U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from ___to___
Commission file number 0-25852
THE MED-DESIGN CORPORATION
Delaware 23-2771475
------------------------ ------------------------
(State of Incorporation) (IRS Employer ID Number)
121 South Broad Street, Suite 310, Philadelphia, PA 19107
----------------------------------------------------------------------
(215) 735-2700
--------------------------
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) for the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock - 6,778,570 shares Common Stock, $.01 par value,
outstanding as of March 31, 1996.
<PAGE>
THE MED-DESIGN CORPORATION
FORM 10-QSB
INDEX
Page Number
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 1996
(unaudited) and as of December 31, 1995............. 1
Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995 and Cumulative
During Development Stage (unaudited)................ 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 and Cumulative
During Development Stage (unaudited)................ 3
Notes to Consolidated Financial Statements
(unaudited)......................................... 4-5
Item 2 - Management's Discussion and Analysis or Plan of
Operation........................................... 6-8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings................................... 9
Item 2 - Changes in Securities............................... 9
Item 3 - Defaults upon Senior Securities..................... 9
Item 4 - Submission of Matters to a Vote of Security Holders. 9
Item 5 - Other Information................................... 9
Item 6 - Exhibits and Reports on Form 8-K.................... 9
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 142,532 $ 221,229
Short-term investments 511,908 511,908
Available-for-sale securities 7,175,105 7,112,286
Prepaid expenses and other current assets 46,708 65,185
------------ ------------
Total current assets 7,876,253 7,910,608
Property, plant , and equipment, net of
accumulated depreciation and amortization 922,362 831,955
Patents, net of accumulated amortization 138,348 140,748
------------ ------------
$ 8,936,963 $ 8,883,311
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,408,500 $ 2,128,500
Accounts payable 131,327 289,914
Accrued expenses 88,449 200,819
Due to officer 21,359 35,374
Current maturities of long-term debt
and capital lease obligations 122,213 140,681
------------ ------------
Total current liabilities 3,771,848 2,795,288
------------ ------------
Long-term debt and capital lease obligations,
less current maturities 282,385 277,483
------------ ------------
Total liabilities 4,054,233 3,072,771
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares outstanding
Common stock, $.01 par value, 20,000,000
shares authorized;
6,778,570 issued and outstanding 67,787 67,786
Additional paid-in capital 15,140,814 15,140,814
Deficit accumulated during the
development stage (10,346,483) (9,424,539)
Unrealized gain on available-for-sale
securities 20,612 26,479
------------ ------------
Total stockholders' equity 4,882,730 5,810,540
------------ ------------
$ 8,936,963 $ 8,883,311
============ ============
See accompanying notes to consolidated financial statements.
(1)
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
During
Development Three Months ended March 31,
Stage 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating expense:
Marketing $ 224,256 $ 65,079
General and administrative 2,782,641 720,117 $ 16,847
Research and development 786,776 177,630
Purchased research and development 5,932,770
------------ ------------ ------------
Total operating expenses 9,726,443 962,826 16,847
------------ ------------ ------------
Loss from operations (9,726,443) (962,826) (16,847)
Interest expense (874,097) (66,608) (419,993)
Interest income 254,057 107,490 627
------------ ------------ ------------
Net loss ($10,346,483) ($921,944) ($436,213)
============ ============ ============
Net loss per common share ($0.14) ($0.21)
============ ============
Weighted average common shares outstanding 6,778,570 2,029,956
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
(2)
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
During
Development Three Months ended March 31,
Stage 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss ($10,346,483) ($921,944) ($436,213)
Adjustments to reconcile net loss to operating cash flows:
Depreciation (net of acquisition) and amortization 87,143 38,242
Issuance of common stock for services 418,800
Purchased research and development 5,932,770
Issuance of common stock for interest 29,985
Issuance of warrants for services 21,000
Amortization of original issued discount 650,000 407,143
Gain on sale of available-for-sale securities (4,425)
Changes in operating assets and liabilities, net of effect
of acquired business:
Prepaid expenses and other current assets (44,200) 18,477 (8,800)
Accounts payable 23,606 (158,587) (52,283)
Accrued expenses (180,685) (126,385) 9,875
------------ ------------ ------------
Net cash used by operating activities (3,412,489) (1,150,197) (80,278)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (964,144) (126,249)
Additions to patents (9,068)
Payments for purchase of option to acquire
Med-Design Incorporated (125,000)
Investments in available-for-sale securities, net (7,154,493) (73,111)
Notes receivable funded (92,500) (2,500)
Purchase of short-term investment (511,908)
------------ ------------ ------------
Net cash used by investing activities (8,857,113) (199,360) (2,500)
------------ ------------ ------------
Cash flows from financing activities:
(Repayment of) advances from related parties (15,000)
(Repayment of) proceeds from short-term borrowing 150,000
Capital lease payments (8,309) (2,276)
Proceeds from long-term borrowings 430,038 18,540
Repayment of long-term borrowings (41,311) (25,404)
Proceeds from issuance of common stock, prior to
initial public offering 97,250
Proceeds from short-term borrowing 3,408,500 1,280,000
Repayment of acquisition note (1,000,000)
Payment of deferred offering costs (3,938)
Proceeds of initial public offering, net of offering costs 9,525,966
------------ ------------ ------------
Net cash provided by financing activities 12,412,134 1,270,860 131,062
------------ ------------ ------------
Increase (decrease) in cash 142,532 (78,697) 48,284
Cash and cash equivalents, beginning of period 221,229 100,059
------------ ------------ ------------
Cash and cash equivalents, end of period $142,532 $142,532 $148,343
============ ============ ============
Cash paid during the period:
Interest $208,854 $61,785 --
============ ============ ============
Noncash financing activities:
Issuance of common stock for rights under
option to acquire Med-Design, Inc. $100,000 -- --
============ ============ ============
Issuance of common stock in connection
with short-term borrowing $650,000 -- $150,000
============ ============ ============
Capital lease obligation incurred $28,606 -- --
============ ============ ============
</TABLE>
See accompanying notes to consoliated financial statements.
(3)
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies
Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim period. Operating results for the
three month period ending March 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996.
The accompanying financial statements include The Med-Design
Corporation (hereinafter, including its subsidiaries as the context
requires, the "Company") and its wholly-owned subsidiaries MDC Investment
Holdings, Inc. ("MDC Holdings") and MDC Research Ltd. All significant
intercompany transactions and accounts are eliminated. The financial and
operational results reported for the three month period ended March 31,
1996 are presented on a consolidated basis; results for the same period in
1995 represent financial and operational results only for The Med-Design
Corporation.
2. Weighted Average Shares of Common Stock Outstanding
The calculations of weighted average shares of common stock exclude
outstanding options and warrants, since these securities have an
anti-dilutive effect on per share data.
3. Stock Split
On January 31, 1996, the Board of Directors authorized a one-for-one
stock dividend that was distributed on February 26, 1996 to shareholders of
record as of February 12, 1996. The information contained in the
consolidated financial statements and the notes thereto have been adjusted
to reflect this stock dividend.
(4)
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
4. Acquisition of MDI
On April 5, 1995, the Company acquired the outstanding stock of
Med-Design Inc. ("MDI") in exchange for 1,247,314 (valued at $4,365,599)
shares of the Company of which, 3,572 shares were delivered to certain
creditors of MDI to satisfy $12,500 of outstanding obligations of MDI and
24,000 shares to a former noteholder of MDI to satisfy an obligation of MDI
and a $1,000,000 non-interest bearing promissory note (the "Note"). The
Note was satisfied on June 12, 1995 utilizing a portion of proceeds of the
Company's initial public offering of common stock in June 1995.
This acquisition was accounted for in accordance with the purchase
method, under which the purchase price was allocated to the assets of MDI
based on the fair market value of such assets. The excess of the purchase
price over the fair market value of the net assets acquired was treated as
purchased research and development as follows:
Value of 1,247,314 shares of stock $4,365,599
granted at a price of $3.50 a share
Issuance of note to former 1,000,000
shareholders of MDI
Payments in connection with 225,000
option to acquire MDI
Negative net book valued acquired 342,171
----------------
$5,932,770
================
(5)
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Business Overview
The Med-Design Corporation, a Delaware corporation (hereinafter, including
its subsidiaries as the context requires, the "Company") was incorporated in
Delaware on November 14, 1994. On February 28, 1995, The Med-Design Corporation,
a Pennsylvania corporation, incorporated on December 13, 1993, was merged with
and into the Company. The Company is a development stage enterprise as defined
by Financial Accounting Standards ("FAS") No. 7, "Accounting and Reporting by
Development Stage Enterprise."
The Company designs and develops safety medical devices intended to reduce
the incidence of accidental needlesticks. The Company has three core products
under development: the Retractable Needle Hypodermic Syringe (the "Safety
Syringe"), the Retractable Needle Vacuum Tube Phlebotomy Set (the "Safety
Phlebotomy Set"), and the Retractable Needle Intravenous Catheter Insertion
Device (the "Safety Catheter"). These products are similar in appearance and
size to the standard devices in use. Such products incorporate the Company's
novel proprietary retraction technology that enables a health care professional,
with no substantial change in operating technique and using one hand, to
permanently retract the needle of the device into the body of the device that
can be safely discarded.
The Company also has several new products which are in the beginning stages
of development. These new product developments include the In-Line Y-Port
Injectable Access Needle, the Pre-filled Ampule Injector, the MDC Closed
Injection System Injector, the Self-Contained Pre-Filled Syringe and the
Pre-Filled Vial Injector (collectively the "New Products"). These products also
incorporate the Company's proprietary retraction technology and are designed to
reduce the incidence of accidental needlesticks. The Company has developed
various sizes and designs of these products to accommodate the specific
requirements of potential strategic allies for medical and dental applications.
On March 14, 1995, the Company organized a wholly-owned subsidiary, MDC
Investment Holdings, Inc. ("MDC Holdings"), under the laws of the State of
Delaware. On April 5, 1995, the Company entered into the Merger Agreement with
MDC Holdings and Med-Design, Inc. ("MDI"), pursuant to which MDI merged with and
into MDC Holdings, the surviving corporation (the "Merger"). The Company issued
1,219,742 shares of Common Stock and a non-interest bearing promissory note in
the principal amount of $1,000,000 (the "Note") to the MDI shareholders in
exchange for their shares in MDI. The Note was fully paid from a portion of the
net proceeds of the Company's initial public offering of 3,450,000 shares of its
Common Stock in June 1995 ("Initial Public Offering"). The Company also issued
3,572 shares of Common Stock to certain creditors of MDI and 24,000 shares of
Common Stock to a former noteholder of MDI. The Company's acquisition of MDI was
accounted for in accordance with the purchase method, under which the purchase
price was allocated to the assets of MDI based on the fair market value of such
assets. The excess of the purchase price over the fair market value of the net
assets acquired was treated as purchased research.
Immediately following the consummation of the Merger, MDC Holdings
transferred all of the assets it acquired in the Merger, other than its patents
and other intellectual property, and all of its liabilities to MDC Research
Ltd., a California corporation and wholly-owned subsidiary of MDC Holdings.
As a result of the Merger, MDC Holdings became the sole owner of all the
intellectual property rights worldwide including patents, patent applications,
trademarks and trademark applications relating to the Safety Syringe, Safety
Phlebotomy Set and Safety Catheter.
In June 1995, the Company completed its Initial Public Offering of
3,450,000 shares of Common Stock, par value $0.01 per share. The net proceeds to
the Company were approximately $9,526,000.
(6)
<PAGE>
Business Overview (Continued)
On January 31, 1996, the Board of Directors authorized a one-for-one stock
dividend that was distributed on February 26, 1996 to shareholders of record as
of February 12, 1996. The information contained in the consolidated financial
statements and the notes thereto and in this report have been adjusted to
reflect this stock dividend.
Results of Operations
The focus of the Company since its inception has been to research and
develop safety needle products and to provide the funding for such research and
development. In 1995, the Company completed a research and development
laboratory in its facility in Ventura, California equipped with assembly and
test equipment for product development and concept modeling. In addition, the
Company completed a machine shop equipped with machine tools for fabrication of
new product parts for concept modeling and assembly and test fixtures. In
addition, the Company installed a Class 100,000 clean room at the Ventura
facility which is currently used for the hand assembly of prototypes of the
Company's products and will ultimately be used in connection with the pilot
manufacturing of the Company's products on a semi-automated assembly system. For
the three month period ended March 31, 1996, the Company's expenses for research
and development were $177,630.
The Company intends to continue its research and development on the Safety
Syringe, Safety Phlebotomy Set and Safety Catheter to enable the Company to
improve their manufacturability and to reduce manufacturing costs. The Company
also intends to continue its research and development of the New Products, which
are in the initial stages of development, design and prototyping. In addition,
the Company intends to devote resources to the research and development of
additional safety needle devices and products which incorporate the Company's
proprietary retraction technology for use in the healthcare industry.
Plan of Operation
The Federal Food, Drug and Cosmetic Act requires that a medical device must
(unless exempted by regulation) be cleared by the United States Food and Drug
Administration ("FDA") before being commercially distributed in the United
States. From June 1995 to December 1995, the Company focused its efforts on the
preparation of a 510(k) pre-market notification to be filed with the FDA for the
Safety Catheter, Safety Phlebotomy Set and Safety Syringe. The Company filed the
510(k) pre-market notification for the Safety Catheter and Safety Phlebotomy Set
with the FDA on December 28, 1995. On February 13, 1996 the FDA notified the
Company that it may begin marketing the Safety Catheter. On March 15, 1996, the
FDA notified the Company that it was holding the pre-market notification
(510(k)) for the Safety Phlebotomy Set for 30 days pending receipt of the
additional information requested by the Office of Device Evaluations ("ODE").
The request for additional information from the ODE was received by the Company
on March 13, 1996. The Company responded by requesting a ninety day extension,
which was granted on April 18, 1996. The Company anticipates that it
will complete and file the 510(k) pre-market notification for the Safety
Syringe with the FDA within the fourth quarter of 1996. The Company believes
that the Safety Syringe and the Safety Phlebotomy Set will be classified as a
Class II device, and that such products will not require a pre-market approval
("PMA") application but will be eligible for marketing clearance through the
510(k) notification procedure based upon its substantial equivalence to a
previously marketed device or devices. If any of the Company's products do not
qualify for the 510(k) procedure the Company will be required to submit a PMA
application with the FDA which is typically a more complex submission, usually
including results of clinical studies. By statute and regulation, the FDA may
take 180 days to review a PMA application, however, such time may be extended.
There can be no assurance that a PMA application will be reviewed within 180
days or that a PMA application will be approved.
(7)
<PAGE>
Plan of Operation (Continued)
In 1995, the Company leased with an option to purchase approximately 26,000
square feet of space in Ventura, California. In addition to administrative
offices, this facility contains a research and development laboratory equipped
with assembly and test equipment for concept modeling and product development
and a machine shop equipped with machine tools for fabrication of new product
parts and assembly and test fixtures. The facility also contains a 3,130 square
foot Class 100,000 clean room for the assembly of its prototypes and ultimately
its products. The Company had originally planned to install a fully automated
robotic assembly system in the remaining space at such facility to pilot
manufacture its products. The Company, however, has elected not to install the
fully automated robotic assembly system at this time because it is currently
investigating opportunities with third parties in the United States and abroad
to manufacture the Safety Syringe, the Safety Phlebotomy Set and Safety Catheter
and certain of its other products under development either on a contract
manufacturing basis, under licensing agreements or through other forms of joint
ventures. The Company has entered into several confidentiality agreements with
other companies for the purpose of exploring such opportunities. The Company is
also investigating opportunities with third parties to market and distribute the
Company's products. The Company anticipates that entering into alliances and
licensing arrangements with third parties would enable the Company to increase
the market penetration of its products more quickly than the Company could
achieve on its own. The Company has not to date entered into any such
arrangements and there can be no assurance the Company will be able to enter
into any such arrangement on acceptable terms.
Pending the outcome of such discussions with third parties, the Company has
decided to install a semi-automated assembly system at the Ventura facility to
pilot manufacture its products, which is estimated to costs approximately
$300,000. The semi-automated assembly system, which will consist of a series of
manual and semi-automatic stations, will be capable of producing up to 3,000,000
units per year. The assembly system will produce only one of the Company's
products at a time, but will have the capability of being converted at a
reasonable cost with minimal delay to manufacture a different product at such
time as the Company may desire. The Company intends to complete the installation
of the assembly system by the end of the third quarter of 1996 and to begin
production of one of its products by the end of the fourth quarter of 1996.
The Company has been hand assembling the number of Safety Syringes, Safety
Phlebotomy Sets and Safety Catheters needed to conduct any testing required by
the FDA and as necessary for internal engineering purposes. The Company has also
hand assembled a limited quantity of its Safety Phlebotomy Sets and Safety
Catheters for market research purposes. The Company plans to continue hand
assembling such products and to hand assemble new products until such time as
the Company has the capability of manufacturing the products on its
semi-automated assembly system or a third party is manufacturing such products.
Although the Company's plans may change as a result of its discussions with
potential strategic allies as described above, the Company's current plan is to
produce on the semi-automated assembly system at least 200,000 units of the
Safety Catheter and Safety Phlebotomy Set in order to demonstrate to potential
third party manufacturers the economic feasibility of the commercial production
of its products and such number of its products necessary for FDA clearance.
Thereafter, the Company will determine whether it will mass manufacture the
Safety Phlebotomy Set or the Safety Catheter or any of its other products or
components of its products for commercial sale. Although the Company originally
planned to manufacture and distribute the Safety Phlebotomy Set and Safety
Catheter directly, the Company may contract with third parties for all or a
portion of the needed production of such products on a contract manufacturing
basis, licensing arrangement or other form of joint venture. To the extent the
Company decides to mass manufacture any of its products or components, the
Company may need to expand its current facilities and/or lease or purchase
additional manufacturing facilities and equipment.
Initially, the Company decided not to introduce its Safety Syringe in the
United States because of concerns over potential patent infringement conflicts.
Since going public, the Company has continued to improve and refine the design
of its Safety Syringe. As a result of improving the syringe design, the Company
intends to supplement its patent filings to cover the improved syringe
design. The Company now believes that its improved syringe design is free from
the potential patent infringement conflicts it previously identified.
Accordingly, the Company is now considering marketing its Safety Syringe in the
United States. The Company is continuing to conduct infringement studies of its
core products, including the Safety Syringe.
(8)
<PAGE>
Plan of Operation (Continued)
At the time of the Initial Public Offering, the Company had planned to
manufacture Safety Phlebotomy Sets on a fully automated robotic assembly system
for commercial sales in 1996. As a result of its discussions with third parties,
the Company has revised its business plan as described above in order to further
explore opportunities for licensing and/or contract manufacturing with such
third parties and to focus on expanding its product lines. The Company does not
expect to manufacture any significant quantity of its Safety Phlebotomy Set or
any other of its products itself for commercial sale nor to produce any
significant revenue from product sales in 1996. The Company may earn revenues in
1996 through a licensing or contract manufacturing arrangement or other form of
joint venture with a third party, but the Company has not to date entered into
any such arrangements and there can be no assurance that the Company will be
able to enter into such arrangements on acceptable terms.
As of May 9, 1996, the Company employed 27 people on a full-time basis and
one person on a part-time basis. The Company anticipates increasing the number
of employees in the areas of product development, manufacturing, sales and
marketing. The number of employees that the Company will need to hire will vary
according to the progress made in the development of the Company's pilot
manufacturing plant and the extent to which the Company undertakes the
manufacture, marketing and distribution of its products.
Summary of Operations
The following is managements' discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results for the three months ended March 31, 1996 and March 31, 1995.
The Company is in the development stage and to date has not generated any
revenues from its operations. The Company does not anticipate any significant
revenues from product sales during the next twelve months.
Net Loss
Net loss for the three months ended March 31, 1996 was $921,944 ($0.14
per share), an increase of $485,731 from the $436,213 ($0.21 per share) net
loss reported for the same period in 1995. The $485,731 increase in net
loss is primarily attributable to a $945,979 increase in operating
expenses, partially offset by a $353,385 decrease in interest expense and a
$106,863 increase in interest income. Interest expense for the three month
period ended March 31, 1995 included $407,143 for the amortization of
original issue discount on debt.
The increase in operating expenses for the three month period ended
March 31, 1996 is primarily attributable to (1) expenses incurred in
connection with research and development activities, (2) compensation and
related expenses associated with the hiring of new personnel, (3) legal and
other professional expenses, (4) depreciation expenses recorded as a result
of new equipment purchases, (5) market research activity, and (6) other
general administrative expenses associated with the overall increase in
general business activity resulting from the commencement of the Company's
plan of operations following the acquisition of MDI. Through March 31,
1996, the Company has a cumulative net loss of $10,346,483.
Liquidity and Capital Resources
For the three month period ended March 31, 1996 and March 31, 1995,
cash flows used for operations were $1,150,197 and $80,278, respectively.
At March 31, 1996, cash and cash equivalents, short-term investments, and
available-for-sale securities was $7,829,545, while working capital was
$4,104,405. The current ratio at March 31, 1996 was 2.1 to 1.
Of the $7,829,545 in cash and cash equivalents, short-term investments,
and available-for-sale securities at March 31, 1996, $3,792,801 is
restricted to collateralize borrowings the Company has made under its line
of credit and equipment financing agreements. The Company is currently in
negotiations with its lenders to reduce the amount of collateral required
to support these credit facilities.
(9)
<PAGE>
Liquidity and Capital Resources (Continued)
The Company has a line of credit and equipment financing facility with
one commercial bank for $4,700,000 and $600,000, respectively, and an
equipment financing facility with a second commercial bank for $500,000.
The Company has additional availability against its line of credit and
equipment financing facilities of $1,129,500, $438,000, and $277,700,
respectively, at March 31, 1996. The line of credit facility and one of the
equipment financing facilities expires on July 31, 1996; however, the
Company is currently negotiating an extension of the line of credit and
equipment financing facility with the bank.
In addition, the Company in 1995 issued warrants which, if exercised by
the warrant holders in 1996, could provide the Company additional funds of
approximately $2,150,000, net of registration costs.
If the warrants are fully exercised in 1996, the Company believes
that it will have sufficient funds to support its operations and planned
capital expenditures for the next twelve months. If the warrants are
not fully exercised in 1996, the Company will need to raise additional
funds through public or private financings, if significant revenue is
not derived from licensing arrangements and/or other forms of joint
ventures with third parties. In any event, the Company believes that it
will require additional capital before it reaches profitability and
positive cash flow, if at all. No assurance can be given that additional
financing will be available or that, if available, it will be available
on terms favorable to the Company or its stockholders. If adequate funds
are not available to satisfy short-term or long-term capital requirements,
the Company may be required to reduce substantially, or eliminate, certain
areas of its product development activities, limit its operations
significantly, or otherwise modify its business strategy. The Company's
capital requirements will depend on many factors, including but not limited
to, the progress of its research and development programs, the development
of regulatory submissions and approvals, manufacturing capability, the
costs associated with protecting its patents and other proprietary rights,
the rate at which the Company is able to pilot manufacture and introduce
its products, the market acceptance and competitive position of such
products, and the levels of promotion and advertising required to launch
and market such products.
There are no other material commitments at this time.
(10)
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submissions of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) List of Exhibits filed pursuant to Item 601 of Regulation S-B. The
following exhibits are incorporated by reference in or filed with this Report on
Form 10-QSB.
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation of the Company.*
3.2 Amendment to Certificate of Incorporation of the Company.*
3.3 Bylaws of the Company.*
4.1 Specimen of Common Stock Certificate of the Company.*
10.1 Second Amendment to loan agreement dated April 4, 1996 among
Meridian Bank, MDC Investment Holdings, Inc., The Med-Design
Corporation, and MDC Research, Ltd.
10.2 Judgement Note dated April 12, 1996 from the Company in favor
of MDC Holdings, Inc.
10.3 Amendment to Security Agreement dated April 4, 1996 between
the Company and Meridian Bank.
10.4 Demand Promissory Note dated April 4, 1996 from MDC Investment
Holdings, Inc., in favor of Meridian Bank.
27 Financial Data Schedule.
(b) The Company filed a Report on Form 8-K on February 10, 1996
with the Commission to report a 100% common stock dividend
distributed on February 26, 1996 to stockholders of record on
February 12, 1996. No financial statements were filed with
such Report on Form 8-K.
- - --------
* Incorporated by Reference to the Exhibits filed with the Company's
Registration Statement filed on Form SB-2 filed April 7, 1996 and Amendment Nos.
1, 2 and 3 thereto (File No. 33-91014).
(11)
<PAGE>
Signatures
Pursuant to the requirements 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.
The Med-Design Corporation
Date: May 9, 1996
/s/ James M. Donegan
----------------------------------
James M. Donegan
Chief Executive Officer
/s/Patrick E. Rodgers
----------------------------------
Patrick E. Rodgers
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
(12)
EXHIBIT 10.1
SECOND AMENDMENT TO LOAN AGREEMENTS
This Amendment to certain Business Loan Agreements is executed this 4th day of
April, 1996 by and among MDC Investment Holdings, Inc. ("MDC"), The Med-Design
Corporation ("Med-Design") and MDC Research, Ltd. ("Research" -- collectively,
MDC, Med-Design and Research are herein called the "Borrowers") and Meridian
Bank ("Bank").
BACKGROUND
A. On July 26, 1995, MDC executed and delivered to the Bank a Business Loan
Agreement (as amended from time to time the "MDC Loan Agreement"), pursuant to
which the Bank established a credit facility for MDC (the "MDC Loan") in the
amount of up to $3,000,000. This credit facility was evidenced by a Promissory
Note, dated July 26, 1995, in that amount (the "MDC Note"), was secured by MDC's
grant to the Bank of a security interest in its accounts, inventory, equipment
and general intangibles, and by a pledge of certain securities held at Delaware
Trust Capital Management, Inc. ("Pledged Securities" -- collectively, the "MDC
Collateral") and by a Surety Agreement executed by Med-Design dated July 26,
1995 (the "Med-Design Surety Agreement") , which Surety Agreement was secured by
Med-Design's grant to the Bank of a security interest in its accounts,
inventory, equipment and general intangibles (the "Med-Design Collateral").
B. On December 29, 1995, the Bank entered into Business Loan Agreements with
(i) MDC, and (ii) Research, pursuant to which the Bank agreed to make equipment
loans to such entities (the "Equipment Loans"), in an aggregate amount not
exceeding $750,000 (as amended from time to time, collectively, the "Equipment
Loan Agreements"). Advances under these Loan Agreements were evidenced by
promissory notes, dated December 29, 1995, in the amount of $30,500 (with
respect to MDC) and $141,000 (with respect to Research) (collectively, the
"Equipment Notes"). The indebtedness to be created under the Equipment Loan
Agreements was secured by the MDC Collateral, by the Med-Design Collateral and
by Research's grant to the Bank of a security interest in its accounts,
inventory, equipment and general intangibles (the "Research Collateral"). In
addition, MDC and Med-Design executed Surety Agreements with respect to the
obligations of Research to the Bank. The Surety Agreements and the Promissory
Notes executed by MDC, Med-Design and Research each contain provisions entitling
the Bank to enter a judgment against MDC, Med-Design or Research upon the
occurrence of an Event of Default or Default under such documents. MDC,
Med-Design and Research each executed Acknowledgments of Confession of Judgment,
relating to these provisions.
C. On February 16, 1996 Bank and Borrowers entered into an Amendment to Loan
Agreements (the "First Amendment") wherein Bank and Borrowers agreed to (1)
amend the MDC Loan Agreement by increasing the amount of the credit facility
thereunder to $3,500,000, which obligations were evidenced by a Promissory Note
dated February 16, 1996 in the amount of $3,500,000 (the "Second MDC Note")
which re-evidenced and replaced the indebtedness evidenced by the MDC Note, and
(2) amend the Equipment Loan Agreements by reducing the aggregate amount of the
loans available thereunder to $250,000.
D. The MDC Collateral, the Med-Design Collateral and the Research Collateral
is herein collectively referred to as the "Collateral". The Loan Agreements (as
hereinafter defined) , all promissory notes executed by the Borrowers, or any of
them, all Surety Agreements executed by the Borrowers, or any of them, all
Security Agreements, Pledge Agreements, Assignment Agreements or notification
letters executed by the Borrowers, or any of them, and all other documents,
instruments or agreements executed in connection with the Loan Agreements are
herein collectively referred to as the "Loan Documents". The Borrowers have
requested that the Bank modify the terms of the MDC Loan Agreement and the
Equipment Loan Agreements (collectively, the "Loan Agreements") , to increase
the amount available under the MDC Loan Agreement to $4,700,000, and to revise
the aggregate amounts available under the Equipment Loan Agreements to $600,000,
and to make such other amendments as set forth below which the Bank is willing
to do, all on the terms, and subject to the conditions, set forth herein.
<PAGE>
AGREEMENTS
The parties hereto, intending to be legally bound, hereby agree:
1. The MDC Loan Agreement shall be amended as follows:
(a) The reference to the sum $3,500,000 set forth therein shall be
deleted, and the sum $4,700,000 shall be substituted in its place. In
connection with such increased availability under the MDC Loan
Agreement, MDC shall execute and deliver to the Bank a Promissory Note,
in the form of Exhibit "A". All references to the note or to the
promissory note in the MDC Loan Agreement, or in any other Loan
Documents, shall be deemed to be references to such new note. The
indebtedness evidenced by the Second MDC Note remains outstanding as of
the date hereof, and continues to be secured by the Collateral. All Loan
Documents shall, to the extent necessary, be amended and modified to
provide that the amount of the indebtedness owing under the Business
Loan Agreement shall be $4,700,000, so that any reference to the sum
$3,500,000 shall, from and after the date hereof, be deemed a reference
to the sum $4,700,000. The parties hereto expressly acknowledge and
agree that the replacement MDC Note merely re-evidences the indebtedness
evidenced by the Second MDC Note, while increasing the principal amount
thereof, and is given in substitution of, and not as payment of, the
Second MDC Note.
(b) Section 15 of the MDC Loan Agreement is amended by the addition of
the following subsections:
(i) The terms of the Commitment Letter (including Attachment I)
dated April 2, 1996 between Bank and Borrower with respect to this
MDC Loan is incorporated in this MDC Loan Agreement as if set forth
at length herein.
(ii) All advances under this MDC Loan will be limited to 100% of
the Pledged Securities consisting of the short term high grade
interest bearing investments (government and corporate bonds)
acceptable to Bank and pledged to Bank pursuant to the Pledge
Agreement (the "Qualified Securities") less a reserve of Qualified
Securities with a fair market value as determined by Bank at the
time of each advance equal to the sum of (A) the maximum amount
available under the Equipment Loans ($600,000) and (B) $250,000.
(iii) Bank shall not make advances under the MDC Loan after July
31, 1996 unless such date is extended by Bank in its sole and
absolute discretion.
2. The Equipment Loan Agreements shall be amended as follows:
(a) The reference to the sum of $250,000 set forth therein shall be
deleted, and the sum of $600,000 shall be substituted in its place
so that, from and after the date hereof, the aggregate amount of
the loans described in each of the Equipment Loan Agreements
(whether to MDC or to Research), will not exceed $600,000.
(b) Sections 15 of each of the Equipment Loan Agreements is amended
by the addition of the following subsections:
(i) The terms of the Commitment letter (including Attachment I)
dated April ___, 1996 between Bank and Borrowers with respect
to the Equipment Loans are incorporated herein by reference as
if set forth at length therein.
(ii) All advances under the Equipment Loans shall be limited to
80% of the new equipment purchase price and will be further
limited to 100% of the Pledged Securities consisting of the
short term high grade interest bearing instruments (government
and corporate bonds) acceptable to Bank and pledged to Bank
pursuant to the Pledge Agreement (the "Qualified Securities")
less a reserve of Qualified Securities with a fair market value
as determined by the Bank at the time of such advance equal to
the sum of (A) the maximum amount available under the MDC Loan
($4,700,000) and (B) $250,000. Advances under the Equipment
Loans to MDC and Research will be aggregated for the purpose of
this advance formula.
(iii) the term of the Equipment Loans shall be not more than
(A) 36 months for computer equipment and (B) 60 months for
production equipment.
(iv) Bank shall not make advances on the Equipment Loans after
July 31, 1996, unless such date is extended by Bank in its sole
and absolute discretion.
<PAGE>
3. Borrowers shall (i) at all times maintain Pledged Securities consisting
of Qualified Securities with a fair market value as determined by Bank of
not less than $5,550,000 and (ii) execute and shall request Delaware Trust
Capital Management, Inc. to execute such additional documentation as may be
requested by Bank to confirm that the Pledged Securities shall at all times
have a fair market value as determined by the Bank of not less than
$5,550,000.
4. The Borrowers hereby:
(a) ratify and confirm all the representations, warranties and
covenants contained in each of the Loan Agreements;
(b) ratify, confirm and acknowledge that, as amended hereby, the Loan
Agreements and the Loan Documents continue to be valid, binding and in
full force and effect;
(c) confirm and acknowledge that the credit facility established under
the MDC Loan Agreement, as increased and amended hereby, and that the
credit facilities established under the Equipment Loan Agreements, as
increased and amended hereby, (collectively, the "Loans") are secured by
all of the Collateral described in any of the Loan Documents;
(d) confirm and agree that all Surety Agreements previously executed by
any of the Borrowers securing the Loans or the obligations of each other
Borrower shall continue to secure the Loans, and the obligations of each
other Borrower, as modified herein;
(e) covenant and agree to perform all of their respective obligations
under each of the Loan Agreements and the Loan Documents, as amended
hereby;
(f) acknowledge and agree that they have no defense, set-off,
counterclaim or challenge against the payment of any sums owing under
any of the Loan Agreements or the Loan Documents, or the enforcement of
any of the terms of the Loan Agreements or the Loan Documents, as
amended hereby;
(g) acknowledge and agree that all of their representations, warranties
and covenants contained in the Loan Agreements and/or the Loan
Documents, as amended hereby, are true, accurate and correct on and as
of the date hereof as if made on and as of the date hereof;
(h) represent and covenant that the Acknowledgments of Confession of
Judgment, executed by each of the Borrowers, was voluntarily and
intentionally executed, consented to, and agreed to by such Borrower,
and that those Acknowledgments remain in full force and effect, as if
set forth in full herein;
(i) consent and re-affirm the confession of judgment clauses contained
in the Loan Documents, or any of them, and acknowledge that the Bank is
relying on this representation, and each other representation contained
herein, in connection with executing this Amendment to Loan Agreements,
and in continuing the credit facilities established for the Borrowers;
and
(j) represent and warrant that no Default, as defined in the Business
Loan Agreements or any of the promissory notes or the surety agreements,
now exist, or will exist upon the delivery of notice, passage of time or
both, and all information described in the Background to this Agreement
is true, accurate and complete.
5. As a condition to the execution and delivery of this Amendment to Loan
Agreements, the Borrower shall deliver to the Bank, in form and content
satisfactory to the Bank and its counsel, a certified copy of resolutions
adopted by the Board of Directors of each of the Borrowers authorizing the
execution, delivery and performance of this Amendment to Loan Agreements,
and all of the documents and instruments required by the Bank for the
implementation of this Agreement.
6. The Borrowers will pay to Bank (a) a commitment fee of $1,000 in
connection with the modification of the MDC Loan Agreement and (b) all of
Bank's out-of-pocket costs and expenses incurred in connection with the
review, preparation, negotiation, documentation and closing of this
Amendment to Loan Agreements, and the consummation of transactions
contemplated hereunder, including, but without limitation, all fees,
expenses and disbursements of counsel retained by Bank and all fees relating
to filings, recording of documents and searches, and appraisal costs,
whether or not the transaction is consummated hereunder. In addition, the
Borrower shall pay all Bank's costs and expenses incurred in connection with
the enforcement of the Loan Agreements and the Loan Documents, including,
but not limited to, those incurred in connection with (a) the protection,
exercise or enforcement of the Bank's rights with respect to the Collateral,
including, without
<PAGE>
limitation, the Bank's rights to (i) collect or take possession of the
Collateral and the proceeds thereof, (ii) hold the Collateral, (iii) prepare
the Collateral for sale or other disposition, and (iv) sell or otherwise
dispose of the Collateral, and (b) the assertion, protection or exercise or
enforcement of the Bank's rights in any proceeding under the United States
Bankruptcy Code, including (without limitation) the preparation, filing and
prosecution of (i) proofs of claim, (ii) motions for relief from the
automatic stay, (iii) motions for adequate protection, and (iv) complaints,
answers and other pleadings in adversary proceedings by or against the Bank
or relating in any way to any of the Collateral, all of which obligations
shall be secured by the Collateral.
7. To the extent of any inconsistency between the terms of this Amendment to
Loan Agreements and the terms of any of the Loan Agreements or the other
Loan Documents, the terms and conditions of this Amendment shall prevail.
All terms and conditions of the Loan Agreements and the Loan Documents not
inconsistent herewith shall remain in full force and effect and are hereby
ratified and confirmed by each of the Borrowers.
8. Any capitalized term used in this Amendment to Loan Agreements not
otherwise defined herein shall have the meanings ascribed to them in the
Loan Agreements. This Amendment to Loan Agreements shall be binding upon and
inure to the benefit of the parties hereto and each of their respective
successors and assigns.
9. This Amendment Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
<PAGE>
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Amendment to
Loan Agreements to be executed by their respective authorized officers as of the
day and year first above written.
ATTEST MDC INVESTMENT HOLDINGS, INC.
/s/ Jack J. Osborne By: /s/ Patrick Rodgers
- - ------------------------------------ -------------------------------
Patrick Rodgers
Treasurer
ATTEST: MDC RESEARCH LTD.
- - ------------------------------------
/s/ Jack J. Osborne By: /s/ Patrick Rodgers
-------------------------------
Patrick Rodgers
Executive Vice President, Finance
ATTEST: THE MED-DESIGN CORPORATION
- - ------------------------------------
/s/ Jack J. Osborne By: /s/ Patrick Rodgers
-------------------------------
Patrick Rodgers
Executive Vice President, Finance
MERIDIAN BANK
By: /s/ John H. Van Dusen
-------------------------------
John H. Van Dusen
Senior Vice President
EXHIBIT 10.2
PAY TO THE ORDER OF MERIDIAN BANK
MDC INVESTMENT HOLDINGS, INC.
By: /s/ Patrick Rodgers
------------------------------
Title: Treasurer
JUDGMENT NOTE
$5,300,000 April 12, 1996
Upon demand or upon such terms as the parties may subsequently agree The
Med-Design Corporation hereby promises to pay to the order of MDC Investment
Holdings, Inc. up to Five Million Three Hundred Thousand Dollars without
defalcation, for value received, with interest at the rate of eight (8%) percent
per annum for money loaned for which payment remains due.
The payee has arranged on even date to borrow additional funds and/or
secure an increased line of credit from the Meridian Bank pursuant to certain
terms and conditions. Payee agrees to lend said proceeds when utilized to maker
upon request for legitimate corporate purpose. Repayment terms will be set by
agreement of the parties when such a loan is made. And further, upon the filing
of an affidavit of a default by the payee, The Med-Design Corporation, Inc.
hereby authorizes and empowers the Prothonotary, Clerk of Court or any attorney
of any court of record of Pennsylvania, or elsewhere, to appear for and to
confess judgment against them for the above sum, with our without declaration,
with the cost of suit, release of errors, without stay of execution; and also
waives the right of inquisition on any real estate that may be levied upon to
collect this note, and does hereby voluntarily condemn the same, and authorizes
the Prothonotary to enter upon the Writ of Execution their said voluntary
condemnation, and further agree that said real estate may be sold on a Writ of
Execution and hereby waive and release all relief from any and all appraisement,
stay or exemption laws of any State, now in force, or hereafter to be passed.
This Note re-evidences a certain indebtedness previously evidenced by that
certain $3,750,000 Judgment Note dated July 25, 1995, and has been given in
substitution thereof and not as payment of such prior note and is not intended
as a novation thereof, nor an extinguishment of the liabilities evidenced
thereby.
ATTEST: THE MED-DESIGN CORPORATION
/s/ Patricia Butcheck By: /s/ Patrick Rodgers
----------------------------- ------------------------
(corporate seal) Title: Executive Vice President,
Finance and Chief
Executive Officer
EXHIBIT 10.3
Meridian Bank Amendment to Security Agreement
This amendment to Security Agreement dated April 4, 1996, between MDC
Investment Holdings, Inc.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(The "Company ") and MERIDIAN BANK (the "BANK").
BACKGROUND
The Company and the Bank are parties to a Security Agreement dated July 26,
1995, pursuant to which the Company granted to the Bank security interests in
certain personal property of the Company (the "Security Agreement"). The
Security Agreement secures the repayment of credit accommodations extended to
the Company by the Bank (the "Credit Accommodations").
The Company and the Bank desire to amend the Security Agreement to reflect
changes to certain of the terms of the Credit Accommodations.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. The Security Agreement is hereby amended to provide that it secures the
Note as amended by the Amendment to Promissory Note dated the date hereof
(collectively, the "Amended Note"), which Amended Note evidences the Company's
obligation to the Bank in the principal amount of Four Million Seven Hundred
Thousand and 00/100 Dollars ($4,700,000.00).
2. All references to the Security Agreement in documents delivered to the
Bank in connection with the Credit Accommodations shall be deemed references to
the Security Agreement as amended herein.
3. In all other respects, the Security Agreement is hereby ratified and
confirmed.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Amendment to
Security Agreement the day and year first above written.
OWNER (If individuals, partnership, etc.) OWNER (if corporation)
MDC Investment Holdings, Inc.
- - ----------------------------------------- ----------------------------------
Business Name, if any Corporate Name
By: /s/ Patrick Rodgers
- - ----------------------------------------- -------------------------------
Title: Treasurer
By:
- - ----------------------------------------- -------------------------------
Title:
Attest: /s/ Jack J. Osborne
- - ----------------------------------------- ---------------------------
Title: Senior Vice President,
Marketing
- - ----------------------------------------- Witness:__________________________
MERIDIAN BANK
By: /s/ John How Van Dusen
- - ----------------------------------------- -------------------------------
Title: John H. Van Dusen, Senior
Vice President
- - ----------------------------------------- Attest:___________________________
Title:
EXHIBIT 10.4
Meridian Bank Promissory Note (Business)
$ 4,700,000 April 4, 1996
FOR VALUE RECEIVED, Undersigned, intending to be legally bound, promises to
pay to the order of Meridian Bank ("Bank"), a Pennsylvania banking corporation
having an office at 35 North Sixth Street, Reading, Pennsylvania, the principal
sum of Four Million Seven Hundred Thousand and 00/100 Dollars payable as
provided below, with interest accruing at the rate of 30 day Libor plus 250
basis points per annum until paid, interest shall be computed on the basis of
the actual number of days in the calendar year divided by 360.
If the interest rate set forth above is references to either Bank's
National Commercial Rate, Local Commercial Rate or Agricultural Commercial Rate,
Undersigned acknowledges and agrees that (i) such reference rate is a floating
annual rate of interest that is designated from time to time by Bank as the
"National Commercial Rate," "Local Commercial Rate" or "Agricultural Commercial
Rate," as the case may be, and is used by Bank as a reference rate with respect
to different interest rates charged to borrowers; (ii) the rate of interest
payable hereunder shall change simultaneously and automatically upon any change
in such referenced rate; and (iii) such referenced rate may not be the lowest
rate at which Bank makes loans to other borrowers.
REPAYMENT TERMS
1. (Single Principal Payment
Loan) interest on the unpaid principal is due and payable
beginning . The full sum of the unpaid principal and interest
is due and payable on .
2. (Discounted Time Note)
The full sum is due and payable in days on .
3. (Demand Loan) Interest
on the unpaid principal is due and payable beginning .
The full sum of the unpaid principal and interest is due on demand.
4. (Credit Availability)
Interest on the unpaid principal is due and payable monthly beginning May
1, 1996. The full sum of the unpaid principal and interest is due and payable on
demand. Bank may make advances and readvances to Undersigned as Undersigned may
request in accordance with, and subject to, the provisions of this Note and any
other agreements, documents or instruments executed in connection herewith and
related thereto, and any extensions, modifications or renewals thereof and
substitutions therefore, provided however, that the credit to be extended shall
not exceed the principal sum stated above and such commitment may terminate at
Bank's option.
5. (Installment Loan)
Principal and interest are due and payable in consecutive
installments of each, beginning .
One final payment of any remaining unpaid principal and interest is due and
payable on .
6. (Principal Plus Interest
Loan) Principal is due and payable in consecutive
installments of each, beginning . Interest on
the unpaid principal is due and payable beginning .
One final payment of $ together with any remaining principal and
interest is due and payable on .
Undersigned authorizes Bank to charge its deposit account # for the
principal and/or interest hereunder. Undersigned shall owe a late payment charge
equal to the greater of 5% of the unpaid amount of any scheduled payment or
$15.00, whenever payment of the entire amount due on any date is not received by
Bank on such date.
<PAGE>
LIABILITIES
The term "Liabilities" means the principal and interest evidenced by this
Note and all other Liabilities of Undersigned to Bank, whether hereunder or
otherwise, whether now existing or hereafter incurred, matured or unmatured,
direct or contingent, joint or several, whether created directly or acquired by
assignment or otherwise, including all past and future advances or readvances,
and any extensions, modifications or renewals thereof and substitutions
therefor; all amounts advanced by Bank hereunder on behalf of Undersigned; all
late charges, penalties, fees and other such sums due under this Note or
otherwise; all liabilities (including Professional Fees and Costs, as
hereinafter defined) incurred by Bank arising from or related to any hazardous
materials or dangerous environmental conditions at any real property owned or
occupied by Undersigned; and all of Bank's costs and expenses incurred in
connection with the enforcement and collection of the foregoing liabilities,
whether or not suit is instituted, and whether or not bankruptcy or insolvency
proceedings have been instituted by or against Undersigned, including, without
limitation, reasonable fees and costs of attorneys, appraisers, accountants,
consultants and other professionals ("Professional Fees and Costs"). All amounts
advanced by Bank hereunder on behalf of Undersigned and all other fees, costs
and expenses incurred by Bank and included in the Liabilities shall be due and
payable upon demand, with interest at an annual rate which shall be two percent
(2%) above the rate of interest otherwise payable hereunder, from the date of
payment by Bank until paid in full.
COLLATERAL
All Collateral (as defined) is security for the Liabilities. The term
"Collateral" includes all tangible and intangible property (i) described in any
mortgage or other security document separately executed by Undersigned in
connection with the Liabilities in favor of Bank ("Security Documents"), and
(ii) in which Undersigned has granted a security interest to Bank pursuant to
this Note. Undersigned grants Bank a security interest in all monies, securities
and other property of Undersigned and the thereof, now or hereafter in the
possession or custody of, or in transit to Bank, or any of its affiliates or
subsidiaries, for safekeeping, collection, pledge or any of the purposes
including, without limitation, all deposits (whether general or special) and
credits now or hereafter maintained by Undersigned with Bank, or any of its
affiliates or subsidiaries, and in any claims of Undersigned against Bank, or
any of its affiliates or subsidiaries, and Bank may, at its option and without
notice, set off toward the payment of any Liabilities, in such orders Bank may
determine, the balance of each such account with, and each claim against Bank,
or any of its affiliates or subsidiaries. Bank is deemed to have exercised such
right of set off and to have made a charge against any such account immediately
upon the occurrence of a Default (as hereinafter defined) even though such
charge is made or entered on the books subsequently by Bank, Bank has, but is
not limited to, the right at any time and from time to time, without notice to:
(a) pledge, assign or transfer this Note or the Collateral or any portion
thereof; (b) transfer into its own name or that of its nominee all or any
part of the Collateral; (c) exercise voting rights on any collateral; (d) take
control of the proceeds of any Collateral.
<PAGE>
DEFAULT
The occurrence of any one or more of the following shall constitute a
Default by the Undersigned: (a) non-payment of any of the Liabilities, or any
portion thereof, when and in the manner due, whether by acceleration or
otherwise; (b) failure by Undersigned to observe or perform any covenant,
agreement, condition or term of any agreement, document or Security Document
executed and delivered by Undersigned in connection with any of the Liabilities;
(c) breach by any of Undersigned of any obligation or duty to Bank; (d) any
representation or warranty in any financial or other statement, schedule,
certificate or other document delivered to Bank by or on behalf of Undersigned
shall prove to be false, misleading or incomplete in any material respect; (e) a
material adverse change occurs in the financial condition of Undersigned which
is unacceptable to Bank in its sole discretion from the condition most recently
disclosed to Bank in any manner; (f) Undersigned dies, dissolved, liquidates,
merges, reorganizes, changes its name, sells or otherwise disposes of
substantially all of its assets or ceases to conduct operations, or prepares or
attempts to do any of the foregoing; (g) a trustee or receiver is appointed for
Undersigned or for a substantial part of its property, or Undersigned commences
any bankruptcy or other similar proceedings under any insolvency law, state or
federal, or any such proceeding is commenced against Undersigned or Undersigned
becomes insolvent, or generally fails to pay or is generally unable to pay its
debts, or makes an assignment for the benefit of creditors or admits in writing
its insolvency or inability or failure to pay its debts generally as they become
due, or fails within 30 days to pay or bond or otherwise discharge any judgment
which is unstayed pending appeal; (h) Undersigned expresses an intent to
terminate, revoke, or challenge responsibility for any Liabilities or any
material term of any document executed in connection with the Liabilities is
found or declared to be invalid by court of competent jurisdiction; (i) any
property of Undersigned becomes the subject of any attachment, garnishment, levy
or lien (unless expressly permitted in writing signed by Bank); (j) any
substantial part of the property of Undersigned is taken or condemned by any
governmental authority; (k) Undersigned assigns or otherwise transfers, or
attempts to assign or transfer, any of its right, title and interest in any of
the Collateral without the prior written consent of Bank; (l) Undersigned fails
to furnish financial or other information its Bank may reasonably request;
(m) if there is any change in Undersigned's officers, principal owners or
partners, as the case may be, which is unacceptable to Bank in its sole
discretion; (n) Bank, in the reasonable and good faith exercise of its sole
discretion, deems itself insecure for any reason whatsoever; or (o) Undersigned
defaults under any other agreement or instrument applicable to it representing a
material obligation and such default is not remedied within the grace period
provided in such agreement or instrument or waived.
REMEDIES
Upon the occurrence of a Default (a) Bank shall have no further obligations
to advance funds to Undersigned hereunder; (b) all Liabilities shall, at the
option of Bank, be immediately due and payable; and (c) Bank may exercise its
right of set-off as set forth herein, any and all remedies available to Bank
under this Note and the Security Documents, and all rights and remedies
available to it under any applicable law, including, without limitation, the
rights and remedies of a secured party under the Uniform Commercial Code.
Undersigned hereby waives notice of presentment for payment, demand, nonpayment
or dishonor, protest, acceleration and all further notice of any kind in
connection with the delivery, acceptance, default or enforcement of this Note,
and hereby waives all notice or right of approval of extensions, renewals,
modifications or forbearances which may be allowed.
<PAGE>
Upon the occurrence of any Default and the continuance thereof, and upon
prior written notice to Undersigned by Bank, interest shall accrue at an annual
rate which shall be two percent (2%) above the rate of interest otherwise
payable hereunder. At the option of Bank, interest which is not paid when due
shall be added to principal. If any of the Liabilities or any portion thereof
owing to Bank is not paid in full when due, Bank may, at its option and without
notice, withdraw from any account of Undersigned with Bank an amount equal to
such overdue amount and to apply such amount to the payment of the overdue
Liabilities.
All rights or remedies of Bank set forth or otherwise existing are
cumulative. Neither any delay or failure by Bank, in exercising any of its
options, powers or rights herein, nor any partial or single exercise thereof
shall constitute a waiver to the right to exercise the same of any other right
at any other time or from time to time thereafter. Bank is not required to
resort to any particular security or persons to enforce payment, and Bank is not
subject to any marshaling requirements or equities among Undersigned, if more
than one, and among it or them.
CONFESSION OF JUDGMENT
Undersigned hereby irrevocably authorizes and empowers Bank, by any
authorized officer, employee or agent, or by its attorney, or by the
prothonotary or clerk of any court of record in the Commonwealth of Pennsylvania
or elsewhere where permitted by law, upon the occurrence of a default, to appear
for and confess judgment against Undersigned in favor of bank in any
jurisdiction in which Undersigned or any of its property is located for the
amount of any or all of the Liabilities, together with the costs of suit and
with actual collections costs, including reasonable attorney's fees, with or
without declaration, with release of all errors, without stay of execution and
the right to issue execution forthwith, and for doing so this note or a copy
verified by affidavit shall be a sufficient warrant. Undersigned hereby waives
and releases all relief from any and all appraisement, stay or exemption law of
any state now in force or hereinafter enacted.
Undersigned acknowledges that by agreeing that bank may confess judgment
hereunder, it waives the right to notice in a prior judicial proceeding to
determine its rights and liabilities, and Undersigned further acknowledges that
bank may obtain a judgment against undersigned without Undersigned's prior
knowledge or consent and without the opportunity to raise any defense, set off,
counterclaim or other claim Undersigned may have, and Undersigned expressly
waives such rights as an explicit and material part of the consideration. The
foregoing power to confess judgment may be exercised against Undersigned at one
time or at different times as bank elects until the liabilities are fully
discharged.
MISCELLANEOUS
The invalidity of any portion of this Note shall not affect the remaining
portions, or any part thereof, and in the case of any such invalidity, this Note
shall be construed as if such portion had not been inserted. Undersigned, if
more than one, are jointly and severally liable, and the term "Undersigned"
whenever used means each of the parties executing this Note. All of the terms
and provisions of this Note inure to and are binding upon the heirs, executors,
administrations, successors, representatives, receivers, trustees and assigns of
Bank and Undersigned.
Undersigned irrevocably waives the right to interpose any defense (other
than payment), set-off or counterclaim of any nature or description in any and
all disputes between Undersigned and Bank, whether under this Note or under any
other agreement heretofore or hereafter executed.
<PAGE>
Undersigned irrevocably agrees and consents to the exclusive jurisdiction
of the Courts of Common Pleas for any county in Pennsylvania where Bank has an
office and/or the United States District Court for the Eastern District of
Pennsylvania in any and all disputes, actions or proceedings between Undersigned
and Bank, whether arising hereunder or under any other agreement or undertaking
and irrevocably agrees to service of process by certified mail, return receipt
requested, to Undersigned at the address listed on the records of Bank and, if
more than one Undersigned, that service upon any of them shall constitute
service upon all of them, each, hereby appointing the other(s) their
attorney-in-fact for the purpose of service. However, Bank is not precluded from
bringing an action against any of Undersigned in any jurisdiction in the United
States or elsewhere in which Undersigned, or any of their property is located.
Undersigned further agrees not to make any objection in any such action or
proceeding that the venue is improper or the forum is inconvenient.
All terms, obligations and provisions hereof are governed by and construed
in accordance with the internal laws of the Commonwealth of Pennsylvania,
without reference to conflict of laws or principles.
All notices, consent and other communications required by or given under
this Note shall be in writing and shall be given by either (i) hand delivery,
(ii) first class mail (postage prepaid), (iii) reliable overnight commercial
courier (charges prepaid), or (iv) telecopy or other means of electronic
transmission, if confirmed promptly by any of methods specified in clauses (i),
(ii), and (iii) of this sentence and shall be sufficient, in the case of
Undersigned, if sent to the attention of its proprietor, general partner or any
executive officer at the address on the records of Bank, and, in the case of
Bank, if sent to the address and attention of the loan officer servicing the
account of Undersigned. This Note re-evidences certain indebtedness previously
evidenced by that certain $3,500,000 Note dated February 16, 1996, and has been
given in substitution thereof and not as payment of such prior Note and is not
intended as a novation thereof.
IN WITNESS WHEREOF, Undersigned has executed this Note the day and year
first above written.
BORROWER (If individuals,
partnership, etc.) BORROWER (If corporate)
MDC Investment Holdings, Inc.
- - ------------------------------------ ------------------------------------
By: /s/ Patrick Rodgers
- - ------------------------------------ ---------------------------------
Title: Treasurer
By: /s/ Jack J. Osborne
- - ------------------------------------ ---------------------------------
Title: Senior Vice President
- - ------------------------------------ Attest:_____________________________
Title:
- - ------------------------------------ (Corporate Seal)
Witness: /s/ John H. Van Dusen
- - ------------------------------------ ----------------------------
Title: Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 142,532
<SECURITIES> 7,687,013
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,876,253
<PP&E> 1,000,977
<DEPRECIATION> 78,615
<TOTAL-ASSETS> 8,936,963
<CURRENT-LIABILITIES> 3,771,848
<BONDS> 404,598
0
0
<COMMON> 67,787
<OTHER-SE> 4,814,943
<TOTAL-LIABILITY-AND-EQUITY> 8,936,963
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 177,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,608
<INCOME-PRETAX> (921,944)
<INCOME-TAX> 0
<INCOME-CONTINUING> (921,944)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (921,944)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
