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 June 30, 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 - 6,814,570 shares Common Stock, $.01 par value,
outstanding as of June 30, 1996.
<PAGE>
THE MED-DESIGN CORPORATION
FORM 10-QSB
INDEX
Page Number
-----------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balanced Sheets as of June 30, 1996 (unaudited)
and as of December 31, 1995...................................... 1
Consolidated Statements of Operations for the three and six
months ended June 30, 1996 and 1995 and Cumulative During
Development Stage (unaudited).................................... 2
Consolidated Statements of Cash Flows for the six months ended
June 30, 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
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited) (a)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $308,017 $221,229
Short-term investments 524,081 511,908
Available-for-sale securities 7,183,435 7,112,286
Prepaid expenses and other current assets 159,142 65,185
------------- ------------
Total current assets 8,174,675 7,910,608
Property, plant, and equipment, net of accumulated
depreciation and amortization 1,089,657 831,955
Patents, net of accumulated amortization 146,579 140,748
------------- ------------
$9,410,911 $8,883,311
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $4,656,500 $2,128,500
Accounts payable 159,460 289,914
Accrued expenses 129,561 200,819
Due to officer 9,343 35,374
Current maturities of long-term debt and
capital lease obligations 109,451 140,681
------------- ------------
Total current liabilities 5,064,315 2,795,288
------------- ------------
Long-term debt and capital lease obligations,
less current maturities 399,054 277,483
------------- ------------
Total liabilities 5,463,369 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; 6,814,570 issued
and outstanding 68,146 67,786
Additional paid-in capital 15,302,854 15,140,814
Deficit accumulated during the development stage (11,442,103) (9,424,539)
Unrealized gain on available-for-sale securities 18,645 26,479
------------- ------------
Total stockholders' equity 3,947,542 5,810,540
------------- ------------
$9,410,911 $8,883,311
============= ============
</TABLE>
(a) Condensed from audited financial statements.
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 Three Months Ended Six Months Ended
Development June 30, June 30,
Stage 1996 1995 1996 1995
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating expense:
Marketing $273,571 $49,315 $114,394
General and administrative 3,393,764 611,123 $349,900 1,331,240 $366,747
Research and development 1,249,019 462,243 5,395 639,873 5,395
Purchased research and
development 5,932,770 5,932,770 5,932,770
-------------- ------------ ------------- ------------ --------------
Total operating expenses 10,849,124 1,122,681 6,288,065 2,085,507 6,304,912
-------------- ------------ ------------- ------------ --------------
Loss from operations (10,849,124) (1,122,681) (6,288,065) (2,085,507) (6,304,912)
Interest expense (969,449) (95,352) (5,886) (161,960) (435,779)
Interest income 376,470 122,413 13,743 229,903 24,270
-------------- ------------ ------------- ------------ --------------
Net loss $(11,442,103) $(1,095,620) $(6,280,208) $(2,017,564) $(6,716,421)
============== ============ ============= ============ ==============
Net loss per common share $(0.16) $(1.51) $(0.30) $(2.16)
============ ============= ============ ==============
Weighted average common
shares outstanding 6,783,713 4,155,201 6,781,141 3,104,386
============ ============= ============ ==============
</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 Six Months Ended June 30,
Stage 1996 1995
----- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($11,442,103) $ (2,017,564) ($ 6,716,421)
Adjustments to reconcile net loss to operating cash flows:
Depreciation (net of acquisition) and amortization 129,322 80,421 4,472
Issuance of common stock for services 418,800
Purchased research and development 5,932,770 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: (256,484) (321,700) 714,124
------------ ------------ ------------
Net cash used by operating activities (4,521,135) (2,258,843) 342,088
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,171,219) (333,324) (40,949)
Additions to patents (19,699) (10,631)
Payments for purchase of option to acquire
Med-Design Incorporated (125,000)
Investments in available-for-sale securities, net (7,160,365) (78,983)
Notes receivable funded (92,500) (2,500)
Purchase of short-term investment (524,081) (12,173)
------------ ------------ ------------
Net cash used by investing activities (9,092,864) (435,111) (43,449)
------------ ------------ ------------
Cash flows from financing activities:
(Repayment of) advances from related parties (144,302)
(Repayment of) proceeds from short-term borrowing (500,000)
Capital lease payments (10,620) (4,587) (1,142)
Proceeds from long-term borrowings 575,210 163,712
Repayment of long-term borrowings (84,690) (68,783)
Proceeds from issuance of common stock, prior
to initial public offering 97,250
Proceeds from exercise of options 35,000 35,000
Proceeds from issuance of common stock in
connection with exercise of warrants 127,400 127,400
Proceeds from short-term borrowing 4,656,500 2,528,000
Repayment of acquisition note (1,000,000) (1,000,000)
Proceeds of initial public offering, net of offering costs 9,525,966 9,548,965
------------ ------------ ------------
Net cash provided by financing activities 13,922,016 2,780,742 7,903,521
------------ ------------ ------------
Increase in cash 308,017 86,788 8,202,160
Cash and cash equivalents, beginning of period 221,229 100,059
------------ ------------ ------------
Cash and cash equivalents, end of period $ 308,017 $ 308,017 $ 8,302,219
============ ============ ============
Cash paid during the period:
Interest $ 294,206 $ 147,137 $ 10,304
============ ============ ============
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 -- $ 28,606
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
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 and six month periods ending June 30, 1996 is 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 and six month periods ended June
30, 1996 is presented on a consolidated basis; results for the same period
in 1995 represents 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 excludes
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>
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.
(5)
<PAGE>
Business Overview (Continued)
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.
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.
On March 25, 1996, the European Patent Office approved the Company's
European patent application for its Safety Syringe, which was based on an
international application filed November 7, 1990. The European application
designates the countries of Austria, Belgium, Switzerland, Liechtenstein,
Germany, Denmark, Spain, France, Great Britain, Greece, Italy, Netherlands, and
Sweden for protection, and the Company will undertake to register the allowed
European patent application in the designated European countries. The European
patent coverage will compliment the patents that have already been allowed in
Romania and Bulgaria. The Company will continue to seek additional patent
protection for its products in related European patent applications.
In June 1995, the Company entered into an agreement with the underwriter of
its Initial Public Offering, pursuant to which the Company issued and sold to
the underwriter, as part of its compensation, therefore, warrants to purchase an
aggregate of 300,000 shares of Common Stock at $4.90 per share. The Company
registered the resale of such shares by the underwriter by filing a Registration
Statement on Form S-3, which was declared effective by the Securities and
Exchange Commission on July 11, 1996.
Results of Operations
In 1995, the Company leased with an option to purchase approximately 26,000
square feet of space in Ventura, California ("Ventura Facility"). In addition to
administrative offices, the Ventura 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 for concept modeling and assembly and test
fixtures. The Company also installed a 3,130 square foot class 100,000 clean
room at the Ventura Facility, which is currently being 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 and six month period ended June
30, 1996, the Company's expenses for research and development were $462,243 and
$639,873, respectively.
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.
(6)
<PAGE>
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) premarket notification to be filed with the FDA for the
Safety Catheter, Safety Phlebotomy Set and Safety Syringe. The Company filed the
510(k) premarket 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 premarket 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 voluntarily withdrew the 510(k) premarket
notification because of modifications and improvements made to the original
design of the Safety Phlebotomy Set. The Company intends to file a new 510(k)
premarket notification for the modified Safety Phlebotomy Set with the FDA
before the end of 1996.
The Company also anticipates that it will complete and file the 510(k)
premarket 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 premarket 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.
The Company had originally planned to install a fully automated robotic
assembly system at the Ventura 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 in the fourth quarter of 1996 and to begin production of
one of its products by the end of the fourth quarter of 1996.
(7)
<PAGE>
Plan of Operation (Continued)
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.
As of August 1, 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; however, 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.
(8)
<PAGE>
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 and six months ended June 30, 1996 and June 30,
1995. The Company is in the development stage and to date has not generated any
revenues from its operations.
Net Loss
Net loss for the three and six month periods ended June 30, 1996 was
$1,095,620 and $2,017,564, respectively, an increase of $748,182 and
$1,233,913 for the comparable periods in 1995, after excluding $5,932,770
of purchased research and development cost included in the three and six
month periods of 1995. The $748,182 increase in net loss for the three
month period ending June 30, 1996 is primarily attributable to a $767,386
increase in operating expenses, an increase of $89,466 in interest expense,
partially offset by an increase of $108,670 in interest income. The
$1,233,913 increase in net loss for the six month period ending June 30,
1996 is primarily the result of an increase of $1,713,365 in operating
expenses, partially offset by a $273,819 decrease in interest expense and a
$205,633 increase in interest income. Interest expense for the six month
period ending June 30, 1996 included $407,143 for the amortization of
original issue discount on debt.
The increase in operating expenses for the three and six month periods
ended June 30, 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 June 30, 1996,
the Company has a cumulative net loss of $11,422,103.
Liquidity and Capital Resources
For the six month periods ended June 30, 1996 and 1995, cash flows used
for operations were $2,258,843 and $342,088, respectively. At June 30,
1996, cash and cash equivalents, short-term investments, and
available-for-sale securities was $8,015,533, while working capital was
$3,110,360. The current ratio at June 30, 1996 was 1.6 to 1.
Of the $8,015,533 in cash and cash equivalents, short-term investments,
and available-for-sale securities at June 30, 1996, $5,147,020 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.
At June 30, 1996, the Company had 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 ("Equipment Facility") for $500,000. The Company had additional
availability against its line of credit and equipment financing facilities
of $43,500, $452,319, and $157,161, respectively, at June 30, 1996. On July
11, 1996, the Company's lead commercial bank amended its loan agreement,
which had previously provided for a $4,700,000 line of credit facility and
a $600,000 equipment financing facility. The amended loan agreement ("Loan
Agreement") provides for a $6,000,000 credit facility which can be used to
(1) fund working capital needs and (2) finance capital equipment purchases.
The Loan Agreement expires May 1, 1997. Pursuant to the terms of the Loan
Agreement, all borrowings must be fully collateralized by
available-for-sale securities. Under the terms of the Equipment Facility,
all borrowings must be fully collateralized by a short-term investment in
the form of a certificate of deposit. Also, both the Loan Agreement and
Equipment Facility provide that all borrowings for equipment financing must
be further collateralized by the applicable equipment financed.
(9)
<PAGE>
Liquidity and Capital Resources (Continued)
In addition, the Company in 1995 issued warrants (including warrants
discussed in "Business") to purchase 400,000 shares of Common Stock, of
which, warrants to purchase 91,000 shares have been exercised as of August
1, 1996. The Company has received an aggregate of $445,900 upon the
exercise of such warrants. If the remainder of the warrants are exercised,
the Company will receive approximately an additional $1,704,000, net of
registration and other costs to be paid by the Company as required under
the terms of such warrants.
The Company believes that it will have sufficient funds to support its
planned operations and capital expenditures through February 28, 1997, but
thereafter will need to raise additional funds through public or private
financings to support its planned operations and capital expenditures.
These financings may include up to approximately $1,704,000 if all of the
outstanding warrants are exercised. 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 the outstanding
warrants will be fully exercised or 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 of which
the Company is able to manufacture and introduce its 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
The Company held its Annual Meeting of Stockholders (the "Meeting") on May
15, 1996. The Company solicited proxies in connection with the Meeting. At the
record date of the Meeting (April 1, 1996), there were 6,778,570 shares of
Common Stock outstanding and entitled to vote. The following were the matters
voted upon at the Meeting.
1. Election of Directors. The following directors were elected at the
Meeting: James M. Donegan, Gary L. Crocker, John F. Kelley, John S.
Marr, John A. Botich, Joseph N. Bongiovanni III, and Gilbert M. White.
The number of votes cast and withheld from each director are as
follows:
DIRECTORS FOR WITHHELD
--------- --- --------
James M. Donegan 5,436,025 30,200
Gary L. Crocker 5,436,025 30,200
John F. Kelley 5,436,025 30,200
John S. Marr 5,436,025 30,200
John A. Botich 5,436,025 30,200
Joseph N. Bongiovanni, III 5,436,025 30,200
Gilbert M. White 5,436,025 30,200
2. Ratification of Auditors. The appointment of Coopers & Lybrand, LLP as
the Company's independent auditors for the year ending December 31,
1996 was ratified by the following vote of Common Stock:
FOR AGAINST ABSTAIN
5,463,013 0 3,212
3. Approval of Company's Non-Qualified Stock Option Plan. The vote of the
Common Stockholders for the proposal to approve the Company's
Non-Qualified Stock Option Plan is as follows:
FOR AGAINST ABSTAIN
--- ------- -------
4,168,489 15,920 4,512
(11)
<PAGE>
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 Third Amendment to loan agreement dated July 11, 1996 among
Meridian Bank, MDC Investment Holdings, Inc., The Med-Design
Corporation, and MDC Research, Ltd.
10.2 Judgement Note dated July 11, 1996 from the Company in favor
of MDC Holdings, Inc.
10.3 Demand Promissory Note dated July 11, 1996 from MDC Investment
Holdings, Inc., in favor of Meridian Bank.
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter ended
June 30, 1996.
- ---------------
* 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).
(12)
<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: August 7, 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)
(13)
<PAGE>
EXHIBIT INDEX
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 Third Amendment to loan agreement dated July 11, 1996 among
Meridian Bank, MDC Investment Holdings, Inc., The Med-Design
Corporation, and MDC Research, Ltd.
10.2 Judgement Note dated July 11, 1996 from the Company in
favor of MDC Holdings, Inc.
10.3 Demand Promissory Note dated July 11, 1996 from MDC
Investment Holdings, Inc., in favor of Meridian Bank.
27 Financial Data Schedule.
------------------
* 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).
14
<PAGE>
THIRD AMENDMENT TO LOAN AGREEMENTS
This Amendment to certain business Loan Agreements is executed this 11th
day of July, 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 tome 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, invensory, equipment
and general intangibles ("General Collateral"), and by a pledge of certain
securities held at Delaware Trust Capital Management, Inc. ("Pledged
Securities") and a certain Promissory Note in the amount of the MDC Loan from
Med-Design to MDC ("Related Party Note") 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"). The General Collateral, Pledged Securities and Related Party Note
are hereinafter collectively referred to as the "MDC Collateral".
B. On December 29, 1996, the Bank entered into Business Loan Agreements
with (i) MDC (the "MDC Equipment Loan Agreement"), and (ii) Research (the
"Research Equipment Loan Agreement"), 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 the Equipment Loan Agreements were
evidenced by promissory notes, dated December 29, 1995, in the amount of $30,500
(with respect to MDC) (the "MDC Equipment Note") 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
<PAGE>
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. On April 4, 1996 Bank and Borrowers entered into a Second Amendment to
Loan Agreements (the "Second Amendment") wherein Bank and Borrowers agreed inter
alia to (1) amend the MDC Loan Agreement by increasing the amount of the credit
facility thereunder to $4,700,000, which obligations were videnced by a
Promissory Note dated April 4, 1996 in the amount of $4,700,000 (the "Third MDC
Note") which re-evidenced and replaced the indebtedness evidenced by the second
MDC Note, and (2) amend the Equipment Loan Agreements by increasing the
aggregate amount of the loans available thereunder to $600,000.
E. 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".
F. The Borrowers have requested that the Bank modify the terms of the DC
Loan Agreement and the Equipment Loan Agreements (collectively, the "Loan
Agreements"), to (1) increase the maximum amount available under the MDC Loan
Agreement, (2) revise the formula under which loans may be made under the
Equipment Loan Agreements, (3) add Med-Design as a co-borrower with MDC under
the MDC Equipment Loan Agreement thereunder, and (4) make such other amendments
as set forth below. Bank is willing to amend the Loan Agreements as described
above, all on the terms, and subject to the conditions, set forth herein.
<PAGE>
AGREEMENT
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 $4,700,000 set forth therein
shall be deleted, and the sum $6,000,000 shall be substituted in its place,
subject to the provisions of Section 15 of the MDC Loan Agreement as revised
below. 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 $6,000,000, so that any reference to the sum $4,700,000
shall, from and after the date hereof, be deemed a reference to the sum
$6,000,000. The parties hereto expressly acknowledge and agree that the
replacement MDC Note merely re-evidences the indebtedness evidenced by the Third
MDC Note, while increasing the principal amount thereof, and is given in
substitution of, and not as payment of, the Third MDC Note.
(b) Section 15 of the MDC Loan Agreement is amended by
amending and restating subsections (ii) and (iii) and adding new subsection (iv)
as follows:
(ii) Lending Formula. All advances under the MDC Loan
will be limited to the sum of
(A) 85% of the fair market value as determined
by Bank from time to time of short term interest
bearing securities issued by the United States
government or any agency thereof, and
(B) 75% of the fair market value as determined
by Bank from time to tim of short term, high
grade interest bearing securities issued by
corporations acceptable to Bank and pledged to
Bank pursuant to the Pledge Agreement (the
"Qualified Securities") less a reserve of
Qualified Securities with a Pledge Value (as
defined below) and determined by
<PAGE>
bank at the time of such advance equal to the
aggregate amount then outstanding under the
Equipment Loans. The sum of the value of the
Qualified Securities determined in accordance
with (A) and (B) of the preceding sentence is
hereinafter referred to as the "Pledge Value."
(iii) Final Advance Date. Bank shall not make
advances under the MDC Loan after May 1, 1997 unless
such date is extended by Bank in its sole and
absolute discretion.
(iv) LIBOR Definitions. Reference in the Note to the
"Adjusted 30 Day LIBOR Rate" shall mean a rate per
annum equal to the quotient obtained by dividing the
30 Day LIBOR Rate (as hereinafter defined) by 1.00
minus the applicable reserve requirement (currently
3.0%). The "30 Day LIBOR Rate" shall mean the rate
per annum at which deposits in Dollars are offered to
lending banks in the London Interbank Market for a 30
day period.
(v) LIBOR Availability. If bank shall have determined
in good faith (which determination shall be final and
conclusive and binding upon Borrower) that, by reason
of circumstances affecting the London Interbank
Market for Dollar deposits, adequate and reasonable
means do not exist for ascertaining such 30 Day LIBOR
Rate, or (2) at any time Bank shall have determined
in good faith (which determination shall be final and
conclusive and binding upon Borrower) that:
(A) the selection of the 30 Day LIBOR Rate has
been made impracticable or unlawfu by (a) the
occurrence of a contingency which materially and
adversely affects the London Interbank Market
for Dollar deposits, or (b) compliance by Bank
in good faith with any applicable law, treaty or
governmental regulation guideline or order or
change therein or interpretation or
administration thereof by any governmental
authority charged with the interpretation or
administration thereof or with any request or
directive of any such governmental authority
(whether or not having the force of law); or
<PAGE>
(B) the LIBOR Rate Option shall no longer
represent the effective cost to Bank for Dollar
deposits in the London interbank market;
then, and in any such event, Bank shall forthwith so
notify Borrower thereof and until Bank notifies
Borrower that the circumstances giving rise to such
notice no longer apply, Bank's National Commercial
Rate or another reference rate then designated by
Bank shall be substituted for the 30 Day LIBOR Rate
as the basis for the accrual of interest under the
Note.
2. The MDC Equipment Loan Agreement is amended by adding
Med-Design as an additional "Borrower" thereunder so that for all
purposes under the MDC Equipment Loan Agreement and any of the
Loan Documents delivered in connection therewith the term
"Borrower" shall be deemed to mean MDC and Med-Design, as
co-borrowers. In furtherance of the foregoing modification MDC and
Med-Design shall execute and deliver to bank a Promissory Note in
the form of Exhibit "B". All references to the Note or to the
Promissory Note in the MDC Equipment Loan Agreement, or in any
other Loan Documents, shall be deemed to be references to such new
Note. Indebtedness evidenced by the MDC Equipment Note remains
outstanding as of the date hereof, and continues to be secured by
the Collateral. The parties hereto express a knowledge and agree
that a replacement MDC Equipment Note merely re-evidences the
indebtedness evidenced by the MDC Equipment Note, while adding
Med-Design as a co-borrower thereunder, and is given in
substitution of and not as payment of the MDC Equipment Note.
3. The Equipment Loan Agreements each shall be amended as follows:
(a) Section 15 of each of the Equipment Loan Agreements is
amended amending and restating subsections (ii) and (iv) thereof as follows:
(ii) Lending Formula. All advances under the Equipment
Loans shall be limited to 80% of the new equipment
purchase price and will be further limited to the sum
of
(A) 85% of the fair market value as determined by
bank from time to time of short term interest bearing
securities issued by the United States government or
any agency thereof, and
<PAGE>
(B) 75% of the fair market value as determined by
Bank from time to time of short term, high grade
interest bearing securities issued by corporations,
acceptable to Bank and pledged to Bank pursuant to the Pledge
Agreement (the "Qualified Securities") less a reserve of
Qualified Securities with a Pledge Value (as defined below)
and determined by the Bank at the time of such advance equal
to the aggregate amount then outstanding under the MDC Loan.
The sum of the value of the Qualified Securities determined in
accordance wit (A) and (B) of the preceding sentence is
hereinafter referred to as the "Pledge Value." Advances under
the Equipment Loans to MDC and Research will be aggregated for
the purpose of this advance formula and in no event shall the
aggregate of such advances exceed $600,000.
(iii) Final Advance Date. Bank shall not make
advances on the Equipment Loans after May 1, 1997,
unless such date is extended by Bank in its sole and
absolute discretion.
4. Borrowers shall (i) at all times maintain Pledged Securities
consisting of Qualified Securities with a Pledge Value of not
less than the aggregate amounts outstanding from time to time
under the MDC Loan Agreement and the Equipment Loan Agreements
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 not be transferred from the account pledged to Bank.
5. 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;
<PAGE>
(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 enfor ement 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.
6. 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.
<PAGE>
7. 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 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.
8. 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 Docume ts
notinconsistent herewith shall remain in full force and effect and are hereby
ratified and confirmed by each of the borrowers.
9. 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.
10. 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/ Joseph N. Bongiovanni By: /s/ Patrick Rodgers
- ----------------------------- ----------------------------------
Patrick Rodgers
Treasurer
ATTEST: MDC RESEARCH, LTD.
/s/ Joseph N. Bongiovanni By: /s/ Patrick Rodgers
- ----------------------------- ----------------------------------
Patrick Rodgers
Executive Vice President - Finance
ATTEST: THE MED-DESIGN CORPORATION
By: /s/ Patrick Rodgers
- ----------------------------- ----------------------------------
Patrick Rodgers
Executive Vice President - Finance
ATTEST: MERIDIAN BANK
By: /s/ John H. Van Dusen
- ----------------------------- ----------------------------------
John H. Van Dusen
Vice President
Exhibit 10.2
PAY TO THE ORDER OF MERIDIAN BANK
MDC INVESTMENT HOLDINGS, INC.
By: /s/ Patrick Rodgers
-------------------------------
Title: Treasurer
JUDGEMENT NOTE
$6,000,000 July 11, 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 Six Million 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 and/or secure an increase line of
credit pursuant to certain terms and conditions. Said proceeds when utilized to
maker upon corporate purpose. Repayment terms will be 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 or 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 $5,300,000 Judgment Note dated April 12, 1996, 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/ Joseph N. Bongiovanni By: /s/ Patrick Rodgers
------------------------- -----------------------
(Corporate Seal) Title: Treasurer
Exhibit 10.3
Meridian Bank Promissory Note (Business)
$ 6,000,000 July 11, 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 Six Million and 00/100 Dollars payable as provided below, with interest
accruing at the rate of adjusted 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.
The rate of interest payable hereunder shall change simultaneously and
automatically upon any change in the 30 Day Libor Rate, as such terms is defined
in the Business Loan Agreement dated July 26, 1995, as amended from time to
time, between the Undersigned and Bank.
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 August 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 extended shall no 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
of 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>
Exhibit 10.3
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 purpose
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 it 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>
Exhibit 10.3
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 is Bank may reasonable 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.
<PAGE>
Exhibit 10.3
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-of 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.
Upon the occurrence of any Default and the continuance there of, 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 dong 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.
<PAGE>
Exhibit 10.3
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.
Undersigned irrevocably agrees and consents to the exclusive jurisdiction
of the Courts of Common Please 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 of 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 principles.
<PAGE>
Exhibit 10.3
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 $4,700,000 Note dated April 4, 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/ Joseph N. Bongiovanni
- ------------------------------------ -------------------------------------
Title: Secretary
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 308,017
<SECURITIES> 7,707,516
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,174,675
<PP&E> 1,208,052
<DEPRECIATION> 118,395
<TOTAL-ASSETS> 9,410,911
<CURRENT-LIABILITIES> 5,064,315
<BONDS> 399,054
0
0
<COMMON> 68,146
<OTHER-SE> 3,879,396
<TOTAL-LIABILITY-AND-EQUITY> 9,410,911
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,608
<INCOME-PRETAX> (2,017,564)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,017,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,017,564)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
