AND TERMINATION
--------------------
10.1 The term of this Agreement shall commence on the Effective
Date hereof, and shall continue in effect for so long as any claim in any of the
Licensed Patents is valid and subsisting, unless terminated earlier as provided
below.
10.2 This Agreement may be terminated by mutual, written agreement
of the parties.
10.3 This Agreement may be terminated if a party to this Agreement
commits a material breach of any material provision herein. upon written notice
to the defaulting party and
8
<PAGE> 9
such default is not cured within ninety (90) days of such notice, provided,
however, that if such default is of a kind which cannot reasonably be cured
within ninety (90) days, such period shall be extended for up to an additional
ninety (90) days so long as the defaulting party is diligently and in good faith
pursuing the cure thereof.
11. EFFECT OF TERMINATION AND EXPIRATION
------------------------------------
11.1 EFFECT OF TERMINATION. The license granted herein to Generon
may terminate upon early termination of this Agreement due to a Generon material
breach as set forth in Section 10, except that Generon shall have the right
thereafter to sell or lease its inventory of Licensed Products remaining on the
date of the termination.
11.2 SURVIVAL. Sections 6, 7, 8, 12 and 13 shall survive expiration
or termination of this Agreement.
12. DISPUTES
--------
12.1 In the event of any controversy or claim arising out of or
relating to this Agreement, a party shall provide written notice of the
controversy or claim to the other party, and the parties shall attempt to
resolve such controversy or claim informally. If the parties are unable to
resolve a claim informally for a period of sixty (60) days after written notice,
the parties shall be free to pursue arbitration as provided hereinafter.
12.2.1 All claims and controversies, whether based in contract,
tort or otherwise, arising out of or relating to this Agreement or the scope,
breach, termination or validity of this Agreement and including any claim or
dispute concerning a party's right to indemnification (a "Claim"), shall be
submitted to binding arbitration in accordance with the following provisions.
Arbitration shall be the sole and exclusive remedy of the Parties in connection
with any Claims hereunder.
9
<PAGE> 10
12.2.2 The Party desiring to initiate arbitration in connection
with any Claim shall send, via certified mail, written notice of demand of
arbitration to the other Party and the name of the arbitrator appointed by the
Party demanding arbitration together with a statement of the matter in
controversy.
12.2.3 Within fifteen (15) days after receipt of such demand, the
receiving Party shall name its arbitrator. If the receiving Party fails or
refuses to name its arbitrator within such 15-day period, the second arbitrator
shall be appointed, upon request of the Party demanding arbitration, by a court
of competent jurisdiction in the Commonwealth of Pennsylvania or such other
Person designated by such Court. The two arbitrators so selected shall within
fifteen (15) days after their designation select a third arbitrator; provided,
however, that if the two arbitrators are not able to agree on a third arbitrator
within such fifteen (15) day period, either Party may request a court of
competent jurisdiction in the Commonwealth of Pennsylvania or such other Person
designated by such court to select the third arbitrator as soon as possible. In
the event the court declines to appoint an arbitrator, appointment shall be
made, upon application of either Party, pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. If any arbitrator refuses or
fails to fulfill his or her duties hereunder, such arbitrator shall be replaced
by the Party which selected such arbitrator (or if such arbitrator was selected
by another Person, through the procedure which such arbitrator was selected)
pursuant to the foregoing provisions.
12.2.4 The arbitrators selected by the Parties are not required to
be neutral, but the third arbitrator shall be neutral and shall be a retired
judge who has served either as a trial court judge in a state or federal
district court, or as a state or federal appellate court judge.
10
<PAGE> 11
12.2.5 The Parties hereto hereby request and consent to the three
(3) arbitrators conducting a hearing in Pittsburgh, Pennsylvania no later than
sixty (60) days following their selection or thirty (30) days after all
prehearing discovery has been completed, whichever is later, at which the
Parties shall present such evidence and witnesses as they may choose, with or
without counsel.
12.2.6 Except as modified by this Agreement, arbitration shall be
conducted in accordance with the Commercial Arbitration Rules and procedures of
the American Arbitration Association.
12.2.7 Adherence by the arbitrators to formal rules of evidence
shall not be required. The arbitrators shall consider any evidence and testimony
that they determine to be relevant.
12.2.8 The Parties hereto hereby request that the arbitrators
render their decision within thirty (30) calendar days following conclusion of
the hearing.
12.2.9 Any decision by a majority of the arbitration panel shall be
final, binding and non-appealable. Any such decision maybe filed in any court of
competent jurisdiction and may be enforced by any Party as a final judgment in
such court.
12.2.10 The statute of limitations and any equitable period of
laches shall be tolled from and after the date a Party gives the other Party
written notice of a Claim as provided in this Section 12.2 above until such time
as the Claim has been resolved pursuant to this Section 12.2, or an arbitration
decision has been entered pursuant to Section 12.2.9.
12.2.11 Either Party may apply to the arbitrators seeking
injunctive relief until the arbitration award is rendered or the controversy is
otherwise resolved. Either Party also may, without waiving any remedy under this
Agreement, seek from any court having jurisdiction any
11
<PAGE> 12
interim or provisional relief that is necessary to protect the rights or
property of the Party, pending the establishment of the arbitral tribunal or
pending the arbitral tribunal's determination of the merits of the controversy.
13. NOTICES
-------
Any notice or report made by either party shall be considered
proper and effective if mailed by certified mail addressed as shown below, or
delivered in person and in writing. Generon and OxyNet agree to notify all other
parties of any changes.
If to Generon, as follows:
MG Generon, Inc.
5 Great Valley Parkway
Malvern, Pennsylvania 19033-0739
Attention: President
Facsimile: (610) 695-7766
With a copy to:
Montgomery, McCracken, Walker & Rhoads, LLP
123 South Broad Street
Philadelphia, Pennsylvania 19109
Attention: Baldo M. Carnecchia, Jr.
Facsimile: (215) 772-7620
If to OxyNet or NetMed, as follows:
NetMed
6189 Memorial Drive
Dublin, Ohio 43017
Attention: President
Fax: (614)793-9376
or to such changed address as shall have been designated by notice.
12
<PAGE> 13
14. GENERAL PROVISIONS
------------------
14.1 WAIVER OR MODIFICATION. The waiver, amendment or modification
of this Agreement or any right or obligation hereunder shall not be effective
unless agreed to by each of the parties in writing.
14.2 FORCE MAJEURE. Neither party will be deemed in default of this
Agreement to the extent that performance of its obligations or attempts to cure
any breach are delayed or prevented by reason of any act of God, fire, natural
disaster, accident, act of government, shortages of material or supplies or any
other cause beyond the control of such party, provided that such party gives the
other party written notice thereof promptly and, in any event, within thirty
(30) days of discovery thereof and uses good faith efforts to so perform or
cure. In the event of such a Force Majeure, the time for performance or cure
will be extended for a period equal to the duration of the Force Majeure.
14.3 GOVERNING LAW. This Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania, without regard to Pennsylvania conflicts of
laws principles.
14.4 SEVERABILITY. If any provisions of the Agreement or the
application of any such provision shall be held to be contrary to law, the
remaining provisions of this Agreement shall continue in full force and effect.
14.5 ENTIRE AGREEMENT. The parties acknowledge that this Agreement
(along with the Intellectual Property Development and Ownership Agreement)
expresses their entire understanding and agreement with respect to Licensed
Products or Licensed Methods sold or used after the Effective Date of this
Agreement.
14.6 ASSIGNMENT. Except for assignment to a successor in interest
to substantially the entire business to which this Agreement relates, neither
party shall assign this
13
<PAGE> 14
Agreement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed. The grant of a sublicense by Generon as
hereinabove permitted shall not be deemed to be an assignment. Except as
otherwise provided herein, this Agreement shall be binding on and inure to the
benefit of each party and their respective heirs, personal representatives,
executors, successors and assigns.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
MG Generon, Inc.
By. /s/ Barry J. Smith
-------------------------------------------
Name: Barry J. Smith
Title: VP and General Manager
OxyNet, Inc.
By. /s/ David J. Richards
-------------------------------------------
Name: David J. Richards
Title: President
NetMed, Inc.
By. /s/ David J. Richards
-------------------------------------------
Name: David J. Richards
Title: President
14
<PAGE> 1
Exhibit 10.9
REIMBURSEMENT AND SECURITY AGREEMENT
------------------------------------
THIS REIMBURSEMENT AND SECURITY AGREEMENT ("Security Agreement") is
made as of this 30TH day of April, 1999, by OXYNET, INC., an Ohio corporation
formerly known as CERAM OXYGEN TECHNOLOGIES, INC. ("Debtor"), to and in favor of
MG GENERON, INC., a Delaware corporation ("Secured Party").
WITNESSETH:
WHEREAS, Debtor is the exclusive licensee of certain patented and other
proprietary technology in the field of oxygen concentration/generation (the
"Licensed Technology") licensed to Debtor pursuant to a certain License
Agreement dated February 28, 1997, as amended by an Amendment to License
Agreement dated March 31, 1998 (as amended, the "CeramPhysics License") by and
between Debtor and CeramPhysics, Inc., an Ohio corporation ("CeramPhysics").
WHEREAS, pursuant to a certain Exclusive License Agreement by and among
Debtor, Secured Party and NetMed, Inc., an Ohio corporation ("NetMed"), of even
date herewith (the "Generon License"), Debtor granted to Secured Party certain
exclusive rights in and to certain "Licensed Technology" as more fully described
and defined in the Generon License, and Debtor, Secured Party and NetMed
contemporaneously entered into a certain Intellectual Property Development and
Ownership Agreement in connection therewith (the "Development Agreement").
WHEREAS, pursuant to the CeramPhysics License, Debtor is required to
make certain payments to CeramPhysics including, but not limited to, payments of
royalties, and the failure by Debtor to make the required payments under the
CeramPhysics License may result in termination of the CeramPhysics License and
may jeopardize the Secured Party's exclusive rights to use the Licensed
Technology.
WHEREAS, it is in the best interest of the Secured Party for Debtor to
meet its payment obligations under the CeramPhysics License so that Secured
Party may maintain its use of the technology licensed to Debtor under the
Generon License, and Generon would not enter into the Generon License without
assurances of uninterrupted use of the technology licensed thereunder.
WHEREAS, pursuant to the terms of this Agreement, Debtor has given the
Secured Party the right, in its sole discretion, to satisfy Debtor's payment
obligations under the CeramPhysics License for and on behalf of Debtor in the
event that, for any reason, Debtor falls to meet its payment obligations under
the CeramPhysics License, upon the condition that Debtor grants to and creates
in favor of the Secured Party a present first lien and security interest in
Debtor's license of the Licensed Technology to secure any such future advances.
NOW, THEREFORE, to induce the Secured Party to enter into the Generon
License and the Development Agreement, and to pay the consideration set forth in
Section 3 of the Development Agreement, and for and in consideration of any
amounts paid by the Secured Party
<PAGE> 2
to CeramPhysics at anytime during the term of the Generon License for or in the
name of Debtor, and intending to be legally bound hereby, Debtor agrees as
follows:
1. GRANT OF SECURITY INTEREST.
As security for the full and faithful performance of the duties and
obligations of the Secured Party and NetMed under the Generon License and the
Development Agreement, and for the repayment in full of any amounts paid to
CeramPhysics for or on behalf of Debtor under the CeramPhysics License, Debtor
hereby conveys, assigns, pledges, mortgages, transfers, and grants to the
Secured Party, and its successors and assigns, a first lien on and security
interest in and to, the following (which shall be referred to herein as the
"Collateral"):
(a) The CeramPhysics License, and all proceeds thereof including,
without limitation, all rights of Debtor as the exclusive licensee of
CeramPhysics' patent, oxygen concentration/generation technology, confidential
information, and proprietary material as more fully set forth in the
CeramPhysics License, including, without limitation, all interests, proceeds,
royalties, recoveries, income, and license and sublicense fees associated
therewith; and
(b) All other intellectual property and related rights of Debtor in
and related to the Licensed Technology, including, without limitation,
confidential or proprietary information, know-how, trade secrets, secret
formulas, technical information, computer software, programs, source code,
object code, tape disks and related materials, patents and applications
therefor, copyright registrations and applications therefor, trademarks, service
marks, trade names and all names used or usable by Debtor in connection with the
CeramPhysics License, and all goodwill related to the foregoing.
2. REIMBURSEMENT AGREEMENT.
(a) Debtor hereby grants to the Secured Party the right, in Secured
Party's sole discretion, to cure any monetary default under the CeramPhysics
License for and on behalf of Debtor. For purposes hereof, Debtor hereby appoints
and constitutes the Secured Party as Debtor's attorney-in-fact for making any
such payments. Debtor hereby covenants and agrees to inform the Secured Party in
writing of any payment due to CeramPhysics that Debtor has not paid or cannot
for any reason pay on a timely basis, and to notify the Secured Party
immediately of any claim, demand or other request for payment by CeramPhysics or
notice of default from CeramPhysics for any reason.
(b) In the event that the Secured Party makes any payment hereunder
to CeramPhysics, the Secured Party shall notify Debtor in writing, accompanied
by a demand for reimbursement of the amounts paid. Debtor shall repay such
amounts paid within ten (10) business days after the date of such payment, with
interest at a rate per annum equal to the prime rate (as published in THE WALL
STREET JOURNAL on the date of the payment by the Secured Party to CeramPhysics)
plus four percent (4%) through the date of repayment.
(c) Debtor's failure to repay any amounts due under Section 2(b)
above within ten business (10) days as provided above, or CeramPhysics refusal
to accept any payment
2
<PAGE> 3
tendered by Generon pursuant to the terms hereof, and/or any breach or default
under the Generon License and/or the Development Agreement which remains uncured
after forty-five (45) days following notice by Generon to the Secured Party
thereof or that Debtor has not commenced and is diligently pursuing a cure where
the breach or default cannot be cured within such period, shall constitute an
"Event of Default" hereunder and shall entitle the Secured Party, without
further notice to Debtor, to pursue the remedies of a Secured Party described in
Section 6(a) hereof, and in that regard, the Secured Party shall be entitled to
recover, in addition to all amounts due and owing, any and all fees and expenses
(including attorneys' fees and expenses) incurred in pursuit of the remedies so
provided.
3. DUTIES OF DEBTOR. Debtor shall have the following duties and
responsibilities:
(a) To promptly notify the Secured Party of any notice by
CeramPhysics to Debtor of any default, event of default, event which with the
passage of time could give rise to a default or event of default, or other
breach by Debtor in the performance and observance of any of the terms,
covenants, representations or warranties of the CeramPhysics License.
(b) Debtor shall not assign the CeramPhysics License or otherwise
transfer its interest in the Licensed Technology or terminate, cancel, modify,
change, alter or amend the CeramPhysics License, either orally or in writing,
without the prior written consent of the Secured Party.
4. REPRESENTATIONS, COVENANTS, AND WARRANTIES. Debtor represents,
warrants, covenants and agrees that:
(a) Debtor owns and will continue to own all right, title and
interest in and to the Licensed Technology as set forth in the CeramPhysics
License, free and clear of all claims, security interests, liens, encumbrances,
agreement and rights of third parties, and will defend such licensed rights
against the claims and demands of all persons.
(b) The CeramPhysics License is in full force and effect and has not
been modified or amended in any manner, except as heretofore disclosed to the
Secured Party in writing.
(c) Debtor has the full power and authority to extend the rights
granted herein to Secured Party and has not made and will not make during the
term of this Security Agreement any commitment to another party inconsistent
with or in derogation of such rights.
(d) All payments due and payable to CeramPhysics pursuant to the
CeramPhysics License have been paid in full to the extent payable before the
date of this Security Agreement.
(e) No consent or approval of CeramPhysics or any other third party
is required in order to effectuate the terms hereof or to permit Debtor to grant
the security interest described above or to perform hereunder.
3
<PAGE> 4
5. PROVISIONS APPLICABLE TO PROTECTION OF FIRST PRIORITY LIENS.
(a) UCC FINANCING STATEMENTS. In connection herewith, Debtor shall
execute and deliver to the Secured Party such financing statements, assignments,
acknowledgements, and other documents as are necessary or required to perfect
the Secured Party's first lien and security interest in the Collateral. Debtor
shall further execute and/or cause to be filed all such other documents
(including, without limitation, all those required by subsection (b) hereof) as
may be necessary or desirable to perfect or maintain, to the extent and in the
manner herein provided, the first priority security interests of the Secured
Party in the Collateral granted hereunder at all times fully perfected and in
full force and effect. Debtor shall cause to be delivered on the date hereof
opinions of counsel, in form and substance acceptable to the Secured Party, with
respect to the validity, priority and perfection of the liens created hereunder.
(b) FURTHER ASSURANCES. Debtor represents and agrees that it will,
at its own expense, from time to time at the request of the Secured Party,
execute, file, record, and/or deliver to the Secured Party (or cause the same to
occur) such instruments, notices, assignments, bills, financing statements,
continuation statements, and other documents and amendments thereto, necessary
to perfect and preserve the priority of, said first priority security interests
on and in the Collateral and each item thereof.
6. REMEDIES, APPLICATION OF MONEYS.
(a) REMEDIES. Upon the occurrence of any Event of Default, the
Secured Party shall have such rights and remedies in respect of the Collateral
or any portion thereof as provided by applicable law, including, without
limitation, the Uniform Commercial Code as enacted in any jurisdiction, and such
other rights and remedies in respect thereof which a secured party may have at
law or in equity or under this Security Agreement.
(b) APPLICATION OF MONEYS. The Secured Party shall apply any
proceeds of any realization on Collateral to the satisfaction of the amounts due
and owing to the Secured Party, with any remainder being paid to Debtor. Nothing
herein shall be deemed to preclude the Secured Creditor from bidding on the
Collateral at any sale pursuant to the enforcement of the Secured Party's rights
and remedies hereunder.
(c) DEFICIENCY. If proceeds referred to in subsection (b) above are
insufficient to pay the obligations in full, Debtor shall continue to be liable
for the entire deficiency.
7. CARE OF COLLATERAL BY SECURED PARTY. The Secured Party shall not
have the duty to take any action necessary to preserve Debtor's right, title or
interest to or in any Collateral against any other party.
8. REMEDIES CUMULATIVE. No remedy herein conferred upon the Secured
Party is intended to be exclusive of any other remedy and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
4
<PAGE> 5
9. REMEDIES NOT WAIVED. No course of dealing between Debtor and the
Secured Party or any delay on the part of any of them in exercising any rights
or remedies hereunder or under applicable law shall operate as a waiver of any
rights or remedies of any of them, whether arising hereunder or under any other
agreement between the parties.
10. DEFEASANCE. Upon termination of the Generon License and the
indefeasible payment in full of all obligations of Debtor to the Secured Party,
this Security Agreement shall terminate and be of no further force and effect;
and in such event, the Secured Party at Debtor's expense will take all action
necessary to terminate the security interests of the Secured Party in the
Collateral. Until such time, however, this Security Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
11. NO DISCHARGE. The obligations of Debtor to the Secured Party shall
be absolute and unconditional and shall remain in full force and effect without
regard to, and shall not be released, discharged or in any way affected by: (a)
any exercise or nonexercise of any right, remedy, power or privilege under or in
respect of this Security Agreement or applicable law, or any waiver, consent,
extension, indulgence or other action or inaction in respect of any thereof, or
(b) any other action or thing (other than payment) or omission or delay to do
any other action or thing which may or might in any manner or to any extent
otherwise operate as a discharge of Debtor as a matter of law.
12. AMENDMENT; WAIVER. No amendment or waiver of any provision of this
Security Agreement nor consent to any departure by Debtor therefrom shall in any
event be effective unless the same shall be in writing.
13. SEVERABILITY. Any provision of this Security Agreement prohibited
by the laws of any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition, or modified to conform with such laws,
without invalidating the remaining provisions of this Security Agreement, and
any such prohibition in any jurisdiction shall not invalidate such provisions in
any other jurisdiction. All rights, remedies and powers provided in this
Security Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all the provisions of this
Security Agreement are intended to be subject to all applicable mandatory
provisions of law which may be controlling and to be limited to the extent
necessary so that they will not render this Security Agreement illegal, invalid,
unenforceable, in whole or in part, or not entitled to be recorded, registered,
or filed under the provisions of any applicable law.
14. ASSIGNEES. Any permitted assignee of or successor to a party hereto
shall succeed to all rights and benefits, and be bound by all obligations,
inuring to such party.
15. GOVERNING LAW. This Security Agreement shall be construed in
accordance with and governed by the laws, including equitable principles but
without regard to principles of conflict of laws, of the State of Ohio.
16. HEADINGS. The section headings in this Security Agreement are for
convenience only and shall not affect the construction hereof.
5
<PAGE> 6
17. Notices. Any notice hereunder shall be in writing and shall be
conclusively deemed to have been received by a party hereto and to be effective
on the day on which delivered to such party at its address set forth on the
signature pages hereto (or at such other address as such party shall specify to
the other parties hereto in writing), or, if sent by certified mail, on the
third business day after the day on which mailed, addressed to such party at
such address.
18. COUNTERPARTS. This Security Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be
duly executed and delivered as of the day and year first above written.
OxyNet, Inc..
By. /s/ David J. Richards
------------------------------------------
Title: President
MG Generon, Inc.
By. /s/ Barry J. Smith
------------------------------------------
Title: VP and General Manager
6
<PAGE> 1
Exhibit 10.10
NETMED INC.
PREFERRED STOCK REDEMPTION AGREEMENT
------------------------------------
This Preferred Stock Redemption Agreement (the "AGREEMENT") is made by
and between NetMed, Inc., an Ohio corporation ("NMD") and the undersigned
holders (individually a "HOLDER" and collectively, the "HOLDERS") of the
outstanding shares of Series A, 6% Convertible Preferred Stock of NMD (the
"PREFERRED STOCK").
Recitals
--------
A. The Holders are currently the record owner of the number of shares
of Preferred Stock set forth on Schedule A annexed hereto, issued pursuant to
the terms of a Convertible Debenture Exchange Agreement among the parties dated
October 27, 1998 (the "EXCHANGE AGREEMENT"). The Preferred Stock was issued in
exchange for certain convertible debentures (the "DEBENTURES"), issued pursuant
to the terms of a 6% Secured Convertible Debenture Purchase Agreement among the
parties dated August 12, 1997 (the "PURCHASE AGREEMENT").
B. The Company and the Holders have agreed that on the terms provided
herein, the Holders will surrender for redemption, and that the Company will
redeem, all of the outstanding Preferred Stock, and that the parties shall
thereafter have no further obligation to the other under the Exchange Agreement,
the Purchase Agreement or any related agreement.
Statement of Agreement
----------------------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Redemption. At the Closing (as hereinafter defined), the Holders
shall surrender for redemption all of outstanding shares of Preferred Stock held
by the Holders as set forth on Schedule A, and the Company shall pay to the
Holders in the aggregate, the sum of $125,000, plus 400 common shares, without
par value, of its majority-owned subsidiary, OxyNet, Inc., an Ohio corporation
(the "Redemption Consideration"). The Redemption Consideration shall be
allocated among the Holders as provided on Schedule B attached hereto. Following
the Closing, the Company agrees to pay the Holders, as additional consideration,
fifty percent (50%) of the net cash proceeds received by the Company from
Neuromedical Systems, Inc. ("NSI") as debtor in possession in respect of claims
of the Company allowed in NSI's pending reorganization proceedings in the United
States Bankruptcy Court for the District of Delaware under Chapter 11 of the
U.S. Bankruptcy Code (or from any trustee or liquidator subsequently appointed
under Chapter 7 of the Bankruptcy Code), regardless of when received by the
Company; provided, however, that the maximum aggregate amount payable to the
Holders under this sentence shall not exceed $100,000. Such payment shall be
made promptly following any distribution to the Company in the bankruptcy
proceedings. The Company will diligently pursue the collection or settlement of
its claims in the bankruptcy proceeding, and shall periodically advise holders
on the status of its efforts. For purposes of this Section 1, "net proceeds"
shall include all cash payments received in respect of claims of the Company
allowed in NSI's bankruptcy proceedings, less the actual and reasonable cost to
the Company of prosecuting or settling such claims, including without
limitation, legal fees and costs, witness and consultant fees, and travel
expenses. The Company represents and warrants that there are currently no liens,
pledges or encumbrances on its claim or the proceeds thereof, and covenants that
it will use diligent efforts to prevent any lien, pledge or encumbrance from
being imposed in the future.
2. OxyNet Shares. The Company represents and warrants that it is the
record and beneficial owner of the common shares of OxyNet, Inc. included as
part of the Redemption Consideration (the "OxyNet Shares"), that it purchased
the OxyNet Shares on April 3, 1998, that the OxyNet shares are free of any lien,
pledge or encumbrance, and that the Company has the full right, power and
authority to transfer the OxyNet Shares. Each of the Holders acknowledges that
the OxyNet Shares are not part of a class of securities registered under the
Securities Exchange Act of 1934, that there is no active trading market for the
OxyNet shares, and that there can be no assurance that such a market will ever
develop. Each of the Holders acknowledges that the OxyNet Shares will be issued
in a transaction that has not been registered under the Securities Act of 1933
(the
<PAGE> 2
"Securities Act") or under any state securities laws, and agrees that the
OxyNet Shares cannot be resold unless subsequently registered under the
Securities Act or pertinent state securities laws unless an exemption from such
registration is available. Each of the Holders acknowledge that the certificates
evidencing the OxyNet Shares will each bear a legend to the same effect. The
Company represents that the OxyNet Shares represent 5% of the issued and
outstanding common shares of OxyNet, Inc., on a fully diluted basis.
3. Closing.
(a) Promptly following the execution and delivery of this Agreement by
the parties, the Holders shall deliver to the Goldstein Law Group P.C. (the
"Escrow Agent") certificates for all of their shares of Preferred Stock, and the
Company shall deliver to the Escrow Agent the Redemption Consideration. The
closing of the transactions contemplated by this Agreement (the "Closing") shall
be deemed to occur immediately upon the completion of the completion of the
closing deliveries described in the preceding sentence, and the Escrow Agent
shall thereafter promptly transmit to the Company by overnight courier the
certificates for the Preferred Stock surrendered for redemption. Irrespective of
whether the certificates therefor shall have been surrendered, all shares of
Preferred Stock which are subject to redemption hereunder shall be deemed to
have been redeemed and shall be canceled effective as of payment of the
Redemption Consideration to the Escrow Agent.
(b) Should any party attempt to change this Agreement in an manner
which, in the Escrow Agent's reasonable discretion, shall be undesirable, the
Escrow Agent may resign as Escrow Agent by notifying all parties in writing. The
Escrow Agent shall be reimbursed by the parties for any reasonable expenses
incurred in the event there is a conflict between the parties and the Escrow
Agent shall deem it necessary to retain counsel. The Escrow Agent shall not be
liable for any action taken or omitted by it in good faith in accordance with
the advice of the Escrow Agent's counsel; and in no event shall the Escrow Agent
be liable or responsible except for the Escrow Agent's own gross negligence or
willful misconduct. The Escrow Agent in its capacity as such has no liability
hereunder to any party other than to hold the Preferred Stock and Redemption
Consideration and to deliver them under the terms hereof. Each party hereto
agrees to indemnify and hold harmless the Escrow Agent in its capacity as such
from and with respect to any suits, claims, actions or liabilities arising in
any way out of this transaction, including the obligation to defend any legal
action brought which in any way arises out of or is related to this escrow.
4. Release and Termination. Effective upon the Closing, all obligations
of the parties under the Exchange Agreement, Purchase Agreement, and any related
agreement shall be terminated, including without limitation, any rights to
accrued and unpaid dividends or interest, registration rights, or conversion
rights, and each of the Holders and their respective officers, directors,
shareholders, successors and assigns, on the one hand, and the Company, and its
officers, directors, shareholders, successors and assigns on the other, shall be
released from all rights, claims, liabilities and causes of action which the
other party may have had arising prior to the Closing, except for rights,
claims, liabilities and actions arising under this Agreement. This Agreement is
intended to be a full settlement and satisfaction of all rights, claims,
liabilities or causes of action of the parties arising out of or otherwise
relating to the Preferred Stock, the Debentures, the Exchange Agreement, the
Purchase Agreement, and all related agreements, and shall be a release of future
claims that may arise out of or otherwise relate to them, whether such claims
are currently known, unknown, foreseen, or unforeseen. The release contained in
this Section 4 does not release any party from its obligations under this
Agreement.
5. Reliance Only on Published Documents. Each of the Holders
acknowledges and represents that it has made the decision to enter this
Agreement and surrender the Preferred Stock for redemption solely on the basis
of the publicly available information previously provided to the Holders by NMD
in its Form 10-K for the fiscal year ended December 31, 1998, and that no
officer, director or other person affiliated with NMD has given any information
or made any representation, oral or written, other than as provided in such
documents, on which the Holders have relied in deciding to enter into this
Agreement and to surrender the Preferred Stock, including, without limitation,
any information or representations with respect to the future prospects or
operations of NMD or OxyNet, or to the economic returns which may accrue to the
Holders as a result of their ownership of the OxyNet Shares.
2
<PAGE> 3
6. Authority. Each of the parties represents and warrants to the others
that it has the full power and authority to enter into and perform its
obligations under this Agreement.
7. Choice of Law. This Agreement and all transactions contemplated by
this Agreement shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of Ohio without regard to principles of
conflicts of laws. Each party consents to the jurisdiction of the federal courts
of the Southern District of the State of Ohio in connection with any dispute
arising under this Agreement and hereby waive, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions.
8. Entire Agreement; Amendments and Waivers. This Agreement, together
with all exhibits, attachments and schedules hereto, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, amendment, modification
or waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
IN WITNESS WHEREOF, the each of the parties have caused this Agreement
to be executed by a duly authorized officer as of the 20th day of April, 1999.
NETMED, INC. CPR (USA) INC.
By: /s/ David J. Richards By: /s/ Steven S. Rogers
-------------------------------- ------------------------------
David J. Richards, President Its: Managing Director
-----------------------------
LIBERTYVIEW FUND, LLC
By: /s/ Steven S. Rogers
------------------------------
Its: Authorized Signatory
------------------------------
LIBERTYVIEW PLUS FUND
By: /s/ Steven S. Rogers
------------------------------
Its: Authorized Signatory
------------------------------
The Escrow Agent hereby accepts and agrees to the provisions of Section
3 of the foregoing Agreement.
GOLDSTEIN LAW GROUP, P.C.
Date: By:
--------------------------- -----------------------------
Its:
------------------------------
3
<PAGE> 1
EXHIBIT 21
NETMED, INC.
SUBSIDIARIES OF THE REGISTRANT
STATE OF PERCENTAGE OF
SUBSIDIARY INCORPORATION SECURITIES OWNED
- ----------- ------------- ----------------
OxyNet, Inc. (1) Ohio 89.7%
(1) The subsidiary's principal office is located in Columbus, Ohio.
<PAGE> 1
EXHIBIT 23
[ERNST & YOUNG LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Post-Effective Amendment No. 3 to Form S-1 on Form S-3 No. 333-35663) for the
registration of 1,500,000 shares of common stock of NetMed, Inc. and in the
related Prospectus of our report dated March 25, 2000, with respect to the
consolidated financial statements of NetMed, Inc. included in this Annual Report
(Form 10-KSB) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Columbus, Ohio
March 29, 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
-----------------
Each director and/or officer of NetMed, Inc. (the "Corporation") whose
signature appears below hereby appoints S. Trevor Ferger and William J. Kelly,
Jr. as the undersigned's attorneys or any of them individually as the
undersigned's attorney, to sign, in the undersigned's name and behalf and in any
and all capacities stated below, and to cause to be filed with the Securities
and Exchange Commission (the "Commission"), the Corporation's Annual Report on
Form 10-KSB (the "Form 10-KSB") for the fiscal year ended December 31, 1999, and
likewise to sign and file with the Commission any and all amendments to the Form
10-KSB, and the Corporation hereby also appoints such persons as its
attorneys-in-fact and each of them as its attorney-in-fact with like authority
to sign and file the Form 10-KSB and any amendments thereto granting to each
such attorney-in-fact full power of substitution and revocation, and hereby
ratifying all that any such attorney-in-fact or the undersigned's substitute may
do by virtue hereof.
IN WITNESS WHEREOF, we have hereunto set our hands this 29th day of
March, 2000
SIGNATURE TITLE
/s/ S. Trevor Ferger President, Director
- --------------------
S. Trevor Ferger
/s/ Kenneth B. Leachman Vice President-Finance,
- ----------------------- Treasurer
Kenneth B. Leachman
/s/ James F. Zid Chairman of the Board of Directors
- ----------------
James F. Zid
/s/ Michael S. Blue Director
- -------------------
Michael S. Blue
/s/ Robert S. Massey Director
- --------------------
Robert J. Massey
/s/ Susan M. O'Toole Director
- --------------------
Susan M. O'Toole
/s/ Cecil J. Petitti Director
- --------------------
Cecil J. Petitti
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