SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): January 23, 1997
The Med-Design Corporation
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(Exact Name of registrant as specified in its charter)
Delaware 0-25852 23-2771475
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
North American Building, Suite 310,
121 South Broad Street, Philadelphia, PA 19107
- - ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 735-2700
- - --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On January 23, 1997, The Med-Design Corporation (the "Company") sold
1,000,000 shares ("Shares") of common stock of the Company, $.01 par value per
share ("Common Stock") to certain "accredited investors" (as that term is
defined in Rule 501(a) of the Securities Act of 1933, as amended (the "Act")),
in a private placement at a price of $5.00 per share, representing gross
proceeds of $5,000,000 (the "Offering"). In connection with the Offering, the
placement agent for this Offering, Fine Equities, Inc. ("Fine"), received (i) a
commission equal to 5% of the gross offering proceeds ($250,000); (ii)
reimbursement for its mailing and other expenses (including legal expenses)
approximating $76,500; and (iii) for nominal consideration, warrants
("Warrants") to purchase 100,000 shares of the Common Stock at an exercise price
of $5.50 per share. The net proceeds from the Offering received by the Company
(exclusive of the Company's own legal, accounting and investment banking
expenses) was $4,672,528.
Pursuant to the Offering, the Company agreed to (i) file with the
Securities and Exchange Commission a registration statement under the Act and
any applicable state securities laws, covering the resale of all of the Shares
no later than February 22, 1997 and (ii) use its best efforts to cause such
registration statement to become effective.
The Warrants have a five (5) year term and are exercisable at any time
during the four (4) year period commencing on January 22, 1998. The Common Stock
issuable upon exercise of the Warrants shall be entitled to one demand
registration right for a period of five (5) years commencing on the date of
issuance of the Warrants and "piggyback" registration rights (which, in both
instances, shall be at the Company's cost) for a period of seven (7) years
commencing on the date of issuance of the Warrants. In addition, the terms of
the Warrants require the Company to include in any registration statement any
other securities of the Company owned by a Warrant holder if the Company seeks
to register any of its securities under the Act; provided, however, that any
security other than shares of Common Stock ("Other Securities") may be included
only if such type of Other Securities are included in the Registration
Statement.
In addition, the Company granted to Fine the right to cause one person to
be elected to the Company's Board of Directors during the five (5) year period
which commenced on January 23, 1997.
In connection with the Offering, James M. Donegan, Gilbert M. White, John
A. Botich, Michael J. Botich, Thor R. Halseth and Gary L. Crocker each entered
into a separate agreement (individually, a "Lock-Up Agreement" and collectively,
"Lock-Up Agreements") with Fine whereby each agreed that he would not directly
or indirectly issue, offer to sell, grant an option for the sale of, assign, or
transfer, the number of shares of Common Stock owned by him which is listed
beside his name on Schedule A attached hereto without the prior consent of Fine,
for a period commencing January 23, 1997 and continuing until the Company has
entered into no fewer than
<PAGE>
three (3) material corporate alliances relating to the Company's products that
provide reasonable assurance of financial success and funding of the Company;
provided, however, that (i) any of those individuals may make gifts or enter
into private transactions wherein the transferee shall agree in writing to be
bound by the same agreements as transferor, and (ii) except for Mr. Donegan's
Lock-Up Agreement, the Lock-Up Agreement for any of the other individuals named
above shall terminate after the execution of a second material corporate
alliance, upon the written consent of Mr. Donegan. Notwithstanding the
foregoing, each of the individuals who has entered into a Lock-Up Agreement with
Fine is permitted to pledge or hypothecate the number of shares so listed on
Schedule A which are owned by him.
Upon the consummation of the Offering, the Company's issued and outstanding
Common Stock increased from 6,899,570 to 7,899,570 and the aggregate number of
issued and outstanding warrants and options to purchase the Common Stock
increased from 578,000 to 678,000.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
THE MED-DESIGN CORPORATION
By: /s/ James M. Donegan
-------------------------------------
James M. Donegan
Chief Executive Officer and President
Date: January 30, 1997
<PAGE>
SCHEDULE A
Shares that may be
Pledged or Hypothecated
Shares Subject Without the Written Consent
Name to Lockup of Fine Equities, Inc.
- - ---- --------- ----------------------
James M. Donegan 1,230,000 200,000
Gilbert M. White 82,560 13,440
John A. Botich 221,347 36,033
Michael A. Botich 343,650 55,942
Thor R. Halseth 387,470 63,076
Gary L. Crocker 89,779 14,615
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- - ----------- ----------- --------
1.01 Placement Agent Agreement dated as
of January 8, 1997 by and between The
Med-Design Corporation ("MDC") and
Fine Equities, Inc. ("Fine")
4.01 Form of Subscription Agreement between
MDC and each of the purchasers of the
1,000,000 shares of MDC common stock
("Common Stock")
4.02 Placement Agent's Warrant Agreement
dated as of January 23, 1997 by and
between MDC and Fine
99.01 Private Placement Memorandum dated as
of January 8, 1997 relating to the
offering of the Common Stock (with
exhibits omitted)
EXHIBIT 1.01
Placement Agent Agreement dated as of January 8, 1997
by and between The Med-Design Corporation ("MDC")
and Fine Equities, Inc. ("Fine")
<PAGE>
PLACEMENT AGENT AGREEMENT
Dated as of: January 8, 1997
Fine Equities, Inc.
551 Fifth Avenue, Suite 3213
New York, NY 10176
Attention: Mr. N. Scott Fine
Ladies and Gentlemen:
The undersigned, The Med-Design Corporation (the "Company"), hereby agrees
with Fine Equities, Inc. ("Fine") as follows:
1. Offering.
A. The Company hereby engages Fine to act as its exclusive placement agent
in connection with the issuance and sale by the Company (the "Offering") of up
to 1,000,000 shares (the "Shares") of the Company's common stock .$01 par value
(the "Common Stock") at a price equal to $5.00 per share. The Shares will be
offered pursuant to the Confidential Private Offering Memorandum dated the date
hereof, prepared by the Company (such memorandum together with all amendments
thereof and supplements and exhibits thereto is referred to herein as the
"Memorandum") and are subject to the terms and conditions set forth therein, and
in the Subscription Agreement and Investment Representation (collectively, the
"Subscription Agreements") in substantially the form of exhibits attached to the
Memorandum to be executed by each purchaser and the Company.
At the Closing (as defined in Section 1(B) hereof), the Company shall also
issue and sell to Fine and/or its designees common stock purchase warrants to
purchase ten percent (10%) of the number of Shares sold by the Company (the
"Placement Agent's Warrants"), each Placement Agent's Warrant entitling the
holder thereof to purchase one share of Common Stock (the "Placement Agent's
Shares") under terms and conditions set forth in the Placement Agent's Warrant
Agreement dated the date of the Closing (as hereinafter defined), by and between
the Company and Fine (the "Placement Agent's Warrant Agreement"). The Placement
Agent's Warrants and the Placement Agent's Shares are sometimes hereinafter
collectively referred to as the "Placement Agent's Securities." The Shares, the
Placement Agent's Warrants and the Placement Agent's Shares are hereinafter
sometimes collectively referred to as the "Securities." The Shares will be
offered without registration under the Securities Act of 1933, as amended (the
"Securities Act"). Purchasers of the Shares will be granted certain registration
rights with respect to the Shares as more fully set forth in the Subscription
Agreements and in the certificates representing the Shares. Fine will also be
granted certain registration rights as more fully set forth in the Placement
Agent's Warrant Agreement.
<PAGE>
B. The Shares will be offered by Fine on a "best efforts" basis. The
Company will issue the Shares at the Closing after subscriptions have been
received and accepted by the Company and when funds from investors have cleared
the banking system in the normal course of business. The issuance of the Shares
and disbursement of the proceeds from the sale thereof (the "Closing") will
occur within seven business days after the earlier of (a) the date on which
$5,000,000 of subscription proceeds for Shares has cleared the banking system
and has been collected by the Escrow Agent (as defined in Section 2(C) hereof)
pursuant to the Escrow Agreement (as defined in Section 2(C)) or (b) fourteen
(14) days after the date hereof, unless such date is extended as provided in
Section 1(C).
C. The Offering shall commence on the date hereof and shall terminate
fourteen (14) days hereafter, unless extended for an additional seven (7) day
period by the mutual consent of the Company and Fine (such date, as the same may
be extended, is hereinafter referred to as the "Termination Date"; the period
commencing on the date hereof and ending on the Termination Date is sometimes
referred to herein as the "Offering Period").
2. Information.
A. The Shares will be offered by Fine on a "best efforts" basis during the
Offering Period.
B. The Shares shall have the terms set forth in and shall be offered by the
Company by means of the Memorandum. Payment for the Shares shall be made by
check or wire transfer as more fully described in the Subscription Agreements.
The minimum purchase by any purchaser shall be $50,000 unless subscriptions for
fewer Shares are accepted at the discretion of Fine. Fine and the Company agree
that the Shares will be offered and sold only to "accredited investors" within
the meaning of Rule 501 of Regulation D ("Accredited Investors") promulgated by
the Securities and Exchange Commission (the "Commission") under the Securities
Act and Rule 506 of Regulation D of the Securities Act.
C. All funds received from subscriptions will be promptly transmitted
pursuant to the terms of an escrow agreement (the "Escrow Agreement") to the
escrow account designated for the Offering at Continental Stock Transfer & Trust
Company (the "Escrow Agent"). In the event that the Closing occurs, the funds
received in respect of the Shares closed on will be forwarded to the Company net
of (i) the placement agent commission equal to five percent (5%) of the purchase
price of the Shares sold, (ii) reasonable legal fees and expenses due to Fine's
counsel, (iii) "Blue Sky" fees and expenses and reasonable legal fees (such fees
not to exceed $10,000) and expenses related thereto due to Fine's Counsel and
(iv) all other reasonable expenses related to the Offering, including, but not
limited to, all printing, duplication and mailing costs related to the Private
Placement Memorandum, registration and transfer agent fees, escrow agent fees,
accounting fees, and issue and transfer taxes and "tombstone" expenses.
D. At the Closing, the Company shall cause to be paid by, at the option of
Fine, certified or official bank check or wire transfer, to the extent not
previously paid by the Company or the Escrow Agent to Fine (i) the placement
agent commission equal to five percent (5%) of the purchase price of the Shares
sold, (ii) reasonable legal fees and expenses due to Fine's counsel, (iii) "Blue
Sky" fees and expenses and reasonable legal fees (such fees not to exceed
$10,000) and expenses related thereto due to Fine's Counsel and (iv) all other
reasonable expenses related to the Offering, including,
<PAGE>
but not limited to, all printing, duplication and mailing costs related to
the Private Placement Memorandum, registration and transfer agent fees, escrow
agent fees, accounting fees, and issue and transfer taxes and "tombstone"
expenses. In addition to the foregoing, the Company shall be responsible for the
fees and expenses identified in Sections 6, 8, and 10 hereof, which expenses
shall not be deemed to be commissions.
E. Fine shall not be obligated to sell any Shares and shall only be
obligated to offer the Shares on a "best efforts" basis.
F. The Company reserves the right to reject any subscriber, in whole or in
part, in its sole discretion. Notwithstanding anything to the contrary contained
in this Section 2(F), the Company's right to reject a subscriber shall lapse
three (3) days after receipt by the Company of the fully completed and duly
executed subscription documents from Fine with respect to such subscriber. Funds
received by the Escrow Agent or the Company from any subscriber whose
subscription is rejected will be returned to such subscriber, without deduction
therefrom or interest thereon, but no sooner than such funds have cleared the
banking system in the normal course of business.
3. Representations, Warranties and Covenants of Fine.
A. Fine represents, warrants and covenants as follows:
(i) Fine has the necessary power to enter into this Agreement, the
Escrow Agreement and the Placement Agent's Warrant Agreement and to
consummate the transactions contemplated hereby and thereby.
(ii) Fine is a corporation duly formed and validly existing under the
laws of the State of New York; the execution and delivery by Fine of this
Agreement, the Escrow Agreement and the Placement Agent's Warrant Agreement
and the consummation of the transactions contemplated herein and therein
will not result in any violation of, or be in conflict with, or constitute
a default under, any agreement or instrument to which Fine is a party or by
which Fine or its properties are bound, or any judgment, decree, order or,
to Fine's knowledge, any statute, rule or regulation applicable to Fine.
This Agreement, the Escrow Agreement and the Placement Agent's Warrant
Agreement, when executed and delivered by Fine, will constitute the legal,
valid and binding obligations of Fine, enforceable in accordance with their
respective terms, except to the extent that (a) the enforceability hereof
or thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect and affecting the
rights of creditors generally, (b) the enforceability hereof or thereof is
subject to general principles of equity, or (c) the indemnification
provisions hereof or thereof may be held to be violative of public policy.
(iii) Fine will deliver to each purchaser, prior to any submission by
such person of a written offer relating to the purchase of the Shares, a
copy of the Memorandum, as it may have been most recently amended or
supplemented by the Company.
(iv) Upon receipt of an executed Subscription Agreement and the
payments representing subscriptions for Shares, Fine will promptly forward
copies of the subscription documents to the
<PAGE>
Company or its counsel and shall forward all consideration received for
such Shares to the Escrow Agent to be held in escrow.
(v) Fine will not deliver the Memorandum to any person it does not
reasonably believe to be an Accredited Investor.
(vi) Fine will not take any action which it reasonably believes would
cause the Offering to violate the provisions of the Securities Act, the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), the
respective rules and regulations promulgated thereunder (the "Rules and
Regulations") or any applicable state "Blue Sky" laws.
(vii) Fine shall use all reasonable efforts to determine (a) whether
any prospective purchaser is an Accredited Investor and (b) that any
information furnished by a prospective investor is true and accurate. Fine
shall have no obligation to insure that (a) any check, note, draft or other
means of payment for the Shares will be honored, paid or enforceable
against the subscriber in accordance with its terms, or (b) subject to the
performance of Fine's obligations and the accuracy of Fine's
representations and warranties hereunder, (i) the Offering is exempt from
the registration requirements of the Securities Act or any applicable state
"Blue Sky" law or (ii) any prospective purchaser is an Accredited Investor.
(viii) Fine is a member of the National Association of Securities
Dealers, Inc., and is a broker-dealer registered as such under the Exchange
Act and under the securities laws of the states in which the Shares will be
offered or sold by Fine, unless an exemption for such state registration is
available to Fine. Fine is in compliance with all material rules and
regulations applicable to Fine generally and applicable to Fine's
participation in the Offering.
4. Representations and Warranties of the Company.
A. The Company represents and warrants as follows:
(i) The execution, delivery and performance of each of this Agreement,
the Subscription Agreements, the Placement Agent's Warrant Agreement and
the Escrow Agreement has been or will be duly and validly authorized by the
Company and is, or with respect to the Subscription Agreements and
Placement Agent's Warrant Agreement will be, a valid and binding agreement
of the Company, enforceable in accordance with their respective terms,
except to the extent that (a) the enforceability hereof or thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect and affecting the rights of creditors
<PAGE>
generally, (b) the enforceability hereof or thereof is subject to general
principles of equity or (c) the indemnification provisions hereof or
thereof may be held to be violative of public policy. The Shares and
Placement Agent's Shares have been duly authorized and, the Securities and
the certificates representing such Securities when issued and paid for in
accordance with the Memorandum, this Agreement, the Escrow Agreement, the
Securities Placement Agent's Warrant Agreement and the Subscription
Agreements, will be valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except to the extent
that (a) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, and (b) the
enforceability thereof is subject to general principles of equity. All
corporate action required to be taken for the authorization, issuance and
sale of the Securities has been duly and validly taken by the Company.
(ii) All issued and outstanding securities of the Company, have been
duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission or preemptive rights with
respect thereto and are not subject to personal liability solely by reason
of being securityholders; and none of such securities was issued in
violation of the preemptive rights of any holders of any security of the
Company. The Company has 20,000,000 shares of authorized Common Stock,
6,899,570 of which will be issued and outstanding as of the date hereof and
5,000,000 shares of authorized Preferred Stock none of which will be issued
and outstanding as of the date hereof.
(iii) The Securities have been duly authorized and, each of the Shares
and the shares issuable upon exercise of the Placement Agent's Warrants in
accordance with the terms thereof, will be validly issued, fully-paid and
non-assessable; the holders thereof will not be subject to personal
liability solely by reason of being such holders; such securities are not
and will not be subject to the preemptive rights of any holder of any
security of the Company.
(iv) Each of the Company and the Subsidiaries (as defined herein) has
good and marketable title to, or valid and enforceable leasehold estates
in, all items of real and personal property necessary to conduct its
business (including, without limitation any real or personal property
stated in the Memorandum to be owned or leased by the Company), free and
clear of all liens, encumbrances, claims, security interests and defects of
any material nature whatsoever, other than those set forth in the
Memorandum and liens for taxes not yet due and payable.
(v) There is no litigation or governmental proceeding pending or, to
the best of the Company's knowledge, threatened against, or involving the
properties or business of the Company or any of the Subsidiaries, except as
set forth in the Memorandum.
(vi) The Company owns one hundred percent (100%) of the issued and
outstanding capital stock of MDC Investment Holdings, Inc. (a Delaware
corporation) ("MDC Holdings") and MDC Holdings owns one hundred percent
(100%) of the issued and outstanding capital stock of MDC Research Ltd. (a
California corporation) ("MDC Research") (MDC Holdings and MDC Research are
collectively referred to herein as the "Subsidiaries"). Each of the Company
and the Subsidiaries has been duly organized and is validly existing as a
corporation in good standing under the laws of its state of incorporation.
None of the Company or the Subsidiaries owns or controls, directly or
indirectly, an interest in any other corporation, partnership, trust, joint
venture or other business entity disclosed except as disclosed in this
subsection 4.A.(vi). Each of the Company and the Subsidiaries is duly
qualified or licensed and in good standing as a foreign corporation in each
jurisdiction in which the character of its operations requires such
qualification or licensing and where failure to so qualify would have a
material adverse effect on the Company. Each of the Company and the
Subsidiaries has all requisite corporate power and authority, and all
material and necessary authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental regulatory officials
and bodies (domestic and foreign) to conduct its businesses (and proposed
business) as described in the Memorandum, and each
<PAGE>
of the Company and the Subsidiaries is doing business in material
compliance with all such authorizations, approvals, orders, licenses,
certificates and permits and all foreign, federal, state and local laws,
rules and regulations concerning the business in which it is engaged. Any
disclosures in the Memorandum concerning the effects of foreign, federal,
state and local regulation on the each of the Company's and the
Subsidiaries' businesses as currently conducted and as contemplated are
correct in all material respects and do not omit to state a material fact.
The Company has all corporate power and authority to enter into this
Agreement, the Escrow Agreement, the Placement Agent's Warrant Agreement
and the Subscription Agreements and to carry out the provisions and
conditions hereof and thereof, and all consents, authorizations, approvals
and orders required in connection herewith and therewith have been obtained
or will have been obtained prior to the Closing. No consent, authorization
or order of, and no filing with, any court, government agency or other body
is required by the Company for the issuance of the Securities pursuant to
the Memorandum, the Placement Agent's Warrant Agreement or the Subscription
Agreements, except pursuant to applicable federal and state securities
laws. The Company, since its inception, has not incurred any liability
arising from a violation by the Company of any of the provisions of the
Securities Act, the Exchange Act or the Rules and Regulations.
(vii) There has been no material adverse change in the condition or
prospects of the Company or any of the Subsidiaries, financial or
otherwise, from that on the latest dates as of which such condition or
prospects, respectively, are set forth in the Memorandum, and the
outstanding debt, the property and the business of each of the Company and
the Subsidiaries conforms in all material respects to the descriptions
thereof contained in the Memorandum.
(viii) Neither the Company nor any of the Subsidiaries is in breach
of, or in default under, any term or provision of any material indenture,
mortgage, deed of trust, lease, note, loan or credit agreement or any other
material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which it is a party
or by which it or any of its properties may be bound or affected. Neither
the Company nor any of the Subsidiaries is in violation of any provision of
its charter or Bylaws or in violation of any franchise, license, permit,
judgment, decree or order, or in violation of any statute, rule or
regulation. Neither the execution and delivery of this Agreement, the
Escrow Agreement, the Subscription Agreements or the Placement Agent's
Warrant Agreement nor the issuance and sale or delivery of the Securities
nor the consummation of any of the transactions contemplated herein or in
the Subscription Agreements, the Escrow Agreement or the Placement Agent's
Warrant Agreement, nor the compliance by the Company with the terms and
provisions hereof or thereof, has conflicted with or will conflict with, or
has resulted in or will result in a breach of, any of the terms and
provisions of, or has constituted or will constitute a default under, or
has resulted in or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
pursuant to the terms of any material indenture, mortgage, deed of trust,
note, loan or credit agreement or any other material agreement or
instrument evidencing an obligation for borrowed money, or any other
material agreement or instrument to which the Company or any of the
Subsidiaries may be bound or to which any of the property or assets of the
Company or any of the Subsidiaries is subject except (a) where such
default, lien, charge or encumbrance would not have a material adverse
effect on the Company or any of the Subsidiaries, and (b) as described in
the Memorandum; nor will such action result in any violation
<PAGE>
of the provisions of the charter or the Bylaws of the Company or any of the
Subsidiaries or, assuming the due performance by Fine of its obligations
hereunder, any statute or any order, rule or regulation applicable to the
Company or any of the Subsidiaries of any court or of any foreign, federal,
state or other regulatory authority or other government body having
jurisdiction over the Company or any of the Subsidiaries.
(ix) The Securities, the Escrow Agreement, the Placement Agent's
Warrant Agreement and the Subscription Agreements conform in all material
respects to all statements in relation thereto contained in the Memorandum.
(x) Subsequent to the dates as of which information is given in the
Memorandum, and except as may otherwise be indicated or contemplated herein
or therein, neither the Company nor any of the Subsidiaries has (a) issued
any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, or (b) entered into any transaction other
than in the ordinary course of business, or (c) declared or paid any
dividend or made any other distribution on or in respect of its capital
stock.
(xi) Except for reimbursement of expenses of William Blair & Co.
pursuant to an engagement letter dated October 1, 1996, which the Company
presently expects shall not exceed $25,000, there are no claims against the
Company for services in the nature of a finder's or origination fee with
respect to the sale of the Shares arising from any agreement made by the
Company.
(xii) Except as disclosed in Memorandum, each of the Company and the
Subsidiaries owns or possesses, free and clear of all liens or encumbrances
and rights thereto or therein by third parties, the trademarks, patents and
patent applications necessary to conduct its business (including, without
limitation, any such rights described in the Memorandum as being owned or
possessed by the Company or any of the Subsidiaries) and there is no claim
or action by any person pertaining to, or proceeding, pending or to the
Company's knowledge threatened, which challenges the exclusive rights of
the Company or any of the Subsidiaries with respect to the trademarks,
patents and patent applications used in the conduct of the Company's or any
of the Subsidiaries businesses (including, without limitation, any such
rights described in the Memorandum as being owned or possessed by the
Company or any of the Subsidiaries) except any claim or action that would
not have a material adverse effect on the Company or any of the
Subsidiaries; and except as disclosed in the Memorandum, none of the
Company's or any of the Subsidiaries' current products, services or
processes create infringement liability or will infringe on United States
patents currently held by any third party.
(xiii) Except as described in the Memorandum, neither the Company nor
any of the Subsidiaries is currently under any obligation to pay royalties
or fees of any kind whatsoever to any third party with respect to any
trademarks or patents, or technology it uses, employs or intends to use or
employ.
(xiv) Subject to the performance by Fine of its obligations hereunder,
the Memorandum and the offer and sale of the Securities comply, and will
continue to comply up to the Termination Date, in all material respects
with the requirements of Rule 506 of Regulation D promulgated
<PAGE>
by the Commission pursuant to the Securities Act and any other applicable
federal and state laws, rules, regulations and executive orders. Neither
the Memorandum nor any amendment or supplement thereto nor any documents
prepared by the Company in connection with the Offering will contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
All statements of material facts in the Memorandum are true and correct as
of the date of the Memorandum and will be true and correct on the date of
the Closing.
(xv) All taxes which are due and payable from the Company have been
paid in full and neither the Company nor any of the Subsidiaries has any
tax deficiency or claim outstanding assessed or to the Company's knowledge
proposed against it.
(xvi) The financial statements of the Company included in the
Memorandum fairly present the financial position of the Company at
September 30, 1996; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently
applied throughout the periods involved.
(xvii) None of the Company or any of the Subsidiaries nor any of their
officers, directors, employees or agents, nor any other person acting on
behalf of the Company or any of the Subsidiaries, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
(other than legal price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political
party or candidate for office (domestic or foreign) or other person who is
or may be in a position to help or hinder the business of the Company or
any of the Subsidiaries (or assist it in connection with any actual or
proposed transaction) which (A) might subject the Company or any of the
Subsidiaries to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, or (B) if not given in the past,
might have had a materially adverse effect on the assets, business or
operations of the Company or any of the Subsidiaries as reflected in any of
the financial statements contained in the Memorandum, or (C) if not
continued in the future, might adversely affect the assets, business,
operations or prospects of the Company or any of the Subsidiaries in the
future.
5. Certain Covenants and Agreements of the Company.
The Company covenants and agrees at its expense and without any expense to
Fine as follows:
A. To advise Fine of any adverse change in the Company's financial
condition, prospects or business or of any development materially affecting
the Company or rendering untrue or misleading any material statement in the
Memorandum occurring at any time prior to the Closing as soon as the
Company is either informed or becomes aware thereof.
B. To use its best efforts to cause the Shares to be qualified or
registered for sale, or to obtain exemptions from such qualification or
registration requirements, on terms consistent with those stated in the
Memorandum under the securities laws of such jurisdictions as Fine shall
reasonably request,
<PAGE>
provided that such states and jurisdictions do not require the Company to
qualify as a foreign corporation. Qualification, registration and exemption
charges and fees shall be at the sole cost and expense of the Company.
Fine's counsel shall perform the required "Blue Sky" services and all
reasonable fees (such fees not to exceed $10,000) or expenses and
disbursements of Fine's counsel relating to such "Blue Sky" matters and
relating to the Offering shall be paid by the Company.
C. To provide and to continue to provide to each holder of securities
participating in the Offering, so long as such holder shall remain a
security holder of the Company, for a period ending on the earlier of (i)
the registration of the Securities under the Securities Act and (ii) five
(5) years from the Termination Date, copies of all quarterly and audited
annual financial statements prepared by or on behalf of the Company for
public disclosure, other reports prepared by or on behalf of the Company
for public disclosure and all documents delivered to the Company's
stockholders.
D. To deliver, for a period of five (5) years following the
Termination Date, to Fine, in the manner provided in Section 11(B) of this
Agreement: (i) within forty five (45) days after the end of each of the
first three quarters of each fiscal year of the Company, commencing with
the first quarter ending after the Termination Date, a statement of its
income for each such quarterly period, and its balance sheet and a
statement of changes in stockholders' equity as of the end of such
quarterly period, all in reasonable detail, certified by its principal
financial or accounting officer; (ii) within ninety (90) days after the
close of each fiscal year, its balance sheet as of the close of such fiscal
year, together with a statement of income, a statement of changes in
stockholders' equity and a statement of cash flow for such fiscal year,
such balance sheet, statement of income, statement of changes in
stockholders' equity and statement of cash flow to be in reasonable detail
and accompanied by a copy of the certificate or report thereon of
independent auditors; and (iii) a copy of all documents, reports and
information furnished to its stockholders at the time that such documents,
reports and information are furnished to its stockholders.
E. To apply the proceeds of the Offering in accordance with "Use of
Proceeds" in the Memorandum and not to apply any proceeds from the Offering
(i) to pay any deferred compensation of any current or former officer or
employee of the Company, or (ii) to pay any principal amount payable under
the line of credit with CoreStates Bank or under the line of credit with
Eagle National Bank, unless collateral of cash and/or marketable securities
in an amount equal to the repayment of principal is released by the lender
to the Company for its unrestricted use, in connection with each repayment
of principal.
F. To provide Fine with as many copies of the Memorandum as Fine may
reasonably request.
G. The Company grants to Fine the right, for a period of five (5)
years commencing on the date of the Closing, to cause one person designated
by Fine to be elected to the Company's Board of Directors (the "Board"). In
the event Fine elects not to nominate a member to the Company's Board, Fine
may designate a person, who may be a director, officer, employee or
affiliate of Fine, to receive all notices of meetings of the Company's
Board and other correspondence and communications sent by the Company to
members of the Board, and to attend all such meetings of the Board. Such
individual shall be reimbursed for all out-of-pocket expenses incurred in
connection with his service on, or attendance of, as the case may be,
meetings of the Board. On or before the Closing, the Company shall provide
Fine with a certificate signed by each of James M. Donegan, Gilbert M.
<PAGE>
White, John A. Botich, Michael J. Botich, Thor R. Halseth and Gary L.
Crocker whereby each agrees to vote their shares of Common Stock
beneficially owned in favor of Fine's designee, if Fine exercises its right
under this subsection 5.G.
H. On or before the Closing, the Company shall provide Fine with true
copies of duly executed, legally binding and enforceable agreements
pursuant to which James M. Donegan, Gilbert M. White, John A. Botich,
Michael J. Botich, Thor R. Halseth and Gary L. Crocker (collectively the
"Lockup Holders") agree that each will not directly or indirectly, issue,
offer to sell, sell, grant an option for the sale of, assign, transfer,
pledge, hypothecate, distribute or otherwise encumber or dispose of shares
of Common Stock or securities convertible into, exercisable or exchangeable
for or evidencing any right to purchase or subscribe for any shares of
Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein, without the prior
written consent of Fine (collectively, the "Lock-up Agreements"), except
for unrestricted and freely tradeable shares of the Company's Common Stock
purchased in the public market and the securities listed in the fourth
column on Schedule 5.H attached hereto, for a period commencing on the
Closing date and continuing until the Company has entered into no fewer
than three (3) material corporate alliances ("Material Corporate Alliance")
relating to the Company's products that, provide reasonable assurance of
financial success and funding of the Company (the "Lockup Period"),
provided, however, that (i) the Lock-up Agreements shall not apply to gifts
or private transactions, wherein, as a precondition to transfer, the
transferee shall agree in writing to be bound by the same contractual
undertakings as the transferor and (ii) regarding all of the Lockup
Holders, except for Mr. Donegan, the Lockup Agreements shall terminate
after the execution of a second Material Corporate Alliance, upon the
written consent of Mr. Donegan. On or before the Closing, the Company shall
deliver instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities subject
to the Lock-up Agreements and to place appropriate stop transfer orders on
the Company's ledgers. Material Corporate Alliances are defined for
purposes of this Subsection 5.H as binding, written and duly executed
contract(s) between the Company and another entity pursuant to which the
Company assigns, licenses or sells outright the right(s) to some or all of
its technology and/or products for the purpose of manufacturing, marketing
or distributing same in consideration of actual monetary revenue or a
service (or the promise of either) the value of which can be determined,
which will be approved by the Company's Board of Directors as materially
beneficial to the financial health and future of the Company.
6. Registration Rights.
As soon as practicable after the Closing and in any event not later than 30
days thereafter, the Company shall prepare and file with the Commission, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Placement Agent and the holders of the Shares, in order to comply with the
provisions of the Securities Act, so as to permit a public offering and sale of
the Shares for a consecutive period ending twenty-four (24) months after the
Closing. The costs and expenses associated with the preparation, filing and
prosecution of such registration statement(s) shall be borne by the Company.
<PAGE>
7. Indemnification.
A. The Company hereby agrees that it will indemnify and hold Fine and each
officer, director, shareholder, employee or representative of Fine, and each
person controlling, controlled by or under common control of Fine within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or
the Rules and Regulations, harmless from and against any and all loss, claim,
damage, liability, cost or expense whatsoever (including, but not limited to,
any and all reasonable legal fees and other expenses and disbursements incurred
in connection with investigating, preparing to defend or defending any action,
suit or proceeding, including any inquiry or investigation, commenced or
threatened, or any claim whatsoever or in appearing or preparing for appearance
as a witness in any action, suit or proceeding, including any inquiry,
investigation or pretrial proceeding such as a deposition) to which Fine or such
indemnified person of Fine may become subject under the Securities Act, the
Exchange Act, the Rules and Regulations, or any other federal or state law or
regulation, common law or otherwise, arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in (A)
Section 4 of this Agreement, (B) the Memorandum (except those written statements
relating to Fine given by an indemnified person for inclusion therein), (C) any
application or other document or written communication executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Shares under the securities laws thereof,
or any state securities commission or agency; (ii) the omission or alleged
omission from documents described in clauses (A), (B) or (C) above of a material
fact required to be stated therein or necessary to make the statements therein
not misleading; or (iii) the breach of any representation, warranty, covenant or
agreement made by the Company in this Agreement. The Company further agrees that
upon demand by an indemnified person, at any time or from time to time, it will
promptly reimburse such indemnified person for any loss, claim, damage,
liability, cost or expense actually and reasonably paid by the indemnified
person as to which the Company has indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Paragraph 7(A), any such
payment or reimbursement by the Company of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against Fine or such indemnified person as a direct result
of Fine or such person's gross negligence or willful misfeasance will be
promptly repaid to the Company.
B. Fine hereby agrees that it will indemnify and hold the Company and each
officer, director, shareholder, employee or representative of the Company, and
each person controlling, controlled by or under common control with the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act or the Rules and Regulations, harmless from and against any and all
loss, claim, damage, liability, cost or expense whatsoever (including, but not
limited to, any and all reasonable legal fees and other expenses and
disbursements incurred in connection with investigating, preparing to defend or
defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Company or such indemnified person of the Company may
become subject under the Securities Act, the Exchange Act, the Rules and
Regulations, or any other federal or state law or regulation, common law or
otherwise, arising out of or based upon (i) the conduct of Fine or its officers,
employees or representatives in its acting as
<PAGE>
placement agent for the Offering or (ii) the breach of any representation,
warranty, covenant or agreement made by Fine in this Agreement.
C. Promptly after receipt by an indemnified party of notice of commencement
of any action covered by Section 7(A) or 7(B), the party to be indemnified
shall, within five (5) business days, notify the indemnifying party of the
commencement thereof; the omission by one indemnified party to so notify the
indemnifying party shall not relieve the indemnifying party of its obligation to
indemnify any other indemnified party that has given such notice and shall not
relieve the indemnifying party of any liability outside of this indemnification
if not materially prejudiced thereby. In the event that any action is brought
against the indemnified party, the indemnifying party will be entitled to
participate therein and, to the extent it may desire, to assume and control the
defense thereof with counsel chosen by it which is reasonably acceptable to the
indemnified party. After notice from the indemnifying party to such indemnified
party of its election to so assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under such Section 7(A) or 7(B) for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, but the indemnified party may, at its own
expense, participate in such defense by counsel chosen by it, without, however,
impairing the indemnifying party's control of the defense. Subject to the
proviso of this sentence and notwithstanding any other statement to the contrary
contained herein, the indemnified party or parties shall have the right to
choose its or their own counsel and control the defense of any action, all at
the expense of the indemnifying party if, (i) the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action at the expense of the indemnifying party, or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of one additional counsel shall be borne by
the indemnifying party; provided, however, that the indemnifying party shall
not, in connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstance, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all such indemnified
parties. No settlement of any action or proceeding against an indemnified party
shall be made without the consent of the indemnifying party.
D. In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in Section 7(A) or 7(B) is due in
accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Company and Fine shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with the investigation
or defense of same) which the other may incur in such proportion so that Fine
shall be responsible for five percent (5%) of the aggregate of such losses,
claims, damages and liabilities and the Company shall be responsible for the
balance; provided, however, that no person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Securities Act
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7(D), any person
controlling, controlled by or under common control with Fine, or any partner,
director, officer,
<PAGE>
employee, representative or any agent of any thereof, shall have the same
rights to contribution as Fine and each person controlling, controlled by or
under common control with the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and each officer of the Company
and each director of the Company shall have the same rights to contribution as
the Company. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against the other party
under this Section 7(D), notify such party from whom contribution may be sought,
but the omission to so notify such party shall not relieve the party from whom
contribution may be sought from any obligation they may have hereunder or
otherwise if the party from whom contribution may be sought is not materially
prejudiced thereby. The indemnity and contribution agreements contained in this
Section 7 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified person or any termination
of this Agreement.
8. Payment of Expenses.
Whether or not the Offering is successfully completed, the Company hereby
agrees to bear all of the expenses in connection with the Offering, including,
but not limited to the following: filing fees, printing and duplicating costs,
advertisements, postage and mailing expenses with respect to the transmission of
offering material, registrar and transfer agent fees, escrow agent fees and
expenses, fees of the Company's counsel and accountants, reasonable fees and
expenses of Fine's counsel, issue and transfer taxes, if any, and reasonable
"Blue Sky" counsel fees (such fees not to exceed $10,000) and expenses. It is
agreed that Fine's counsel shall perform the required Blue Sky legal services.
In this connection, Blue Sky applications for registration of the Shares or
exemption therefrom shall be made in such states and jurisdictions as shall be
reasonably requested by Fine, provided that such states and jurisdictions do not
require the Company to qualify as a foreign corporation.
9. Conditions of the Closing
The Closing shall be held at the offices of Fine or its counsel. The
obligations of Fine hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing with respect to the Company as if it had been made on and as
of the Closing; the accuracy on and as of the Closing of the statements of the
officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing of its covenants and
obligations hereunder and to the following further conditions:
A. At the Closing, Fine shall receive the opinion of Stradley, Ronon,
Stevens & Young, LLP, special counsel to the Company, dated as of the date of
the Closing, which opinion shall be in form and substance reasonably
satisfactory to counsel for Fine, to the effect that:
(i) The execution, delivery and performance of each of this Agreement,
the Placement Agent's Warrant Agreement, the Subscription Agreements and
the Escrow Agreement has been duly and validly authorized by the Company
and, assuming due authorization, execution and delivery by each other party
thereto, each such agreement is a valid and binding agreement of the
Company, enforceable in accordance with its respective terms. The Placement
Agent's Warrants constitute valid and binding obligations of the Company to
issue and sell, upon exercise
<PAGE>
thereof and payment therefor in accordance with their respective terms, the
number and type of securities of the Company called for thereby. The
Securities to be issued and sold by the Company pursuant to the Memorandum,
the Placement Agent's Warrant Agreement, this Agreement and the
Subscription Agreements have been duly authorized and, when issued and paid
for in accordance with the Memorandum, the Placement Agent's Warrant
Agreement, this Agreement and the Subscription Agreements, will be validly
issued, fully paid and non-assessable; the holders thereof are not and will
not be subject to personal liability to third parties solely by reason of
being such holders; such securities are not and will not be subject to the
preemptive rights of any stockholder of the Company pursuant to the
Company's Certificate of Incorporation or, to such counsel's actual
knowledge, any agreement of the Company with any stockholder; and all
corporate action required to be taken for the authorization, issuance and
sale of such securities has been duly and validly taken by the Company. The
Securities conform with respect to legal matters in all material respects
to the description thereof contained in the Memorandum.
(ii) Each of the Company and the Subsidiaries is validly existing as a
corporation in good standing under the laws of its state of incorporation.
Each of the Company and the Subsidiaries is qualified to do business and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
(as described in the Memorandum) requires such qualification, except where
the failure to so qualify would not have a material adverse effect on the
business, properties or operations of the Company and the Subsidiaries (as
described in the Memorandum) taken as a whole. Except as described in the
Memorandum, each of the Company and the Subsidiaries has all requisite
corporate power and authority to own or lease its properties and conduct
its business (or proposed business) as described in the Memorandum.
(iii) All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and non-assessable;
to such counsel's actual knowledge, the holders thereof have no rights of
rescission and the holders thereof have no preemptive rights with respect
thereto pursuant to the Company's Certificate of Incorporation or, to such
counsel's actual knowledge, any agreement of the Company with any
stockholder, and are not subject to personal liability solely by reason of
being securityholders; and none of such securities was issued in violation
of the preemptive rights of any holders of any security of the Company
pursuant to the Company's Certificate of Incorporation or, to such
counsel's actual knowledge, any agreement of the Company with any
stockholder. The Company has 20,000,000 shares of authorized Common Stock,
6,899,570 of which will be issued and outstanding as of the date hereof and
5,000,000 shares of authorized Preferred Stock, none of which will be
issued and outstanding as of the date hereof.
(iv) To such counsel's actual knowledge, there is no litigation or
governmental proceeding, pending or threatened against, the Company or any
of the Subsidiaries or any of their assets, except as set forth in the
Memorandum.
(v)(a) To such counsel's actual knowledge (without regard to the
transactions contemplated by this Agreement), neither the Company nor any
of the Subsidiaries is in breach of, or in default under, any term or
provision of any material indenture, mortgage, deed of trust,
<PAGE>
lease, note, loan or credit agreement or any other material agreement or
instrument evidencing an obligation for borrowed money, or any other
material agreement or instrument to which it is a party or by which it or
any of its properties may be bound or affected. (b) To such counsel's
actual knowledge (without regard to the transactions contemplated by this
Agreement), neither the Company nor any of the Subsidiaries is in violation
of any provision of its charter or Bylaws or in violation of any franchise,
license, permit, judgment, decree or order, or in violation of any statute,
rule or regulation. (c) To such counsel's actual knowledge, neither the
execution and delivery of this Agreement, the Escrow Agreement, the
Placement Agent's Warrant Agreement or the Subscription Agreements nor the
issuance and sale or delivery of the Securities nor the consummation of any
of the transactions contemplated herein or in the Subscription Agreements
or the Placement Agent's Warrant Agreement, nor the compliance by the
Company with the terms and provisions hereof or thereof, has conflicted
with or will conflict with, or has resulted in or will result in a breach
of, any of the terms and provisions of, or has constituted or will
constitute a default under, or has resulted in or will result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of the Subsidiaries pursuant to, the terms
of any material indenture, mortgage, deed of trust, note, loan or credit
agreement or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or
instrument to which the Company or any of the Subsidiaries may be bound or
to which any of the property or assets of the Company or any of the
Subsidiaries is subject except (i) where such default, lien, charge or
encumbrance would not have a material adverse effect on the Company or any
of the Subsidiaries and (ii) as described in the Memorandum; nor will such
action result in any violation of the provisions of the charter or the
Bylaws of the Company or any of the Subsidiaries or, assuming the due
performance by Fine of its obligations hereunder, any statute, rule or
regulation that is applicable to the Company or any of the Subsidiaries and
that is in such counsel's experience normally applicable to transactions of
the type contemplated by this Agreement (other than Blue Sky laws), or, to
such counsel's actual knowledge, any order of any court or of any foreign,
federal, state or other regulatory authority or other government body
having jurisdiction over the Company or any of the Subsidiaries.
(vi) Assuming that each purchaser of the Securities is an Accredited
Investor, that the representations made by the Company and Fine in this
Agreement are true and correct at all times during the Offering Period and
at the time of the Closing, that Fine has complied with the provisions of
this Agreement and of Section 502(c) of Regulation D and that a Form D will
be filed in accordance with the provisions of Section 503 of Regulation D,
no registration under the Securities Act is required in connection with the
sale and issuance of any of the Securities by the Company. The offering and
sale of the Securities in the manner contemplated by this Agreement, the
Placement Agent's Warrant Agreement and the Memorandum will not be
integrated with any offering made before the offer and sale of the
Securities in a manner that would render unavailable any exemption from
registration under the Securities Act.
Such opinion shall be rendered and interpreted in accordance with the
assumptions, qualifications, exceptions, definitions, limitations on
coverage and other limitations provided for and specified in Sections 4,
6-A, 7, 9, 11-14, 18 and 19 (except subsection 19(a) as to federal
securities laws and, without respect to the opinion described in paragraph
(v)(b) above and the confirmations described in paragraph (iv) above and
the final paragraph of this subsection A,
<PAGE>
subsections 19(c), 19(e), 19(j), 19(l), 19(o) and 19(p)) of the Legal
Opinion Accord (the "Accord") of the ABA Section of Business Law (1991),
included in the Third Party Legal Opinion Report, 47 Bus. Law 167 (1991).
Furthermore, the law covered by such opinion shall be limited to (a) the
Federal statutes, judicial decisions and rules and regulations of the
governmental agencies of the United States, (b) the statutes, judicial and
administrative decisions and rules and regulations of the governmental
agencies of the Commonwealth of Pennsylvania, (c) the Delaware General
Corporation Law (the "DGCL") and (d) with respect to the existence and good
standing of MDC Research, the California General Corporation Law (the
"CGL"). With respect to the DGCL, such counsel may rely exclusively on
their review of such law as compiled in Prentice Hall, Inc. CORPORATION,
including the cases reported therein. With respect to the CGCL, such
counsel may rely exclusively on their review of such law as compiled in
Prentice Hall, Inc. CORPORATION, without regard to the cases decided
thereunder. Except with respect to opinions as to which the DGCL applies
and the opinion with respect to the existence and good standing of MDC
Research, to which the CGCL applies, such counsel may assume in each
instance that the substantive law of any jurisdiction other than the
Commonwealth of Pennsylvania is identical in all respects to the
substantive law of the Commonwealth of Pennsylvania. Such opinion need not
address the remedies conferred by the Agreement, the Placement Agent's
Warrant Agreement, the Subscription Agreements, the Escrow Agreement or any
other agreement made by the Company in connection with the Offering or the
remedy which any court, other government body, agency or arbitrator may
grant, impose or render. The term "primary lawyer group" as used in Section
6-A of the Accord shall be defined in the opinion to mean Bruce G. Leto,
Alan R. Gedrich, Ann Marie Janus and Brian S. Vargo, who are the lawyers in
such firm who have had active involvement in negotiating the transactions
contemplated by the opinion or who have given substantive legal attention
to the affairs of the Company since June 12, 1995.
In rendering such opinion, such counsel may rely, as to matters of
fact, to the extent they deem proper, on certificates and written
statements of responsible officers of the Company and certificates or other
written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good
standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Fine's counsel.
Such counsel shall state that it has participated in conferences with
officers and other representatives of the Company during which the contents
of the Memorandum were discussed. Although such counsel is not passing
upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of any statements contained in the Memorandum,
such counsel shall state that, on the basis of the foregoing, nothing has
come to such counsel's attention to lead them to believe that the
Memorandum, as of the date thereof and the date of such opinion, contained
or contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (except for the financial statements, notes thereto
and other statistical and financial information included therein or omitted
therefrom, as to which such counsel need express no opinion).
B. At the Closing, Fine shall receive the opinion of Dann Dorfman Herrell
and Skillman, special intellectual property counsel to the Company, dated as of
the date of the Closing, which opinion shall be in form and substance reasonably
satisfactory to counsel for Fine, to the effect that:
(i) The Company owns, free and clear of all liens, encumbrances,
pledges or security interests, whatsoever,
(a) all patents and patent applications and provisional patent
applications listed in Schedule A, and
(b) all trademarks listed in Schedule B
and referenced in the Memorandum under Patents and Proprietary Rights,
(ii) As to the Company's core products, the Safety Syringe, Safety
Phlebotomy Set and Safety Catheter (as defined in the Memorandum), the
Company has performed right to use searches and such counsel shall state
the rights of the Company to market such products,
(iii) There is no claim or action, pending or threatened, which
affects the rights of the Company with respect to any trademarks or patents
used in the conduct of the Company's business,
(iv) As far as aware, all patents and trademarks owned by the Company
are valid and all pending U.S. patent applications were filed in accordance
with the rules and regulations of the United States Patent and Trademark
Office,
(v) The statements in the Memorandum in the heading, "Risk Factors"
Dependence on Patents and Proprietary Rights" are accurate in all material
respects and do not omit to state any fact necessary to make the statements
made therein complete and accurate,
(vi) The statements in the Memorandum do not contain any untrue
statement of a material fact with respect to the intellectual property
position of the Company, or omit to state any material fact relating to the
intellectual property position of the Company which is required to be
stated in the Memorandum or is necessary to make the statements therein not
misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States
and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon
an opinion or opinions (in form and substance satisfactory to Fine's
counsel) of other counsel acceptable to Fine's counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the
Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting
the corporate existence or good standing of the Company, provided that
copies of any such statements or certificates shall be delivered to Fine's
counsel. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel
and that Fine and they are justified
<PAGE>
in relying thereon. The opinion shall also state that Fine's counsel is
entitled to rely on the opinion of counsel to the Company addressed
to Fine.
Such counsel shall state that it has participated in conferences with
officers and other representatives of the Company during which the contents
of the Memorandum were discussed. Although such counsel is not passing
upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of any statements contained in the Memorandum,
such counsel shall state that, on the basis of the foregoing, nothing has
come to such counsel's attention to lead them to believe that the
Memorandum, as of the date thereof and the date of such opinion, contained
or contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (except for the financial statements, notes thereto
and other statistical and financial information included therein or omitted
therefrom, as to which such counsel need express no opinion).
C. At the Closing, Fine shall receive the opinion of Buc & Beardsley,
special FDA counsel to the Company, dated as of the date of the Closing, which
opinion shall be in form and substance reasonably satisfactory to counsel for
Fine, to the effect that:
(i) The statements in the Memorandum under "Risk Factors Government
Regulation" have been reviewed by such counsel, and insofar as they
summarize applicable provisions of the Federal Food, Drug, and Cosmetic Act
("FDCA") and implementating regulations are correct in all material
respects and do not omit to state applicable provisions of the FDCA and
implementing regulations necessary to make the statements contained therein
not misleading;
(ii) Nothing has come to such counsel's attention that would lead such
counsel to believe that there have been or that there are lawsuits or
regulatory or enforcement proceedings brought by or before the U.S. Food
and Drug Administration (the "FDA") pending or threatened, against the
Company or any of its existing or proposed products;
In rendering such opinion, such counsel may rely as to matters of
fact, to the extent they deem proper, on certificates and written
statements of responsible officers of the Company provided that copies of
any such statements or certificates shall be delivered to Fine's counsel.
The opinion shall also state that Fine's counsel is entitled to rely on the
opinion of counsel to the Company addressed to Fine.
Such counsel shall state that it has participated in conferences with
officers and other representatives of the Company during which the contents
of the Memorandum relating to the FDA and the FDCA were discussed, and that
it has obtained a certificate from responsible officers of the Company.
Although such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of any
statements contained in the Memorandum, such counsel shall state that, on
the basis of the foregoing, nothing has come to such counsel's attention to
lead them to believe that the statements in the Memorandum under "Risk
Factors -- Government Regulation", as they relate to FDA regulatory
matters, as of the date thereof and the date of such opinion, contained or
contains any untrue statement of a material
<PAGE>
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
D. At or prior to the Closing, counsel for Fine shall have been furnished
such documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in this
Agreement and the Memorandum, or in order to evidence the accuracy, completeness
or satisfaction of any of the representations, warranties or conditions herein
contained.
E. At and prior to the Closing, (i) there shall have been no material
adverse change nor development involving a prospective change in the condition
or prospects or the business activities, financial or otherwise, of the Company
or any of the Subsidiaries, from the latest dates as of which such condition is
set forth in the Memorandum; (ii) there shall have been no transaction, not in
the ordinary course of business, entered into by the Company or any of the
Subsidiaries which has not been disclosed in the Memorandum or to Fine in
writing; (iii) neither the Company nor any of the Subsidiaries shall be in
default under any provision of any instrument relating to any outstanding
indebtedness for which a waiver or extension has not been otherwise received;
(iv) except as set forth in the Memorandum, the Company shall not have issued
any securities (other than those set forth in the Memorandum) or declared or
paid any dividend or made any distribution of its capital stock of any class and
there shall not have been any change in the indebtedness (long or short term) or
liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company or any of the Subsidiaries shall
have been pledged or mortgaged, except as indicated in the Memorandum; and (v)
no action, suit or proceeding, at law or in equity, against the Company or any
of the Subsidiaries or affecting any of its properties or businesses shall be
pending or threatened before or by any court or federal or state commission,
board or other administrative agency, domestic or foreign, wherein an
unfavorable decision, ruling or finding could materially adversely affect the
businesses, prospects or financial condition or income of the Company or any of
the Subsidiaries, except as set forth in the Memorandum.
F. At the Closing, Fine shall have received a certificate of the Company
signed by its chief executive officer, dated as of the date of the Closing, to
the effect that the conditions set forth in subparagraph (E) above have been
satisfied and that, as of the date of the Closing, the representations and
warranties of the Company set forth herein are true and correct.
G. At the Closing, the Company shall have duly executed and delivered the
appropriate amount and designation of Shares to Fine as agent for the respective
holders thereof.
H. At or prior to the Closing, the Company shall deliver a duly executed,
legally binding Placement Agent's Warrant Agreement and at the Closing the
Company shall duly and validly issue Placement Agent's Warrants to purchase ten
percent (10%) of the number of Shares sold by the Company.
10. Termination.
This Agreement shall terminate if the Closing specified in Section 1(B)
does not take place on or before the seven (7) business day following the
Termination Date or as soon thereafter as the funds
<PAGE>
received from subscriptions have cleared the banking system in the normal
course of business. Either Fine or the Company may terminate the Offering in its
sole discretion prior to the Closing. In the event that the Company determines
to terminate the Offering from and after the date hereof through the end of the
Offering Period for any reason other than Fine's breach of the terms of this
Agreement, and Fine is willing to proceed, then the Company shall immediately
pay to Fine the amount of its out-of-pocket expenses. Upon such termination, all
Subscription Documents and payments for the Shares not previously delivered to
the purchasers thereof, without interest thereon or deduction therefrom, shall
be returned to the respective subscribers, Fine shall have no further obligation
to the Company, and the Company shall have no obligation to Fine.
11. Miscellaneous.
A. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all which shall be deemed to be one
and the same instrument.
B. Any notice required or permitted to be given hereunder shall be given in
writing and shall be deemed effective when deposited in the United States mail,
postage prepaid, or when received if delivered personally or by facsimile
confirmed transmission, addressed as follows:
To Fine:
Fine Equities, Inc.
551 Fifth Avenue, Suite 3213
New York, New York 10146
Fax: (212) 687-0999
Attention: Mr. N. Scott Fine
with a copy to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
18th Floor
New York, New York 10103
Fax: (212) 506-5151
Attention: Rubi Finkelstein, Esq.
<PAGE>
To the Company:
The Med-Design Corporation
121 South Broad Street
Suite 310
Philadelphia, PA 19107
Fax: (215) 735-2701
Attention: Mr. James M. Donegan, Chairman
with a copy to:
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Fax: (215) 564-8120
Attention: Alan R. Gedrich, Esq.
or to such other address of which written notice is given to the others.
C. This Agreement shall be governed by and construed in all respects under
the laws of the State of New York, without reference to its conflict of laws
rules or principles. Any suit, action, proceeding or litigation arising out of
or relating to this Agreement shall be brought and prosecuted in such federal or
state court or courts located within the State of New York as provided by law.
The parties hereby irrevocably and unconditionally consent to the jurisdiction
of each such court or courts located within the State of New York and to service
of process by registered or certified mail, return receipt requested, or by any
other manner provided by applicable law, and hereby irrevocably and
unconditionally waive any right to claim that any suit, action, proceeding or
litigation so commenced has been commenced in an inconvenient forum.
D. This Agreement and the other agreements referenced herein contain the
entire understanding between the parties hereto and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
E. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
THE MED-DESIGN CORPORATION
By:
---------------------------------
Name:
Title:
FINE EQUITIES, INC.
By:
-----------------------------
Name:
Title:
EXHIBIT 4.01
Form of Subscription Agreement between
MDC and each of the purchasers of the
1,000,000 shares of MDC common stock
<PAGE>
NAME OF SUBSCRIBER: __________________
To: THE MED-DESIGN CORPORATION
Fine Equities, Inc.
Suite 3213
New York, New York 10176
THE MED-DESIGN CORPORATION
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
SECTION 1.
1.1 Subscription. The undersigned, intending to be legally bound, hereby
irrevocably subscribes for and agrees to purchase $________ of shares (the
"Shares") of common stock (the "Common Stock") of the Med-Design Corporation
(the "Company") at a price per share equal to approximately 87% of the closing
bid price of the Common Stock on the trading immediately preceding the closing
(the "Closing"). Fine Equities, Inc. (the "Placement Agent") has been retained
by the Company as exclusive placement agent for the offer and sale of up to
$5,000,000 of Shares on a "best efforts" basis. The minimum purchase of Shares
is $50,000, subject to the Placement Agent's discretion. Unless otherwise
indicated all capitalized terms not defined herein shall have the same meanings
and definitions as set forth in the Memorandum.
1.2 Purchase of Shares.
Payment for the Shares shall be by wire transfer only in accordance with
the instructions of the Placement Agent, together with an executed copy of this
Agreement and any other required documents.
SECTION 2.
2.1 Acceptance or Rejection.
(a) The undersigned understands and agrees that the Company reserves the
right to reject this subscription for the Shares in whole or part, if, in its
reasonable judgment, it deems such action in the best interest of the Company,
at any time prior to the Closing, notwithstanding prior receipt by the
undersigned of notice of acceptance of the undersigned's subscription.
(b) The undersigned understands and agrees that subscriptions may be
revoked by the undersigned provided that written notice of revocation is sent by
certified or registered mail,
<PAGE>
return receipt requested, and is received by the Placement Agent at least
two business days prior to the Closing.
(c) In the event of rejection of this subscription, or in the event the
sale of the Shares subscribed for by the undersigned is not consummated by the
Company for any reason (in which event this Subscription Agreement shall be
deemed to be rejected), this Subscription Agreement and any other agreement
entered into between the undersigned and the Company relating to this
subscription shall thereafter have no force or effect and the Company shall
promptly return or cause to be returned to the undersigned the purchase price
remitted to the Company by the undersigned, without interest thereon or
deduction therefrom.
2.2 Closing; Closing Date.
The closing (the "Closing") of the purchase and sale of the Shares
following the acceptance by the Company of the undersigned's subscription, as
evidenced by the Company's execution of this Subscription Agreement, shall take
place at the offices of Orrick, Herrington & Sutcliffe LLP counsel to the
Placement Agent, at 666 Fifth Avenue, New York, New York 10103, or such other
place as determined by the Placement Agent, on such date as is mutually agreed
to by the Company and the Placement Agent. At the Closing of the purchase and
sale of the Shares subscribed to by the undersigned, the Company shall prepare
for delivery to the undersigned the certificates for the Shares to be issued and
sold to the undersigned, duly registered in the undersigned's name against
payment in full by the undersigned of the aggregate purchase price of the
Shares.
SECTION 3.
3.1 Investor Representations and Warranties.
The undersigned hereby acknowledges, represents and warrants to, and agrees
with, the Company and its affiliates as follows:
(a) The undersigned is acquiring the Shares for his own account as
principal, not as a nominee or agent, for investment purposes only, and not with
a view to, or for, resale, distribution or fractionalization thereof in whole or
in part and no other person has a direct or indirect beneficial interest in such
Shares or any of the components of the Shares. Further, the undersigned does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Shares for which the undersigned is subscribing or
any of the components of the Shares.
(b) The undersigned has full power and authority to enter into this
Agreement, the execution and delivery of this Agreement has been duly
authorized, if applicable, and this Agreement constitutes a valid and legally
binding obligation of the undersigned.
(c) The undersigned acknowledges his understanding that the offering and
sale of the Shares is intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") by virtue of Section
4(2) of the Securities Act and the provisions of Regulation D promulgated
thereunder ("Regulation D"). In furtherance thereof, the undersigned represents
and warrants to and agrees with the Company and its affiliates as follows:
(i) The undersigned realizes that the basis for the exemption may not
be present if, notwithstanding such representations, the undersigned has in
mind merely acquiring Shares for a fixed or determinable period in the
future, or for a market rise, or for sale if the market does not rise. The
undersigned does not have any such intention.
(ii) The undersigned has the financial ability to bear the economic
risk of his investment, has adequate means for providing for his current
needs and personal contingencies and has no need for liquidity with respect
to his investment in the Company;
(iii) (insert name of Purchaser Representative: if none, so state) has
acted as the undersigned's Purchaser Representative for purposes of the
private placement exemption under the Securities Act. If the undersigned
has appointed a Purchaser Representative (which term is used herein with
the same meaning as given in Rule 501(h) of Regulation D), the undersigned
has been advised by his Purchaser Representative as to the merits and risks
of an investment in the Company in general and the suitability of an
investment in the Shares for the undersigned in particular; and
(iv) The undersigned (together with his Purchaser Representative(s),
if any) has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of the prospective
investment in the Shares. If other than an individual, the undersigned also
represents it has not been organized for the purpose of acquiring the
Shares.
(d) The information in the Accredited Investor Questionnaire completed and
executed by the undersigned is substantially in the form of the Accredited
Investor Questionnaire included as an exhibit to the Memorandum (the "Accredited
Investor Questionnaire") and is accurate and true in all respects and the
undersigned is an "accredited investor," as that term is defined in Rule 501 of
Regulation D.
(e) The undersigned and his Purchaser Representative, if any:
(i) Have been furnished with the Memorandum, including all exhibits
thereto and any documents which may have been made available upon request
for a reasonable time prior to the date hereof and the undersigned or his
Purchaser Representative(s) have carefully read the Memorandum and
understands and have evaluated the risks set forth under "Risk Factors" and
the considerations described in the Memorandum and have relied solely
(except as indicated in subsections (ii) and
<PAGE>
(iii) below) on the information contained in the Memorandum (including all
exhibits thereto);
(ii) Have been provided an opportunity for a reasonable time prior to
the date hereof to obtain additional information concerning the offering of
the Shares, the Company and all other information to the extent the Company
possesses such information or can acquire it without unreasonable effort or
expense;
(iii) Have been given the opportunity for a reasonable time prior to
the date hereof to ask questions of, and receive answers from, the Company
or its representatives concerning the terms and conditions of the offering
of the Shares and other matters pertaining to this investment, and have
been given the opportunity for a reasonable time prior to the date hereof
to obtain such additional information necessary to verify the accuracy of
the information contained in the Memorandum or that which was otherwise
provided in order for him to evaluate the merits and risks of purchase of
the Shares to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense;
(iv) Have not been furnished with any oral representation or oral
information in connection with the offering of the Shares which is not
contained in the Memorandum; and
(v) Have determined that the Shares are a suitable investment for the
undersigned and that at this time the undersigned could bear a complete
loss of such investment.
(f) The undersigned is not relying on the Company, or its affiliates with
respect to economic considerations involved in this investment. The Undersigned
has relied on the advice of, or has consulted with only those persons, if any,
named as Purchaser Representative(s) herein and in the Accredited Investor
Questionnaire. Each Purchaser Representative is capable of evaluating the merits
and risks of an investment in the Shares on the terms and conditions set forth
in the Memorandum and each Purchaser Representative has disclosed to the
undersigned in writing (a copy of which is annexed to this Agreement) the
specific details of any and all past, present or future relationships, actual or
contemplated, between himself and the Company or any affiliate or subsidiary
thereof.
(g) The undersigned represents, warrants and agrees that he will not sell
or otherwise transfer the Shares without registration under the Securities Act
or an exemption therefrom and fully understands and agrees that he must bear the
economic risk of his purchase because, among other reasons, the Shares have not
been registered under the Securities Act or under the securities laws of any
state and, therefore, cannot be resold, pledged, assigned or otherwise disposed
of unless they are subsequently registered under the Securities Act and under
the applicable securities laws of such states or an exemption from such
registration is available. In particular, the undersigned is aware that the
Shares are "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
undersigned also understands that, except as otherwise
<PAGE>
provided herein, the Company is under no obligation to register the Shares
on his behalf or to assist him in complying with any exemption from registration
under the Securities Act or applicable state securities laws. The undersigned
further understands that sales or transfers of the Shares are further restricted
by state securities laws and the provisions of this Agreement.
(h) No representations or warranties have been made to the undersigned by
the Company, or any officer, employee, agent, affiliate or subsidiary of the
Company, other than the representations of the Company contained herein and in
the Memorandum, and in subscribing for Shares the undersigned is not relying
upon any representations other than those contained herein or in the Memorandum.
(i) Any information which the undersigned has heretofore furnished to the
Company with respect to his financial position and business experience is
correct and complete as of the date of this Agreement and if there should be any
material change in such information he will immediately furnish such revised or
corrected information to the Company.
(j) The undersigned understands and agrees that the Shares shall bear the
following legend until (i) such securities shall have been registered under the
Securities Act and effectively been disposed of in accordance with the
registration statement; or (ii) in the opinion of counsel for the Company or
other counsel reasonably acceptable to the Company, such securities may be sold
without registration under the Securities Act as well as any applicable "Blue
Sky" or state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO
A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME
EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE
WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED
DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE
SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW."
(k) The undersigned understands that an investment in the Shares is a
speculative investment which involves a high degree of risk of loss of his
entire investment.
(l) The undersigned's overall commitment to investments which are not
readily marketable is not disproportionate to the undersigned's net worth, and
an investment in the Shares will not cause such overall commitment to become
excessive.
(m) The undersigned hereby authorizes and appoints the Placement Agent as
its agent. The Placement Agent and its officers shall not be liable for any
action taken or omitted
<PAGE>
hereunder, or for the misconduct of any employee, agent or attorney
appointed by it or them, except in the case of willful misconduct or gross
negligence. The Placement Agent and its officers shall be entitled to consult
with counsel of its or their own choosing and shall not be liable for any action
taken, suffered or omitted by it or them in accordance with the advice of
counsel.
(n) The foregoing representations, warranties and agreements shall survive
the execution and delivery of this Agreement and the Closing.
SECTION 4.
4.1 The Company's Registration.
As soon as practicable after the Closing and in any event not later than 30
days thereafter, the Company shall prepare and file with the Commission, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Placement Agent and the holders of the Shares (the "Registration Rights
Holders"), in order to comply with the provisions of the Securities Act, so as
to permit a public offering and sale of the holders' securities (the
"Registration Rights Securities") for a consecutive period ending twenty-four
(24) months after the Closing. The costs and expenses associated with the
preparation, filing and prosecution of such registration statement(s) shall be
borne by the Company.
4.2 Demand Registration.
(i) In the event the registration statement referred to in Section 4.1 does
not become effective within two (2) months after the Closing or the
effectiveness thereof is not maintained, Registration Rights Holders
representing a Majority (as hereinafter defined) of the Registration Rights
Securities shall have the right, exercisable by written notice to the Company,
to have the Company prepare and file with the Commission, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the Placement
Agent and the Registration Rights Holders in order to comply with the provisions
of the Securities Act, so as to permit a public offering and sale of the
Registerable Rights Securities, for a consecutive period ending twenty-four (24)
months after the Closing by such Registration Rights Holders and any other
Registration Rights Holders who notify the Company within ten (10) days after
receiving notice from the Company of such registration request, as set
forth below.
(ii) The Company covenants and agrees to give written notice of any
registration request under this Section 4.2 by any Registration Rights Holder to
all other Registration Rights Holders within ten (10) days from the date of the
receipt of any such registration request.
(iii) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor and to have
any registration statement declared effective at the earliest possible time. The
Company shall furnish each Registration Rights
<PAGE>
Holder desiring to sell Registration Rights Securities such number of
prospectuses as shall reasonably be requested.
4.3 Piggyback Registration.
(i) If, at any time commencing three months after the Closing and expiring
five (5) years thereafter, any of the Registration Rights Securities are
"restricted securities" within the meaning of the Rules and Regulations, and the
Company proposes to register any of its securities under the Securities Act
(other than in connection with a merger, acquisition or exchange offer on Form
S-4 or pursuant to Form S-8 or successor forms) it will give written notice by
registered or certified mail, at least thirty (30) days prior to the filing of
each such registration statement, to the Registration Rights Holders of its
intention to do so. Upon the written request of any Registration Rights Holder
given within ten (10) days after receipt of any such notice of his or her desire
to include any Registration Rights Securities in such proposed registration
statement, the Company shall afford the Registration Rights Holders the
opportunity to have any such Registration Rights Securities registered under
such registration statement.
(ii) Notwithstanding the provisions of this Section 4.3, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 4.3 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
4.4 Covenants with Respect to Registration.
In connection with any registration under any of Sections 4.1, 4.2 and 4.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall pay all costs, (excluding fees and expenses of
Registration Rights Holder(s)' counsel and any underwriting or selling
commissions or other charges of any broker-dealer acting on behalf of
Registration Rights Holder(s)), fees and expenses in connection with all
registration statements filed pursuant to any of Sections 4.1, 4.2 and 4.3
hereof including, without limitation, the Company's legal and accounting
fees, printing expenses and blue sky fees and expenses.
(b) The Company will take all necessary action which may be required
in qualifying or registering the securities included in a registration
statement for offering and sale under the securities or blue sky laws of
such states as reasonably are requested by the Registration Rights
Holder(s), provided that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
(c) The Company shall indemnify the Registration Rights Holder(s) and
each person, if any, who controls such Registration Rights Holder(s) within
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become
subject under the Securities Act, the Exchange Act or any other statute,
common law or otherwise, arising out of or based upon any
<PAGE>
untrue statement or alleged untrue statement of a material fact contained
in such registration statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in
order to qualify the Registration Rights Securities under the securities
laws thereof or filed with the Commission, any state securities commission
or agency, the National Association of Securities Dealers, Inc., The Nasdaq
Stock Market or any securities exchange, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements contained therein not misleading, unless
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company by the Registration Rights
Holder(s) expressly for use in such registration statement, any amendment
or supplement thereto or any application, as the case may be. If any action
is brought against the Registration Rights Holder(s) or any controlling
person of the Registration Rights Holder(s) in respect of which indemnity
may be sought against the Company pursuant to this Section 4.4(c), the
Registration Rights Holder(s) or such controlling person shall, within
thirty (30) days after the receipt of a summons or complaint, notify the
Company in writing of the institution of such action and the Company shall
assume the defense of such action, including the employment and payment of
reasonable fees and expenses of counsel (which counsel shall be reasonably
satisfactory to the Registration Rights Holder(s) or such controlling
person), but the failure to give such notice shall not affect such
indemnified person's right to indemnification hereunder except to the
extent that the Company's defense of such action was materially adversely
affected thereby. The Registration Rights Holder(s) or such controlling
person shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of
the Registration Rights Holder(s) or such controlling person unless the
employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action, or the Company shall
not have employed counsel to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company
shall not have the right to direct the defense of such action on behalf of
the indemnified party or parties), in any of which events the fees and
expenses of not more than one additional firm of attorneys for all of the
Registration Rights Holder(s) and/or such controlling person shall be borne
by the Company. Except as expressly provided in the previous sentence, in
the event that the Company shall have assumed the defense of any such
action or claim, the Company shall not thereafter be liable to the
Registration Rights Holder(s) or such controlling person in investigating,
preparing or defending any such action or claim. The Company agrees to
notify promptly the Registration Rights Holder(s) of the commencement of
any litigation or proceedings against the Company or any of its officers,
directors or controlling persons in connection with the resale of any of
the Registration Rights Securities in connection with such registration
statement. The Company further agrees that upon demand by an indemnified
person, at any time or from time to time, it will promptly reimburse such
indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the
Company has indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 4.4(c), any such payment or
reimbursement by the Company of fees, expenses or disbursements incurred by
an indemnified person in any proceeding in which a final judgment by a
court of competent jurisdiction (after all appeals or the expiration of
time to appeal) is entered against any Registration Rights Holder or such
indemnified person as a direct result of any Registration Rights Holder or
such person's gross negligence or willful misfeasance will be promptly
repaid to the Company.
<PAGE>
(d) The Registration Rights Holder(s), and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of
the Exchange Act, against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject
under the Securities Act, the Exchange Act or any other statute, common law
or otherwise, arising from written information furnished by or on behalf of
such Registration Rights Holder(s), or their successors or assigns,
expressly for use in such registration statement. The Registration Rights
Holder(s) further agree(s) that upon demand by an indemnified person, at
any time or from time to time, they will promptly reimburse such
indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the
Registration Rights Holder(s) have indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Section 4.4(d), any such
payment or reimbursement by the Registration Rights Holder(s) of fees,
expenses or disbursements incurred by an indemnified person in any
proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against
the Company or such indemnified person as a direct result of the Company or
such person's gross negligence or willful misfeasance will be promptly
repaid to the Registration Rights Holder(s).
(e) The Company may enter into an underwriting agreement with a
managing underwriter, if any, selected for such underwriting by
Registration Rights Holders holding a Majority of the securities requested
to be included in such underwriting. Such agreement shall be satisfactory
in form and substance to the Company and each Registration Rights Holder
and such managing underwriter, and shall contain such representations,
warranties and covenants by the Company and such other terms as are
customarily contained in agreements of that type used by the managing
underwriter. The Registration Rights Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their securities
and may, at their option, require that any or all of the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Registration
Rights Holders. Such Registration Rights Holders shall not be required to
make any representations or warranties to or agreements with the Company or
the underwriters except as they may relate to such Registration Rights
Holders and their intended methods of distribution.
(f) For purposes of this Agreement, the term "Majority" in reference
to the Registration Rights Holders shall mean in excess of fifty percent
(50%) of the then outstanding Registration Rights Securities that (i) are
not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith and (ii) have not
been resold to the public pursuant to a registration statement filed with
the Commission under the Securities Act.
SECTION 5.
5.1 Indemnity. The undersigned agrees to indemnify and hold harmless the
Company, its officers and directors, employees and its affiliates and each other
person, if any, who controls any
<PAGE>
thereof, against any loss, liability, claim, damage and expense whatsoever
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation
commenced or threatened or any claim whatsoever) arising out of or based upon
any false representation or warranty or breach or failure by the undersigned to
comply with any covenant or agreement made by the undersigned herein or in any
other document furnished by the undersigned to any of the foregoing in
connection with this transaction.
5.2 Modification. Neither this Agreement nor any provisions hereof shall be
modified, discharged or terminated except by an instrument in writing signed by
the party against whom any waiver, change, discharge or termination is sought.
5.3 Notices. Any notice, demand or other communication which any party
hereto may be required, or may elect, to give to anyone interested hereunder
shall be sufficiently given if (a) deposited, postage prepaid, in a United
States mail letter box, registered or certified mail, return receipt requested,
addressed to such address as may be given herein, or (b) delivered personally at
such address.
5.4 Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the same
counterpart.
5.5 Binding Effect. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns. If the
undersigned is more than one person, the obligation of the undersigned shall be
joint and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and his heirs, executors, administrators and successors.
5.6 Entire Agreement. This Agreement and the documents referenced herein
contain the entire agreement of the parties and there are no representations,
covenants or other agreements except as stated or referred to herein and
therein.
5.7 Assignability. This Agreement is not transferable or assignable by the
undersigned.
5.8 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of law principles.
5.9 Pronouns. The use herein of the masculine pronouns "him" or "his" or
similar terms shall be deemed to include the feminine and neuter genders as well
and the use herein of the singular pronoun shall be deemed to include the plural
as well.
<PAGE>
ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
IN WITNESS WHEREOF, the undersigned has executed this Agreement on the ___ day
of ___________, 1997.
$_____________ = ________ x $_________
Amount of Shares Subscribed for No. # of Shares Price per Share
Manner in which Title is to be held (Please Check One):
1. |_| Individual 7. |_| Trust/Estate/Pension
or Profit Sharing
Plan
Date
Opened:_____________
2. |_| Joint Tenants with Right of 8. |_| As a Custodian for
Survivorship __________________
Under the Uniform
Gift to Minors Act
of the State of
__________________
3. |_| Community Property 9. |_| Married with Separate
Property
4. |_| Tenants in Common 10. |_| Keogh
5. |_| Corporation/Partnership/ 11. |_| Tenants by the Entirety
Limited Liability Company
6. |_| IRA
- - --------------------------------------------------------------------------------
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGE 13
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 14
<PAGE>
EXECUTION BY NATURAL PERSONS
- - --------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
- - ------------------------------- -----------------------------
Name (Please Print) Name of Additional Purchaser
- - ------------------------------- -----------------------------
Residence: Number and Street Address of Additional Purchaser
- - ------------------------------- -----------------------------
City, State and Zip Code City, State and Zip Code
- - ------------------------------- -----------------------------
Social Security Number Social Security Number
- - ------------------------------- -----------------------------
(Signature) (Signature of Additional Purchaser)
ACCEPTED this ____ day of __________, 1997 on behalf of the Company.
BY:______________________________
Name:
Title:
<PAGE>
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, Trust, Etc.)
-----------------------------------------------------------------
Name of Entity (Please Print)
Date of Incorporation or Organization:_________________________________________
State of Principal Offices:____________________________________________________
Federal Taxpayer Identification________________________________________________
BY:_______________________________________
Name:
Title:
[seal]
- - ------------------------------- -----------------------------
(If Entity is a Corporation)
------------------------------
Address
------------------------------
Taxpayer Identification Number
ACCEPTED this ___ day of ______, 1997 on behalf of the Company.
BY:
----------------------------
Name:
Title:
EXHIBIT 4.02
Placement Agent's Warrant Agreement dated
as of January 23, 1997 by and between MDC and Fine
<PAGE>
THE MED-DESIGN CORPORATION
AND
FINE EQUITIES, INC.
------------------
PLACEMENT AGENT'S
WARRANT AGREEMENT
Dated as of January 23, 1997
<PAGE>
PLACEMENT AGENT'S WARRANT AGREEMENT dated as of January 23, 1997
between THE MED-DESIGN CORPORATION, a Delaware corporation (the "Company"), and
FINE EQUITIES, INC. (hereinafter referred to variously as the "Holder" or the
"Placement Agent").
W I T N E S S E T H:
WHEREAS, the Placement Agent has agreed pursuant to the placement agent
agreement (the "Placement Agent Agreement") dated January 8, 1997 by and between
the Placement Agent and the Company to act as the exclusive placement agent in
connection with the proposed private offering of up to $5 million of shares of
the Company's common stock $.01 par value ("Common Stock") per share ("Shares")
on a "best efforts" basis (the "Private Placement"); and
WHEREAS, the Company proposes to issue to the Placement Agent or its
designee(s) warrants ("Warrants") to purchase up to ten percent (10%) of the
number of Shares of Common Stock issued and sold by the Company pursuant to the
Private Placement; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued at the Closing (as such term is defined in the Placement Agent Agreement)
by the Company to the Placement Agent in consideration for, and as part of the
Placement Agent's compensation in connection with, the Placement Agent acting as
the exclusive placement agent pursuant to the Placement Agent Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Placement Agent to the Company of ten dollars ($10.00), the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1. Grant. The Holder is hereby granted the right to purchase, at any
time from January 22, 1998 until 5:00 p.m., New York time, on January 22, 2002,
up to 100,000 Shares at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $5.50 per Share subject to the terms and
conditions of this Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
substantially in the form set forth in Exhibit A, attached hereto and made a
part hereof, with such appropriate insertions, omissions, substitutions, and
other variations as required or permitted by this Agreement.
3. Exercise of Warrant.
ss. 3.1 Method of Exercise. The Warrants are initially exercisable at
the initial exercise price per Share set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate, together with the annexed Form of Election to Purchase duly
executed and payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the Company's principal offices in Pennsylvania (presently
located at 121 South Broad Street, Suite 310, Philadelphia, Pennsylvania 19107)
the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the Shares of Common Stock
so purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock underlying the Warrants). Warrants may
be exercised to purchase all or part of the Shares represented thereby. In the
case of the purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof
2
<PAGE>
and shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares purchasable thereunder.
ss. 3.2 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 in exchange for
the number of Shares equal to the product of: (x) the number of Shares as to
which the Warrants are being exercised, multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined below) of the Shares less the
Exercise Price of the Shares and the denominator of which is the Market Price
per Share. Solely for the purposes of this Section 3.2, Market Price shall be
calculated either: (i) on the date on which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 13 hereof
("Notice Date"), or (ii) as the average of the Market Price for each of the five
trading days immediately preceding the Notice Date, whichever of (i) or (ii)
results in a greater Market Price.
ss. 3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be, when referring to the Common Stock,
the last reported sale price, or, in case no such reported sale takes place on
such day, the average of the last reported sale prices for the last three (3)
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading or by the
Nasdaq National Market ("NNM"), or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted on NNM, the
average closing bid price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), or similar organization if Nasdaq is no
longer reporting
3
<PAGE>
such information, or if the Common Stock is not quoted on Nasdaq, as determined
in good faith (using customary valuation methods) by resolution of the members
of the Board of Directors of the Company, based on the best information
available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock or other securities,
property or rights underlying such Warrants shall be made forthwith (and in any
event such issuance shall be made within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holder and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock underlying the Warrants or other securities, property or rights
shall be executed on behalf of the Company by the manual or facsimile signature
of the then Chairman or Vice Chairman of the Board of Directors or President or
Vice President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the then Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
4
<PAGE>
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
and the securities issuable upon exercise thereof, are being acquired as an
investment and not with a view to the distribution thereof.
6. Exercise Price.
ss. 6.1 Initial and Adjusted Exercise Price. Subject to Section 8
hereof, the initial exercise price of each Warrant shall be $5.50 per Share. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Section 8 hereof.
ss. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
ss. 7.1 Registration Under the Securities Act of 1933. The Warrants,
the shares of Common Stock underlying the Warrants and any other securities
issuable upon exercise of the Warrants (collectively, the "Warrant Securities")
have not been registered under the Securities Act of 1933, as amended (the
"Act"). The Warrants and upon exercise, in part or in whole, of the Warrants,
certificates representing the shares of Common Stock and any other securities
issuable upon exercise of the Warrants shall bear the following legend:
The securities represented by this certificate have
not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be
offered, sold, pledged hypothecated, assigned or
transferred except pursuant to (i) an effective
registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the
disposition of securities), or (iii) an opinion of
counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an
exemption from registration under such Act is
available.
5
<PAGE>
ss. 7.2 Piggyback Registration. If, at any time during the seven-year
period from the date of the closing of the Private Placement, the Company
intends to file a Registration Statement or Statements for the public sale of
securities for cash (other than pursuant to Form S-8, S-4 or a comparable
registration statement) the Company will give written notice by registered mail,
at least twenty (20) days prior to the filing of each such registration
statement, to all of the Holders of the Warrants and/or Warrant Securities of
its intention to do so. If the Holder of the Warrants and/or Warrant Securities
notify the Company within (20) days after receipt of such notice of its or their
desire to include any such securities in such proposed registration statement,
the Company shall afford such Holders of the Warrants and/or Warrant Securities
the opportunity to have the Shares of Common Stock underlying the Warrants and
any other securities issuable upon exercise of the Warrants (collectively the
"Registrable Securities") registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after filing but prior to the
effective date thereof.
ss. 7.3 Demand Registration.
(a) At any time during the five-year period from the date of the
closing of the Private Placement, if the Company is subject to the reporting
requirements under Section 13 or Section 15(d) of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"), the Holders of the Warrants and/or
Warrant Securities representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Warrants) shall have the right
(which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to the Company, to
6
<PAGE>
have the Company prepare and file with the Securities and Exchange Commission
(the "Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the underwriter, if any, and the
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Registrable Securities for nine (9)
consecutive months by such Holders and any other Holders of the Warrants and/or
Warrant Securities who notify the Company within ten (10) days after receiving
notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
ss. 7.4 Covenants With Respect to Registration. In connection with any
registration under Section 7.2 or 7.3 hereof, the Company covenants and agrees
as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statement declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell
Registrable Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions or other charges
of any broker-dealer acting on behalf of Holder(s)), fees and expenses in
connection with all registration statements filed pursuant to Sections 7.2 and
7.3 hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. If the Company shall fail
to comply with the provisions of Section 7.4(a), the Company shall, in addition
to any other equitable or other relief available to the
7
<PAGE>
Holder(s), be liable for any or all incidental or special damages sustained by
the Holder(s) requesting registration of their Registrable Securities, excluding
consequential damages.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Registrable Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the provisions
contained in Section 4 of the Subscription Agreement and Investment
Representation completed by each investor in the Private Placement pursuant to
which the Company has agreed to indemnify each investor in the Private
Placement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
in writing furnished by or on behalf of such Holders, or their
8
<PAGE>
successors or assigns, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Section
6 of the Placement Agent Agreement pursuant to which the Placement Agent has
agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(h) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be
9
<PAGE>
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(i) The Company shall deliver promptly to each Holder participating in
the offering and requesting the correspondence and memoranda described below and
the managing underwriter, if any, copies of all correspondence between the
Commission and the Company its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(j) In the event the Company shall enter into an underwriting agreement
in connection with a registration statement filed pursuant to Section 7.3
hereof, the managing underwriter shall be selected for such underwriting by
Holders holding a Majority of the Warrant Securities requested to be included in
such underwriting. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriter, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Registrable Securities and may, at their
option, require that any or all of the representations, warranties and covenants
of the Company to or for the benefit of such underwriters shall also be made to
and for the benefit of such Holders. Such Holders shall not be required to make
any representations or warranties to or agreements
10
<PAGE>
with the Company or the underwriters except as they may relate to such Holders
and their intended methods of distribution.
(k) In addition to the Registrable Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation,
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock; provided, however, that any security
other than shares of Common Stock ("Other Securities") may be included only if
such type of Other Securities are included in the Registration Statement.
(l) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities.
ss. 8.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
ss. 8.2 Stock Dividends and Distributions. In case the Company shall
pay a dividend on, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment
11
<PAGE>
made pursuant to this Section 8.2 shall be made as of the record date for the
subject stock dividend or distribution.
ss. 8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted Exercise Price of
each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
ss. 8.4 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the charter of the Company as may be amended or restated as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
ss. 8.5 Merger or Consolidation or Sale. In case of any consolidation
of the Company with, or merger of the Company with, or merger of the Company
into, another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental
12
<PAGE>
warrant agreement shall provide for adjustments which shall be identical to the
adjustments provided in this Section 8. The above provision of this subsection
shall similarly apply to successive consolidations or mergers.
ss. 8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the
shares of Common Stock issuable upon the exercise of the
Warrants; or
(b) If the amount of said adjustment shall be less than
ten cents (10 cent;) per Warrant Security, provided, however, that
in such case any adjustment that would otherwise be required
then to be made shall be carried forward and shall be made at
the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall
amount to at least ten cents (10 cent;) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
13
<PAGE>
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
11. Reservation of Securities. The Company shall at all times reserve
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon the exercise of the Warrants, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and payment of the Exercise Price therefor, all shares of Common
Stock and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company, or for the
purpose of engaging in a "Rule 13e-3 transaction" as defined in
paragraph (a)(3) of Rule 13e-3 of the General Rules and Regulations
under the Exchange Act; or
14
<PAGE>
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed transaction, dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
transaction dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
15
<PAGE>
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. The Company and the Placement Agent may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Placement Agent) in order to
cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Placement Agent may deem necessary or desirable and which
the Company and the Placement Agent deem shall not adversely affect the
interests of the Holders of Warrant Certificates. To otherwise amend this
Agreement, the prior written consent of the holders of at least a majority of
the Warrants and/or Warrant Securities shall be required.
15. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of
business on January 23, 2004. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on January 23, 2010.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Placement Agent and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be
16
<PAGE>
brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Placement Agent and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Placement Agent and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address as set forth in
Section 13 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company, the Placement Agent and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
18. Entire Agreement; Modification. This Agreement (including the
Placement Agent Agreement to the extent portions thereof are referred to herein)
contain the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
17
<PAGE>
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Placement Agent and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Placement Agent and any other Holder(s) of the Warrant
Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL] THE MED-DESIGN CORPORATION
By:
----------------------------------
Name:
Title:
Attest:
__________________________________
Name:
Title:
FINE EQUITIES, INC.
By:
---------------------------------
Name:
Title:
19
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES STATUTE AND MAY NOT BE OFFERED SOLD,
PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT PURSUANT TO: (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF THE OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, January 23, 2002
No. W- _____________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _____________, or registered
assigns, is the registered holder of _____________ Warrants to purchase
initially, at any time from January 23, 1998 until 5:00 p.m. New York time
on January 23, 2002 ("Expiration Date"), up to _____________ fully-paid and
non-assessable shares (the "Shares") of common stock, $.01 par value per
share ("Common Stock") of THE MED-DESIGN CORPORATION, a Delaware corporation
(the "Company"), at the initial exercise price, subject to adjustment in
certain events (the "Exercise Price"), of $5.50 per Share upon surrender of
this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, or by surrender of this Warrant Certificate in lieu
of cash payment, but subject to the conditions set forth herein and in the
Placement Agent's Warrant Agreement dated as of January 23, 1997 between the
Company and Fine Equities, Inc. (the "Warrant Agreement"). Payment of the
Exercise Price shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company or by surrender of
this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by
A-1
<PAGE>
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected by
any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of January 23, 1997
THE MED-DESIGN CORPORATION
[SEAL] By:
--------------------------------
Name:
Title:
Attest:
__________________________
Name:
Title:
A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ Shares
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of The Med-
Design Corporation in the amount of $ _____________, all in accordance with the
terms of Section 3.1 of the Placement Agent's Warrant Agreement by and
between The Med-Design Corporation and Fine Equities, Inc. The undersigned
requests that certificates for such securities be registered in the name of
__________________________ whose address is __________________________ and
that such certificates be delivered to __________________whose address is
_______________________________________.
Dated: _________________
Signature _____________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
__________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____________
Shares all in accordance with the terms of Section 3.2 of the Placement
Agent's Warrant Agreement between The Med-Design Corporation and Fine
Equities, Inc. The undersigned requests that certificates for such
securities be registered in the name of __________________________ whose
address is ___________________________________ and that such certificates
be delivered to __________________________whose address is _____________
____________________________________.
Dated: ____________________
Signature _____________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
__________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________ hereby sells, assigns
and transfers unto
- - ----------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ___________
Attorney, to transfer the within Warrant Certificate on the books
of the within-named Company, with full power of substitution.
Dated: ____________________
Signature _____________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
__________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-6
<PAGE>
<PAGE>
EXHIBIT 99.01
Private Placement Memorandum dated
as of January 8, 1997 relating to the
offering of the Common Stock
<PAGE>
NAME OF OFFEREE:_____________________
MEMORANDUM NUMBER:_____________________
THE MED-DESIGN CORPORATION
OFFERING OF $5,000,000 OF COMMON STOCK
January 8, 1997
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
AND SUBSCRIPTION DOCUMENTS
Placement Agent:
FINE EQUITIES, INC.
551 Fifth Avenue
New York, NY 10176
THIS PRIVATE PLACEMENT MEMORANDUM IS CONFIDENTIAL AND MAY NOT BE DISCLOSED OR
DISTRIBUTED TO ANY PERSON OTHER THAN THE OFFEREE, NOR MAY THIS MEMORANDUM BE
COPIED, WITHOUT PRIOR WRITTEN CONSENT OF THE MED-DESIGN CORPORATION. UPON
REQUEST ADDITIONAL COPIES WILL BE FURNISHED TO ADVISORS OF EACH
OFFEREE.
<PAGE>
INDEX OF DOCUMENTS
Tab
---
Confidential Private Placement Memorandum.....................................1
Exhibit A - Form 10-KSB of The Med-Design Corporation
containing its audited consolidated financial
statements for the year ended December 31, 1995.....................2
Exhibit B - Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated financial
statements for the three month period ended March 31, 1996..........3
Exhibit C - Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated financial
statements for the three month period ended June 30, 1996...........4
Exhibit D - Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated financial
statements for the three month period ended September 30, 1996......5
<PAGE>
This Confidential Private Placement Memorandum, including the exhibits
hereto ("Memorandum"), is being provided by The Med-Design Corporation, a
Delaware corporation ("Company"), to prospective investors in connection with
the offer and sale by the Company of $5,000,000 of the common stock, $.01 par
value per share, of the Company ("Common Stock") in a private placement to a
limited number of "Accredited Investors," as hereinafter defined.
The Common Stock is being offered on a "best efforts" basis by Fine
Equities, Inc. (the "Placement Agent"). Affiliates of the Company may purchase
certain of the shares of Common Stock. Pending delivery of the Common Stock,
prospective investors' payment accompanying the Subscription Agreement,
Accredited Investor Questionnaire and, if required, purchaser representative
questionnaire, will be deposited in a segregated bank account with Continental
Stock Transfer & Trust Company, as escrow agent (the "Escrow Agent"), for the
benefit of such prospective investor.
The purchase price per share of Common Stock pursuant to this Offering will
be equal to $5.00 per share. The minimum purchase of Common Stock is $50,000,
although purchases of Common Stock less than $50,000 may be offered and sold at
the discretion of the Placement Agent.
Upon receipt of subscriptions and funds from the sale of the Common Stock,
a closing (the "Closing") will take place and the net proceeds from such
subscriptions will be paid to the Company, against delivery of the Common Stock
by the Company. This Offering will terminate on January 22, 1997 unless extended
by mutual agreement of the Company and the Placement Agent for an additional
period of time not to exceed seven days (the "Termination Date"). Pending the
Closing, subscriptions may be revoked, provided that written notice of
revocation is sent by certified or registered mail, return receipt requested,
and is received by the Placement Agent at least two business days prior to the
Closing. Refund shall then be promptly made without interest and without
deduction. The Common Stock will be delivered promptly to subscribers after the
Closing of the Offering.
THE SECURITIES ARE BEING OFFERED WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN RELIANCE UPON THE EXEMPTION
FROM REGISTRATION AFFORDED BY SECTION 4(2) AND/OR 3(B) OF THE SECURITIES ACT AND
REGULATION D PROMULGATED THEREUNDER. THIS MEMORANDUM HAS NOT BEEN REVIEWED,
APPROVED OR DISAPPROVED, NOR HAS THE ACCURACY OR ADEQUACY OF THE INFORMATION SET
FORTH HEREIN BEEN PASSED UPON, BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES ADMINISTRATOR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
This Memorandum contains summary information about the Company and the
offer and sale of Common Stock being made hereby (the "Offering"), but does not
provide a complete description of the business, management and financial
description of the Company, or the Offering. Investors are advised and expected
to carefully review this Memorandum prior to subscribing for shares of Common
Stock in the Offering.
Placement
Price to Agent Proceeds to
Investors Commission(1) Company (2)
--------- ------------- -----------
Total $5,000,000 $250,000 $4,750,000
(1) The Placement Agent commission is 5% of gross proceeds of the Offering.
(2) Before deducting legal, accounting and miscellaneous expenses payable
by the Company in connection with this Offering on its own behalf, estimated at
an aggregate of $95,000 including the Placement Agent's expenses and legal fees
of the Placement Agent. After such deductions, the estimated net proceeds to the
Company would be $4,655,000.
PROSPECTIVE PURCHASERS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS
LEGAL OR INVESTMENT ADVICE. EACH PURCHASER SHOULD CONSULT HIS, HER OR ITS OWN
LEGAL COUNSEL, ACCOUNTANT AND BUSINESS OR TAX ADVISOR AS TO LEGAL, TAX AND
RELATED MATTERS CONCERNING HIS, HER OR ITS INVESTMENT.
THE SECURITIES OFFERED HEREBY ARE BEING OFFERED AND SOLD ONLY TO CERTAIN
"ACCREDITED INVESTORS" (AS DEFINED HEREIN) IN THE STATES OF NEW YORK, FLORIDA,
UTAH, CONNECTICUT, MISSOURI, GEORGIA AND ILLINOIS. THE COMPANY RESERVES THE
RIGHT TO REJECT ANY SUBSCRIPTION FOR COMMON STOCK IN WHOLE OR IN PART.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK
AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS."
THE COMMON STOCK OFFERED HEREBY HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER
REGULATORY AUTHORITY, NOR HAS ANY SUCH COMMISSION OR AUTHORITY PASSED UPON OR
ENDORSED THE MERITS OF THE OFFERING OR THE ADEQUACY OR ACCURACY OF THIS
MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OFFER AND SALE OF COMMON STOCK MADE PURSUANT HERETO HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF ANY STATE OR OTHER
JURISDICTION IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
SUCH LAWS, NOR HAS THE COMMON STOCK OFFERED HEREBY BEEN GUARANTEED, SPONSORED,
RECOMMENDED OR APPROVED BY THE UNITED STATES OF AMERICA OR ANY STATE OR OTHER
JURISDICTION. THIS MEMORANDUM IS SUBMITTED TO PROSPECTIVE INVESTORS ON A
CONFIDENTIAL BASIS FOR USE SOLELY IN
2
<PAGE>
CONNECTION WITH A PRIVATE PLACEMENT OF THE SECURITIES. THE DISCLOSURE OF ANY OF
THE DATA CONTAINED HEREIN OR SUPPLIED IN CONNECTION HEREWITH OR THE USE HEREOF
FOR ANY OTHER PURPOSE, EXCEPT WITH THE WRITTEN CONSENT OF THE COMPANY, IS
PROHIBITED. THIS MEMORANDUM MAY NOT BE REPRODUCED, IN WHOLE OR IN PART, WITH THE
UNDERSTANDING THAT IT WILL BE RETURNED ON REQUEST IF THE RECIPIENT DOES NOT
PURCHASE THE SECURITIES OFFERED HEREBY.
THIS OFFERING IS SUBJECT TO WITHDRAWAL, CANCELLATION OR MODIFICATION BY THE
COMPANY WITHOUT NOTICE. THE COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION,
TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART FOR ANY REASON OR TO ALLOT TO ANY
SUBSCRIBER LESS THAN THE NUMBER OF SHARES OF COMMON STOCK SUBSCRIBED FOR.
THIS MEMORANDUM CONTAINS NON-PUBLIC INFORMATION CONCERNING THE COMPANY AND ITS
SUBSIDIARIES. PERSONS RECEIVING SUCH INFORMATION ARE REMINDED OF THE RULES
REGARDING INSIDER TRADING LIABILITY AS INTERPRETED BY THE SECURITIES AND
EXCHANGE COMMISSION. THE INFORMATION CONTAINED HEREIN MUST BE MAINTAINED AS
CONFIDENTIAL AND NOT DISCLOSED TO ANY PERSON OR USED FOR ANY PURPOSE OTHER THAN
EVALUATING THE MERITS OF THE INVESTMENT DESCRIBED HEREIN UNLESS AND UNTIL THE
COMPANY HAS CONSENTED OTHERWISE IN WRITING. UNTIL THE INFORMATION CONTAINED
HEREIN HAS BEEN GENERALLY DISCLOSED TO THE PUBLIC, PERSONS RECEIVING SUCH
INFORMATION ARE REMINDED THAT ANY TRADING IN SECURITIES OF THE COMPANY IS
PROHIBITED.
THE SECURITIES OFFERED HEREBY WILL BE "RESTRICTED SECURITIES," WITHIN THE
MEANING ASSIGNED TO SUCH TERM BY THE SECURITIES ACT AND THE RULES PROMULGATED
THEREUNDER. THE SALE, TRANSFER OR OTHER DISPOSITION OF ANY SECURITIES PURCHASED
PURSUANT TO THIS MEMORANDUM IS SUBSTANTIALLY RESTRICTED BY APPLICABLE FEDERAL
AND STATE SECURITIES LAWS.
EACH OFFEREE MAY MAKE INQUIRIES OF APPROPRIATE MEMBERS OF MANAGEMENT OF THE
COMPANY WITH RESPECT TO THE COMPANY'S BUSINESS OR ANY OTHER MATTERS SET FORTH
HEREIN, AND MAY OBTAIN ANY ADDITIONAL INFORMATION WHICH SUCH PERSON DEEMS TO BE
NECESSARY IN ORDER TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED IN THIS
MEMORANDUM (TO THE EXTENT THAT THE COMPANY POSSESSES SUCH INFORMATION OR CAN
ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE). IN CONNECTION WITH SUCH
INQUIRY, ANY DOCUMENTS WHICH ANY OFFEREE WISHES TO REVIEW WILL BE MADE AVAILABLE
FOR INSPECTION AND COPYING OR PROVIDED, UPON REQUEST, SUBJECT TO THE OFFEREE'S
AGREEMENT TO MAINTAIN SUCH INFORMATION IN CONFIDENCE AND TO RETURN THE SAME TO
THE COMPANY IF THE RECIPIENT DOES NOT PURCHASE THE SECURITIES OFFERED HEREBY.
ANY SUCH INQUIRIES OR REQUESTS FOR ADDITIONAL INFORMATION OR DOCUMENTS SHOULD BE
MADE IN WRITING TO THE COMPANY, ADDRESSED AS FOLLOWS: THE MED-DESIGN
CORPORATION, 121 SOUTH BROAD STREET, SUITE 310, PHILADELPHIA, PA 19107,
ATTENTION: PATRICK ROGERS, CHIEF FINANCIAL OFFICER.
3
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM IN CONNECTION WITH
THE OFFER BEING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO.
4
<PAGE>
JURISDICTIONAL NOTICES AND REPRESENTATIONS
------------------------------------------
FOR RESIDENTS OF ALL STATES
---------------------------
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN PASSED UPON OR RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Placement Agent:
FINE EQUITIES, INC.
551 Fifth Avenue
New York, NY 10176
THE DATE OF THIS PRIVATE PLACEMENT MEMORANDUM IS JANUARY 8, 1997.
5
<PAGE>
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
THE MED-DESIGN CORPORATION
COMMON STOCK
----------------------------------------
EXECUTIVE SUMMARY
The following summary should be read in connection with and is
qualified in its entirety by reference to the more detailed information
contained in the Exhibits thereto. For a discussion of certain Risk Factors
affecting the Company and the Common Stock, see "Risk Factors".
THE COMPANY
Overview
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 into the body of the device that can be
safely discarded.
The Company also has several new products which are in the early
stages of development. These new products under development 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. These products also incorporate the Company's
proprietary retraction technology and are designed to reduce the incidence of
accidental needlesticks. The Company is developing various models and prototypes
of these products to accommodate the specific requirements of potential
strategic allies for medical and dental applications.
The Company believes that its safety medical devices can assist
employers in meeting standards promulgated by the Occupational Safety and Health
Administration ("OSHA") to help eliminate or minimize occupational exposure to
bloodborne pathogens. The Company has patent rights and patent applications
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pending with respect to certain of its products in the United States and certain
foreign countries.
The Company's headquarters are located at Suite 310, North American
Building, 121 South Broad Street, Philadelphia, Pennsylvania 19107. The
Company's telephone number is (215) 735-2700. The Company was incorporated in
Delaware on November 14, 1994.
Products Under Development
The Company is completing the development and design of its three core
products: the Safety Syringe, Safety Phlebotomy Set and Safety Catheter
(collectively , "Core Products"). The Company continues to modify and enhance
the design of such products in order to improve manufacturability and to reduce
manufacturing costs. The Company has developed prototypes for such products, but
the additional modifications to their design will require the development of a
second generation of prototypes.
Safety Syringe. The Safety Syringe consists of a cylindrical syringe
barrel, holding an injection needle which with no substantial change in
operating technique and using one hand can be safely retracted automatically
within a specifically designed syringe plunger. The Safety Syringe is similar in
appearance, size and performance to a standard disposable syringe. The operation
of the Safety Syringe is conventional up to the point where the plunger has
reached its full travel, and all the medication has been delivered. Then, when
the syringe device is actuated to have the plunger move beyond the normal stop,
the needle automatically and fully retracts into the body of the syringe. The
needle is held in place and is rendered harmless and inoperable. The syringe and
needle cannot thereafter be used again. The entire retraction procedure takes
only a fraction of a second to complete. The Safety Syringe then may be safely
handled so that disposal does not pose a health risk. The Safety Syringe is easy
to use and provides visual and audible confirmation that the needle has been
safely retracted after injection. The Safety Syringe can be manufactured with
needles of various gauges and sizes and with barrel sizes one through sixty
cubic centimeters.
Safety Phlebotomy Set. Phlebotomy sets are used to obtain from a
patient a sufficient volume of blood for a variety of diagnostic procedures. The
Company's Safety Phlebotomy Set is similar in appearance, size and performance
to a standard phlebotomy set and works with substantially all standard
phlebotomy set accessories. The Safety Phlebotomy Set consists of a barrel
holding a retractable phlebotomy needle, which can be safely and easily
retracted within a specifically designed holder. The operation of the Safety
Phlebotomy Set is conventional up to the point where sufficient fluids have been
extracted. Then, when the phlebotomy device is actuated for the vacuum tube to
be moved beyond the normal stop, the needle automatically and fully retracts
into the device. The needle is held in place and is rendered harmless and
inoperable. The Safety Phlebotomy Set and needle
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cannot thereafter be used again. The entire retraction procedure takes only a
fraction of a second to complete. The Safety Phlebotomy Set then may be safely
handled so that disposal does not pose a health risk. The Safety Phlebotomy Set
is easy to use and provides visual and audible confirmation that the needle has
been safely retracted after use.
Safety Catheter. An intravenous catheter insertion device includes a
flexible tube that is used to inject or continuously deliver fluids into a
patient. Intravenous catheters are inserted by catheter insertion devices into a
patient by a needle within the flexible catheter tube. The Safety Catheter
device consists of a barrel, holding a retractable insertion needle that can be
safely and easily retracted within a specifically designed plunger. The Safety
Catheter device is similar in appearance, size and performance to a standard
disposable device. The operation of the Safety Catheter device is conventional
until after the insertion needle is removed from the flexible catheter. Then,
when the catheter device is actuated to have the triggering mechanism move in
the device, the needle automatically and fully retracts into the body of the
Safety Catheter mechanism. The needle is held in place and is rendered harmless
and inoperable. The Safety Catheter device and needle cannot thereafter be used
again. The entire retraction procedure takes only a fraction of a second to
complete. The Safety Catheter device then may be safely handled so that disposal
does not pose a health risk. The Safety Catheter device is easy to use and
provides visual and audible confirmation that the needle has been safely
retracted after use. The Company received notification from the FDA during 1996
that it is permitted to market the Safety Catheter.
In addition, the Company has several new products under development,
including the Inline Y-Port Injector Access Needle, the Pre-Filled Ampule
Injector, the MDC Closed Injection System Injector, the Self-Contained
Pre-Filled Syringes and the Pre-Filled Vial Injector System (collectively, the
"New Products"). The New Products are in the initial stages of development,
design and prototyping and will require significant further development and
modification.
Inline Y-Port Injector Access Needle. Y-Ports are devices used in
intravenous therapy as a means to deliver secondary fluids into a primary
intravenous fluid line for delivery into a patient's vein. The retractable
needle Inline Y-Port Injector Access Needle device provides a means for a
healthcare worker to access an intravenous fluid line with a needle, and also
provides a means to protect the healthcare worker from an accidental needle
stick injury when withdrawing the needle from the intravenous line port. The
Company's In Line Y-Port Injector Access Needle consists of a cylindrical
barrel, holding an injection needle which can be safely retracted automatically
within a specially designed plunger. The barrel of the Inline Y-Port Injector
Access Needle is fitted with a barbed tube fitting, which protrudes from the
barrel at an angle for connection of a tubing line for delivery of the secondary
fluid. A needle assembly is fixed to the front end of the barrel,
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and is inserted into an injection port on the primary intravenous line for
delivery of the secondary fluid. After completion of the delivery of the
secondary fluid, the Y-Port injector device is actuated to have the plunger move
forward and the needle automatically and fully retracts into the plunger. The
needle is held in place and is rendered harmless and inoperable, and the device
cannot be used again. The Inline Y-Port Injector Access Needle then may be
safely handled so that disposal does not pose a health risk. The Inline Y-Port
Injector Access Needle is easy to use and provides visual and audible
confirmation that the needle has been safely retracted after use.
Pre-Filled Ampule Injector. Pre-filled ampules are commonly used in
the dental profession for administering local anesthetics to a patient. The
retractable needle Pre-Filled Ampule Injector device provides a means for a
healthcare worker to inject medicinal fluid into a patient from a pre-filled
ampule using a conventional injector/holder, and also provides a means to
protect the healthcare worker from an accidental needle stick injury when
withdrawing the needle from the patient. The Pre-Filled Ampule Injector consists
of a tubular barrel (glass or plastic) containing a medicinal fluid in an amount
sufficient for a single dose, with a sealing and sliding piston in the rear end
of the barrel for containing and delivering the fluid through a tubular needle
extending from the forward end of the barrel. The sliding piston is moved
forward for delivery of the medication by using a conventional (Tubex type)
injector/holder which is slip-fitted to the rear end of the barrel, with the
plunger rod threaded onto the rear end of the piston. A needle assembly is fixed
to the front end of the barrel, containing a spring to provide retracting force
on the needle when activated. The operation of the Ampule Injector is identical
to the operation of a conventional syringe up the point where the plunger rod
has reached its full travel, and all the medication has been delivered. When the
Ampule Injector device is actuated to have the plunger rod move further forward,
the needle automatically and fully retracts into the body of the ampule. The
needle is held in place and is rendered harmless and inoperable, and the Ampule
Injector cannot be used again. The Ampule Injector then may be safely handled so
that disposal does not pose a health risk. The Ampule Injector is easy to use
and provides visual and audible confirmation that the needle has been safely
retracted after injection. The Ampule Injector can be manufactured with barrels
and needles of various sizes.
MDC Closed Injection System. Pre-filled ampules are commonly used in
the dental profession for administering local anesthetics to a patient. The
retractable needle MDC Closed Injection System device provides a means for a
healthcare worker to inject medicinal fluid into a patient from a pre-filled
ampule using a special injector/holder, and also provides a means to protect the
healthcare worker from an accidental needle stick injury when withdrawing the
needle from the patient. The MDC Closed Injection System is similar to the
Pre-Filled Ampule Injector and consists of a tubular barrel (glass or plastic)
containing a medicinal fluid in an amount sufficient for a single dose, with a
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sealing and sliding piston in the rear end of the barrel for containing and
delivering the fluid through a tubular needle extending from the forward end of
the barrel. The sliding piston is moved forward for delivery of the medication
by using a specially configured injector/holder which is threaded to the rear
end of the barrel, with the plunger rod slipped onto the rear end of the piston.
A needle assembly is fixed to the front end of the barrel, containing a spring
to provide retracting force on the needle when activated. The operation of the
Injection System is identical to the operation of a conventional syringe up to
the point where the plunger rod has reached its full travel, and all the
medication has been delivered. When the injection system device is actuated to
have the plunger rod move further forward, the needle automatically and fully
retracts into the body of the ampule. The needle is held in place and is
rendered harmless and inoperable, and the Injection System cannot be used again.
The Injection System then may be safely handled so that disposal does not pose a
health risk. The Injection System is easy to use and provides visual and audible
confirmation that the needle has been safely retracted after injection. The
Injection System can be manufactured with barrels and needles of various sizes.
Self-Contained Pre-Filled Syringe. The Self-Contained Pre-Filled
Syringe consists of a tubular barrel (glass or plastic) containing a medicinal
fluid in an amount sufficient for a single dose, with a sealing and sliding
piston in the rear end of the barrel for containing and delivering the fluid
through a tubular needle extending from the forward end of the barrel. The
Self-Contained Pre-Filled Syringe is self-contained because a separate injector
assembly is not required for operation. The function of a plunger rod for
pushing the piston is provided by a special needle cap. The sliding piston is
moved forward for delivery of the medication by using the special needle cap
(plunger rod) threaded onto the rear end of the piston. A needle assembly is
fixed to the front end of the barrel, containing a spring to provide retracting
force on the needle when activated. The operation of the Syringe is similar to
the operation of a conventional syringe up to the point where the plunger rod
has reached its full travel, and all the medication has been delivered. When the
syringe device is actuated to have the plunger rod move further forward, the
needle automatically and fully retracts into the body of the Syringe. The needle
is held in place and is rendered harmless and inoperable, and the Syringe cannot
be used again. The Self-Contained Syringe then may be safely handled so that
disposal does not pose a health risk. The Self-Contained Syringe is easy to use
and provides visual and audible confirmation that the needle has been safely
retracted after injection. The Self-Contained Syringe can be manufactured with
barrels and needles of various sizes.
Pre-Filled Vial Injector System. The Pre-Filled Vial Injector System
consists of a main cylindrical housing with a stationary plunger for holding a
slidable piston in a fixed position as a glass pre-filled vial is pushed into
the main housing. The pre-filled vial is an existing product produced by several
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pharmaceutical manufacturers and contains fluid medication with an elastomeric
piston comprising a slidable fluid seal within the forward end of the vial. The
slidable piston is threaded onto the rear end of the stationary plunger and is
moved rearward into the vial by pushing the vial forward into the main housing
and delivering the fluid through a tubular needle extending from the forward end
of the main housing. A needle assembly is fixed to the front end of the barrel,
containing a spring to provide retracting force on the needle when activated.
The operation of the Vial Injector System is similar to the operation of a
conventional syringe up the point where the vial has reached its full travel,
and all the medication has been delivered. When the injector system device is
actuated to have the vial move further forward, the needle automatically and
fully retracts into the body of the vial. The needle is held in place and is
rendered harmless and inoperable, and the Vial Injector System cannot be used
again. The Vial Injector System may be safely handled so that disposal does not
pose a health risk. The Vial Injector System is easy to use and provides visual
and audible confirmation that the needle has been safely retracted after
injection. The Vial Injector System can be manufactured for vials and needles of
various sizes.
In addition to the Company's three Core Products and the New Products,
the Company has identified several additional product applications where its
proprietary retraction technology can be incorporated and plans to devote
research and development resources during 1997 and beyond in order to research
and develop such products.
In June, 1995, the Company completed an initial public offering of
3,450,000 shares of Common Stock, $.01 par value per share. On December 31,
1996, the closing bid price of the Common Stock was $5.125 per share.
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SUMMARY OF OFFERING
Issuer.................. The Med-Design Corporation, a Delaware corporation
(the "Company")
Securities Offered...... $5,000,000 of the Company's Common Stock, $.01 par
value per share.
Risk Factors............ The shares of Common Stock offered hereby ("Shares")
are highly speculative and involve a high degree of
risk and, therefore, should not be purchased by
investors who cannot afford the loss of their entire
investment. Prospective investors should carefully
review and consider the factors set forth under "Risk
Factors" as well as all other information contained
herein, before subscribing for any of the shares of
the Company's Common Stock pursuant to this Offering.
Purchase Price.......... The purchase price per share ("Purchase Price") shall
be equal to $5.00 per share. The minimum purchase of
Shares hereunder will be $50,000, although a lesser
amount of Shares may be offered and sold at the
discretion of Fine Equities, Inc., which is acting as
the exclusive placement agent for the Company with
respect to the Common Stock. Shares may be sold to
affiliates of the Company in this Offering. Assuming
the sale of $5,000,000 of the Company's Common Stock
hereby, the Company will receive net proceeds of
approximately $4,750,000.(1)
Common Stock Outstanding
Prior to the Offering... 6,899,570 Shares of Common Stock.(2)
- - ----------
(1) Excluding the fees and expenses of the Placement Agent and the Company
related to the Offering which is estimated to be $95,000 in the aggregate.
(2) As of December 31, 1996. Excludes the shares of Common Stock to be sold
in connection with this Offering and warrants to purchase Common Stock to be
issued to the Placement Agent in connection with this Offering, 289,000 shares
of Stock issuable upon the exercise of warrants granted in connection with the
Company's initial public offering (which includes warrants to purchase 109,000
shares of Common Stock held by a principal of the Placement Agent), and 289,000
shares of Common Stock issuable upon the exercise of options to purchase Common
Stock granted to certain directors, executive officers and employees pursuant to
the Company's Non-Qualified Stock Option Plan.
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<PAGE>
Terms of the Offering and
Placement Agent
Compensation............ The Company is offering $5,000,000 of Common Stock.
The offering period for the Shares will terminate on
January 22, 1997, unless extended for an additional 7
day period.
In connection with the Offering, the Placement Agent
will receive a commission equal to 5% of the gross
offering proceeds, and reimbursement of its mailing
and other expenses. The Company has agreed to pay all
printing, accounting, legal (including the legal fees
and expenses of counsel to the Placement Agent and
blue sky fees and expenses) and other expenses of the
Offering (estimated to be approximately $95,000). In
addition, the Company has agreed to sell to the
Placement Agent, for nominal consideration, warrants
(the "Warrants") to purchase from the Company such
number of shares of Common Stock as shall equal 10%
of the number of shares of Common Stock sold in the
Offering at an exercise price per share equal to 110%
of the Purchase Price. The Warrants shall have a five
(5) year term and be exercisable at any time during
the four (4) year period commencing at the beginning
of the second year after the Closing. The Common
Stock issuable upon exercise of the Warrants shall be
entitled to one demand registration right for a
period of five (5) years commencing on the date of
issuance of the Warrants and "piggyback" registration
rights (which, in both instances, shall be at the
Company's cost) for a period of seven (7) years
commencing on the date of issuance of the Warrants
(unless the
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<PAGE>
Company files a Form S-8, S-4 or comparable
registration statement). Such registrations shall be
at the expense of the Company (excluding fees and
expenses of the counsel for such holders and any
underwriting or selling commissions).
Provisions of the
Offering................ Pending delivery of the Common Stock, the proceeds of
the Offering will be held in an escrow account
maintained by Continental Stock Transfer & Trust
Company, as escrow agent ("Escrow Agent"). Upon
receipt of subscription documents and the funds from
the sale of the Stock, a closing will take place and
the net proceeds from such subscriptions will be paid
to the Company. The Offering will terminate on
January 22, 1997, unless extended by mutual agreement
of the Company and the Placement Agent for an
additional period of time not to exceed 7 days.
Pending the Closing, subscriptions may be revoked,
provided that written notice of revocation is sent by
certified or registered mail, return receipt
requested, and is received by the Placement Agent at
least two business days prior to the Closing. Refund
shall then be promptly made without interest and
without deduction. The Shares will be delivered
promptly to subscribers after the Closing of the
Offering. In the event that the Closing does not
occur for any reason, all monies received by the
Escrow Agent will be returned, without interest, to
the subscribers by the Escrow Agent.
Registration Rights..... The Company shall file a registration statement under
the Securities Act of 1933, as amended ("Securities
Act"), and any applicable state securities laws for
the resale of the Shares within thirty (30) days
following the Closing.
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<PAGE>
Sales to Accredited
Investors Only.......... The Shares have not been registered under the
Securities Act. They are being offered in reliance
upon the exemption under Section 4(2) and/or 3(b) of
the Securities Act and the provisions of Regulation D
promulgated thereunder. This Offering shall only be
made to, and sales of Securities will only be made
to, purchasers qualifying as "accredited investors"
under Rule 501(a) of Regulation D.
To qualify as an accredited investor under Regulation
D, a purchaser must satisfy at least one of the
following alternative criteria:
ALTERNATIVE ONE: The investor (natural persons only)
has an individual net worth (or joint net worth with
spouse) at the time of the purchase in excess of
$1,000,000;
ALTERNATIVE TWO: The investor (natural persons only)
had an individual income in excess of $200,000 in
each of 1995 and 1996, or joint income with that
person's spouse in excess of $300,000 in each of such
years, and reasonably expects reaching the same
income level in 1997;
ALTERNATIVE THREE: The investor is (i) a bank (as
defined in Section 3(a)(2) of the Securities Act) or
any savings and loan association or other institution
as defined in Section 3(a)(5)(A) of the Securities
Act, whether acting in its individual or fiduciary
capacity; (ii) any broker-dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934,
as amended; (ii) an insurance company (as defined in
Section 2(13) of the Securities Act); (iv) an
investment company registered under the Investment
Company Act of 1940, as amended, or a business
development company as defined in Section 2(a)(48) of
that Act; (v) a Small Business Investment Company
licensed by the U.S. Small Business Administration
under Section 301(c) or (d) of the Small Business
Investment Act
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<PAGE>
of 1958, as amended; (vi) any plan established and
maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its
political subdivisions, for the benefit of its
employees, if such plan has total assets in excess of
$5,000,000; or (vii) an employee benefit plan within
the meaning of the Employee Retirement Income
Security Act of 1974, as amended, if the investment
decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or
registered investment advisor, or if such employee
benefit plan has total assets in excess of
$5,000,000, or if such employee benefit plan is a
self-directed plan with investments made solely by
persons who are accredited investors;
ALTERNATIVE FOUR: The investor is a private business
development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940;
ALTERNATIVE FIVE: The investor is an organization
described in Section 501(c)(3) of the Internal
Revenue Code, as amended, or is a corporation,
Massachusetts or similar business trust, or
partnership not formed for the specific purpose of
acquiring the Shares with total assets in excess of
$5,000,000;
ALTERNATIVE SIX: The investor is an entity in which
all of the equity owners are accredited investors; or
ALTERNATIVE SEVEN: The investor is a trust with
assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares offered
hereby, whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) under the
Securities Act.
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<PAGE>
Restrictions on Resale.. At the Closing, none of the securities offered hereby
will be registered under the Securities Act, and the
certificates representing the securities will contain
a legend restricting the distribution, resale,
transfer, pledge, hypothecation or other disposition
of the securities unless and until such securities
are registered under the Securities Act or an opinion
of counsel for the Company is received that
registration is not required under the
Securities Act.
The terms of the Offering require that the Company file
with the Securities and Exchange Commission ("Commission")
a registration statement to register the Shares within
thirty days following the Closing, although there can be no
assurance that the Company will file such a registration
statement or that if filed, it will be declared effective
by the Commission.
FINANCIAL INFORMATION ABOUT THE COMPANY
The Company's audited consolidated financial statements as of December 31,
1995 on Form 10-KSB is attached hereto as Exhibit A and made a part hereof, and
the unaudited consolidated financial statements of the Company for each of the
three month periods ended March 31, 1996, June 30, 1996 and September 30, 1996
contained in the Form 10-QSB's are attached hereto as Exhibits B, C, and D,
respectively.
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<PAGE>
RISK FACTORS
THE PURCHASE OF SHARES IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED
BELOW. SHARES SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND
CONSIDER THE FOLLOWING RISKS AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
MEMORANDUM.
Development Stage Company/No Revenues/Uncertain Profitability/History of
Losses
Since its inception, the Company has been principally engaged in
developmental and organizational activities. To date, the Company has generated
no revenues from operations. The Company does not anticipate any sign ificant
revenues from product sales during the next twelve months. In addition, under
certain conditions, commercial marketing of any products may prove to be
contingent upon the Company obtaining various governmental approvals, including
clearances from the U.S. Food and Drug Administration ("FDA"). The approval
procedure will be extremely time consuming, expensive and uncertain.
Accordingly, there can be no assurance that the Company will be able to generate
sufficient revenues to operate on a profitable basis in the future.
The Company is in the development stage and its business is subject to
all of the risks inherent in the establishment of a new business enterprise. The
likelihood of the success of the Company must be considered in light of the
problems, expenses, complications and delays frequently encountered in
connection with the formation of a new business, the development of new
products, the competitive and regulatory environment in which the Company may be
operating, and the possibility that its activities will not result in the
development of any commercially viable products. There can be no assurance that
the Company's activities will ultimately result in the development of
commercially saleable or useful products.
The Company has experienced annual operating losses and negative
operating cash flow since inception. At September 30, 1996, the Company had a
deficit accumulated during the development stage of $12,576,029. Unless and
until the Company's product development and marketing activities are successful
and its product(s) are sold directly or under licensing agreements, and through
other forms of joint ventures, none of which is expected to occur, if at all,
before the end of the second quarter of 1997, the Company will not have revenues
to apply to operating expenses and
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<PAGE>
the Company will continue to incur losses. Additionally, as a result of the
start-up nature of its business and the fact that it has not commercially
marketed any products, the Company expects to sustain substantial operating
losses and negative cash flows in the future.
Requirements for Additional Funds
At September 30, 1996, the Company had a $6,000,000 line of credit with
one commercial bank and a $500,000 equipment financing facility with a second
commercial bank. Both credit facilities are 100% secured by cash, cash
equivalents, and marketable securities of the Company, together with equipment
financed with funds from such credit facility. In addition, the equipment
financing facility is also secured by certain leasehold improvements of the
Company. The line of credit facility expires on May 1, 1997. On November 14,
1996, the Company increased its line of credit facility to $6,750,000 and
extended the expiration date thereof until June 30, 1997. The Company had
additional availability against its line of credit and equipment financing
facilities of $186,098 and $142,917 on its line of credit and equipment
financing facility respectively, at December 31, 1996. In addition, in 1995, the
Company issued warrants to purchase 400,000 shares of Common Stock of which
warrants to purchase 111,000 shares have been exercised as of December 20, 1996.
The Company has received an aggregate of $543,900 upon the exercise of said
warrants. If the remainder of the warrants are exercised, the Company would
receive additional funds of approximately $1,606,000, net of the registration
and other costs to be paid by the Company as required under the terms of such
warrants.
The Company believes that its current cash on hand, together with the
net proceeds of this Offering, will be sufficient to support its planned
operations and capital expenditures through January, 1998 (assuming the Company
maintains its operations at its current levels and that the Closing occurs
during January, 1997 for gross proceeds of $5,000,000), but thereafter will need
to raise additional funds through public or private financings to support its
planned operations and capital expenditures. Additional financings may consist
of the sale of debt or equity securities. The sale of additional equity
securities could result in dilution to the purchasers in this offering. The
Company believes that it will require additional capital before it reaches
profitability and positive cash flow, if at all. If other external sources of
funds are not available to the Company to satisfy short-term or long-term
capital requirements, the Company may be required to reduce the compensation of
its officers, office staff and other personnel and substantially reduce, or
eliminate, certain areas of its product development activities, limit its
operations significantly, or otherwise modify its business strategy. The Company
has not made any specific plans or entered into any agreements to reduce the
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level of its expenditures in the event that such reductions become necessary.
Dependence on Patents and Proprietary Rights
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its products, to preserve its trade secrets and
to operate without infringing the proprietary rights of third parties. The
Company's policy is to attempt to protect its intellectual property and maintain
the proprietary nature of its technology by, among other things, filing patent
applications for technology that it considers important to the development of
its business and requiring certain employees and key consultants to execute
non-disclosure and non-compete agreements.
The Company's patent rights currently consist of three United States
patents, one relating to the Retractable Needle Hypodermic Syringe (the "Safety
Syringe"), another relating to the Retractable Needle Vacuum Tube Phlebotomy Set
(the "Safety Phlebotomy Set") and the third relating to the Retractable Needle
Intravenous Catheter Insertion Device (the "Safety Catheter"). The Company has
been granted a patent relating to the Safety Syringe in Japan, Australia and
Romania. Corresponding regional and national patent applications relating to the
Safety Syringe are pending in the European Patent Office, designating twelve
countries, and in eight other member countries of the Patent Cooperation Treaty.
In 1995, the Company filed an international patent application, and a
corresponding Taiwanese patent application, directed to its Safety Catheter,
which incorporates several modifications and changes from the original design on
which it obtained a U.S. Patent. Also in 1995, the Company filed a U.S. patent
application and a corresponding Taiwanese patent application directed to its
retractable needle In-Line Y-Port Injector Access Needle. In 1996, the Company
filed a U.S. patent application directed to its Pre-Filled Ampule Injector and
its Self-Contained Pre-Filled Syringe and its Closed Injector System. Also, in
1996, the Company filed a U.S. patent application relating to a new and improved
version of its Safety Phlebotomy Set and a U.S. provisional patent application
directed to its Pre-Filled Vial Injector System.
There can be no assurance that the Company's current patent
applications will result in patents being issued.
As the Company proceeds toward final designs for its Safety Syringe,
Safety Phlebotomy Set and Safety Catheter devices, the Company is having
searches conducted in the United States for unexpired patents owned by others
that may conflict with any final product designs. The Company, however, has not
conducted any infringement searches in any foreign country for the purpose of
finding unexpired patents or pending patent applications that might raise a
possibility of infringement or conflict with the Company's
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<PAGE>
planned activities. Furthermore, the Company is considering appropriate
modifications to the product designs to optimize the final products and to avoid
conflicts with patents of others. To the extent that such final product designs
may not be protected by the Company's existing patents and patent applications,
the Company will file new patent applications relative to its final products.
There can be no assurance that all of the potentially relevant patents of others
have been identified or that the Company will be able to obtain patent
protection for the designs for its products.
There can also be no assurance that any patents owned by or issued to
the Company, or that may issue to the Company in the future, will provide a
competitive advantage or will afford protection against competitors with similar
technology, or that competitors of the Company will not circumvent, or challenge
the validity of any patents issued to the Company. There also can be no
assurance that any patents issued to or licensed by the Company will not be
infringed upon or designed around by others, that others do not have or will not
obtain patents that the Company will need to license or design around, that the
Company's products will not inadvertently infringe upon the patents of others,
or that others will not make the Company's patented devices upon expiration of
such patents. There can be no assurance that existing or
21
<PAGE>
future patents of the Company will not be invalidated. Moreover, although the
Company utilizes non-disclosure agreements and other safeguards to protect its
proprietary information and trade secrets, there can be no assurance that they
will protect such information or provide adequate remedies for the Company in
the event of unauthorized use or disclosure of such information, or that others
will not be able to independently develop such information. As is the case with
the Company's patent rights, the enforcement by the Company of its
non-disclosure agreements can be lengthy and costly, with no guarantee of
success.
If the Company becomes involved with patent infringement litigation,
either to enforce the Company's patents or defend against patent infringement
suits, such litigation would be lengthy and expensive, and if it occurs, would
divert Company resources from planned uses. Further, any adverse outcome in such
litigation could have a material adverse effect on the Company. If any of the
Company's products are found to infringe upon the patents or proprietary rights
of another party, the Company may be required to obtain licenses under such
patents or proprietary rights. No assurance can be given that any such licenses
would be made available on terms acceptable to the Company, if at all. In
addition, patent applications filed in foreign countries and patents granted in
such countries are subject to laws, rules and procedures which differ from those
in the United States. Patent protection in such countries may be different from
patent protection provided by United States laws and may not be as favorable to
the Company. There can be no assurance that the Company's program of patent
protection and non-disclosure agreements will be sufficient to protect the
Company's proprietary technology from competitors.
Dependence on a Single Technology
As of the date of this Memorandum, all of the Company's products that
have been designed and developed are based upon the Company's proprietary
retraction technology. In addition, several of the products the Company intends
to design and develop will also be based upon such proprietary retraction
technology. While the Company intends to develop additional products that are
not based upon the proprietary retraction technology, the Company's present
narrow focus on a particular technology makes the Company vulnerable to the
development of superior competing products and changes in technology which could
eliminate the need for the Company's products. While the Company believes there
will be no significant change in the foreseeable future in the need for the
Company's products or the desirability of those products, there can be no
assurance that such change will not occur.
Dependence on Continued Research and Development
The Company is exploring other applications for its proprietary
retraction technology beyond the Core Products and the New Products under
development. The development of additional
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<PAGE>
applications and additional products may be important to the longer-term success
of the Company. There can be no assurance that any of such applications or
products will be developed or, if developed, that they will be successful.
Reliance on Single Source Suppliers
The Company may, in the future, obtain certain of the components and
subassemblies required for its products from a single source. The disruption or
termination of any single-source supplier could have a material adverse effect
on the Company's operations. Certain of the components have lead times and
changes in any suppliers could disrupt production schedules, either of which
could materially adversely affect the Company's business and results of
operations.
Lack of Market Acceptance
The use of safety needles is relatively new. Although the market for
syringes, phlebotomy sets and intravenous catheters is large, actual sales of
the Company's products, if and when they are produced, may be much less than the
market's potential. Market acceptance of the Company's products will depend in
large part upon the Company's ability to demonstrate the operational advantages,
safety and cost effectiveness of its products compared to standard syringes,
phlebotomy sets and intravenous catheters and its competitors' safety medical
devices. The higher cost of safety medical devices, including those of the
Company, relative to standard medical devices may be an impediment to their
market acceptance. There can be no assurance that the Company's products will
achieve market acceptance. In addition, there can be no assurance that the
development of the Core Products or the New Products will be completed on
schedule, if at all, or that there will be a significant demand for the products
once development is completed.
No Manufacturing Experience/Limited Manufacturing Facilities/No Agreements to
Manufacture Products
The Company has not yet manufactured any products on a commercial
basis. Certain members of management have had experience in the design and
manufacturing of other products, including medical devices, but there can be no
assurance that such managers will be successful in designing and manufacturing
the Company's products. For the Company to be successful, it must manufacture or
contract with third parties to manufacture its products in sufficient
quantities, to rigorous quality control standards and at a reasonable cost. The
Company's failure to do so would have a material adverse effect on the Company.
The Company has leased approximately 26,000 square feet of space in
Ventura, California where it houses a research and development laboratory, a
machine shop and a 3,130 square foot, class 100,000 clean room for assembly of
prototypes and products.
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<PAGE>
The Company, however, currently has no automated manufacturing facilities. The
Company had originally planned to install in the cleanroom a fully automated
robotic assembly system to pilot manufacture its products. The Company, however,
elected not to install a fully automated robotic assembly system. Instead, it
elected to install a semi-automated assembly system to pilot manufacture its
products. 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. During the fourth quarter of 1996, the Company partially
completed the installation of the semi automated assembly system for the
production of one of the Company's products. The Company intends to have the
system fully operational during the first quarter of 1997. To the extent the
Company cannot or does not manufacture sufficient quantities of the Company's
products to satisfy the demand therefor, the Company will be required to
contract with third parties to manufacture such products. The Company 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 has not to date entered into any agreements for the manufacture of
its products and there can be no assurance the Company will be able to enter
into any such agreements on acceptable terms. Delays in engaging third parties
to manufacture its products could have a material adverse effect on the
Company's manufacturing plans and timetable. In addition, there can be no
assurance that the third party manufacturers will meet the Company's
requirements for quality, quantity and timeliness, or comply with requirements
imposed by the FDA or other governmental agencies, or that the Company would be
able to find substitute manufacturers, if necessary.
Limited Marketing Staff
Other than a Senior Vice President, Marketing, the Company has no
other staff dedicated solely to marketing and, if commercial products are
developed, it will have to employ a sales force or retain marketing and
distribution services from other parties. If the Company attempts to employ a
sales force, there can be no assurance that qualified individuals can be hired.
If the marketing and distribution services of other parties are sought, there
can be no assurance that it will be able to enter into such marketing and
distribution agreements on acceptable terms.
Limited Number of Employees
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
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<PAGE>
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. There
can, however, be no assurance that, if the need arises, the Company will have
the resources or ability to engage qualified employees or outside independent
consultants.
Dependence on Key Personnel
The success of the Company depends upon the skills, experience and
efforts of its executive officers and certain marketing and technical people.
The Company is particularly dependent upon the services of James M. Donegan,
its Chairman, Chief Executive Officer and President, Michael J. Botich, its
Senior Vice President, Research and Development and Thor R. Halseth, its
Senior Vice President, Design. The loss of the services of Mr. Donegan, Mr.
Botich or Mr. Halseth or any of the Company's other key personnel could have
a material adverse effect on the Company. Each of Messrs. Donegan, Botich and
Halseth have entered into an employment agreement with the Company which
expires in 2000, 1998 and 1998, respectively. The Company is the sole
beneficiary of a key person life insurance policy on the lives of each of
Messrs. Donegan, Botich and Halseth in the amount of $1,000,000 per policy.
Product Liability
The manufacture and sale of medical devices entails an inherent risk
of liability in the event of product failure or claim of harm caused by product
operation. Although the Company currently maintains product liability insurance
coverage ($5,000,000 per occurrence and in the aggregate), there can be no
assurance that such coverage will remain available at a reasonable cost and in
amounts sufficient to protect the Company against claims or recalls that could
have a material adverse effect on the financial condition and prospects of the
Company.
Government Regulation
As medical devices, the Company's products are subject to regulation
by the FDA under the Federal Food, Drug, and Cosmetic Act ("FD&C Act") and
implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among
other things, the manufacture, labeling, distribution, and promotion of the
Company's products in the United States. The FD&C Act requires that a medical
device must (unless exempted by regulation) be cleared or approved by the FDA
before being commercially distributed in the United States. The FD&C Act also
requires manufacturers of medical devices to, among other things, comply with
labeling and promotion requirements and to manufacture devices in accordance
with Good Manufacturing Practices ("GMPs"), which require that companies
manufacture their products and maintain related documentation in a prescribed
manner with respect to manufacturing, testing and quality control activities.
The FDA inspects medical device manufacturers and
25
<PAGE>
distributors, and has broad authority to order recalls of medical devices, to
seize noncomplying medical devices, to enjoin and/or impose civil penalties on
manufacturers and distributors marketing noncomplying medical devices, and to
criminally prosecute violators.
The FD&C Act provides that, unless exempted by regulation, medical
devices may not be commercially distributed in the United States unless they
have been approved or cleared by the FDA. Some products may qualify for
clearance pursuant to Section 510(k) of the FD&C Act, under which the
manufacturer submits to FDA a pre-market notification that it intends to begin
marketing the product, and shows that the product is substantially equivalent to
another legally marketed product (i.e., that it has the same intended use and
that it is as safe and effective as a legally marketed device, and does not
raise different questions of safety and effectiveness than does a legally
marketed device). In some cases, the 510(k) pre-market notification must include
data from human clinical studies. Marketing may commence when the FDA issues a
510(k) clearance finding such substantial equivalence.
On December 28, 1995, the Company submitted a 510(k) pre-market
notification to the FDA for its Safety Catheter. On February 13, 1996, the FDA
issued a 510(k) clearance for the Safety Catheter, permitting the Company to
market the product. The Company believes that the Safety Syringe and the Safety
Phlebotomy Set also will be eligible for clearance through the 501(k) pre-market
notification procedure based upon their substantial equivalence to previously
marketed devices. The Company presently intends to submit to FDA a 510(k)
pre-market notification for the Safety Phlebotomy Set in the first quarter of
1997 and for the Safety Syringe in the second quarter of 1997. However, there
can be no assurance that the Company will meet its target dates for 510(k)
pre-market notification submission, that such products are eligible for a 510(k)
clearance, that the Company will not be required to submit additional data or
meet additional FDA requirements that may substantially delay a 510(k) clearance
and add to the Company's expenses, or that the Company will obtain 510(k)
clearance to market the Safety Phlebotomy Set or Safety Syringe.
If any of the Company's products do not qualify for the 510(k)
clearance procedure, the FDA must approve a pre-market approval application
("PMA application") before marketing can begin. PMA applications must
demonstrate, among other matters, that the medical device is safe and effective.
A PMA application is typically a complex submission usually including the
results of clinical studies, and preparing an application is a detailed and
time-consuming process. Once a PMA application has been submitted, there can be
no assurance that a PMA application will be approved in a timely fashion
or at all.
The process of obtaining FDA clearances or approvals can be
time-consuming and expensive, and there can be no assurance that the Company
26
<PAGE>
will be able to obtain required regulatory clearances or approvals. Clearances
or approvals, if obtained, may include significant limitations on the uses
promoted for the product in question. Further, changes to the product may
require additional clearances or approvals. In addition, once a product has been
cleared or approved, the FD&C Act imposes continuing obligations, including,
among others, the requirement that devices be manufactured in accordance with
GMPs and that they be labeled and promoted in compliance with FDA regulations.
Changes in existing regulations or guidelines or the adoption of new regulations
or guidelines could make regulatory compliance by the Company more difficult in
the future. The failure to obtain needed clearances or approvals or the
resolution of enforcement action based on failure to comply with applicable
regulations would be likely to have a material adverse effect on the Company.
Distribution of the Company's products in countries other than the
United States may be subject to regulation in those countries. There can be no
assurance that the Company will be able to obtain the approvals necessary to
market the Safety Syringe, the Safety Phlebotomy Set, the Safety Catheter or
any other product outside of the United States.
Competition
The needle market is highly competitive. The Company will compete in
the United States and abroad with medical product companies, including Becton
Dickinson and Company, Sherwood Medical, a division of American Home
Products, Terumo Medical Corporation, Johnson and Johnson, U.S. Medical
Laboratories and Bio-Plexus, Inc. Many of the Company's competitors have name
recognition in the market and have longer operating histories and in many cases
are substantially larger and better financed than the Company. Such competitors
may use their economic strength to influence the market to continue to buy their
existing products or new products developed by them. One or more of these
competitors also could use such resources to improve their current products or
develop additional products which may compete more effectively with the
Company's products. New competitors may arise and may develop products which
compete with the Company's products. In addition, new technologies may arise
which could lower or eliminate the demand for the Company's products.
Control by Directors and Officers
As of December 31, 1996, Directors and officers of the Company
beneficially owned or controlled approximately 42% of the outstanding Common
Stock and have the right to acquire 289,000 additional shares of Common Stock
upon exercise of outstanding options, when vested. By virtue of their ownership
of Common Stock and options to purchase Common Stock, such executive officers
and directors may, as a group, have the ability to exert significant control
over the election of the Company's Board of Directors and to determine corporate
actions requiring stockholder approval
27
<PAGE>
including mergers, consolidations and the sale of all or substantially all of
the Company's assets, and to prevent or cause a change in control of the
Company.
In addition, 200,000 shares of the Company's Common Stock owned by Mr.
James Donegan has been pledged as collateral for a loan. In the event of a
default by Mr. Donegan, such lender would then take title to such shares, which
would have the effect of reducing the control over the Company by such directors
and officers.
No Cash Dividends and None Anticipated
No cash dividends have been paid on the Common Stock of the Company.
It is anticipated that income received from operations, if any, will be devoted
to the Company's future operations. Accordingly, no cash dividends are
anticipated in the future.
Barriers to Takeover
The Company has an authorized class of 5,000,000 shares of preferred
stock. The Board has the authority, without shareholder approval, to issue
preferred stock in one or more series and to fix the relative rights and
preferences thereof including their redemption, dividend and conversion rights.
The ability of the Company to issue the authorized but unissued shares of such
preferred stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company.
Future Sales of Common Stock by Existing Security Holders; Potential Adverse
Effect on Market Price
Of the 6,899,570 shares of common stock presently issued and
outstanding as of December 31, 1996, 3,270,662 shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act") and are
"restricted securities" as that term is defined by Rule 144 promulgated under
the Securities Act. In addition, as of December 31, 1996, an additional 207,665
shares of stock which are owned by "affiliates" of the Company have been
registered under the Securities Act, but are considered "restricted securities"
under Rule 144 of the Securities Act. In the future, such restricted securities
may be sold in compliance with the limitations of Rule 144, or otherwise.
Generally, under Rule 144, a person who has held fully-paid-for "restricted
securities" for a period of two years may, every 90 days, sell to a market
maker, or in an ordinary broker's transaction, an amount that does not exceed
the greater of one percent (1%) of the Company's then outstanding stock or the
average weekly trading volume during the four calendar weeks preceding the sale.
Rule 144 also permits a person who is not an affiliate of the Company, and who
has held fully-paid-for "restricted securities" for a period of three years,
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<PAGE>
to sell such securities without compliance with the limitations on quantity and
manner of sale.
Beneficial holders of approximately 2,570,631 shares of Common Stock
in the aggregate have agreed not to directly or indirectly, offer to sell,
contract to sell, transfer, assign, encumber, grant an option to purchase,
pledge or otherwise dispose of any beneficial interest in such securities until
February 13, 1997, without the prior written consent of the Company and the
underwriter of the Company's Initial Public Offering. In addition, pursuant to
this Offering, five individuals who are officers and/or directors of the
Company, have agreed not to offer, sell or otherwise dispose of an aggregate of
1,307,912 of their shares (with certain exceptions) for a period commencing on
the date of this Offering and continuing until the Company has entered into
three material corporate alliances relating to the Company's products, although
any of those five individuals may offer, sell or otherwise dispose of their
shares after the Company has entered into two material corporate alliances
relating to the Company's products if Mr. James Donegan so consents in writing.
Mr. Donegan has also agreed not to offer, sell or otherwise dispose of 1,230,000
of the shares beneficially owned by him for a period commencing on the date of
this Offering and continuing until the Company has entered into three material
corporate alliances relating to the Company's products, without the prior
written consent of the Placement Agent.
Taking into account the above referenced lock-up agreements and
assuming the underwriter and the Placement Agent do not release any stockholders
from such agreements, of the 6,899,570 shares of Common Stock outstanding as of
December 31, 1996, approximately 306,668 shares are currently eligible under
Rule 144 for sale in the public market and approximately 3,268,327 shares of
Common Stock will be eligible under Rule 144 for sale in the public market after
February 1, 1996 through May 31, 1997. The future sale of any "restricted
securities" by stockholders of the Company or the issuance of Common Stock upon
the exercise of the outstanding options or warrants may have an adverse effect
upon the market price of the Common Stock (which includes the Common Stock sold
in connection with this Offering) and the ability of the Company to raise
capital. Holders of options to purchase 81,000 shares are presently fully vested
and upon exercise of such options are eligible to sell such shares under rule
701. Holders of outstanding warrants (including the Warrants as hereinafter
defined) have the right to purchase 289,000 shares of Common Stock and to
require the Company to register the resale of such shares of Common Stock.
Anti-Takeover Provisions
The Company is governed by the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law enacted in 1988. In
general, the law prohibits a public Delaware corporation from engaging in a
"business combination" with an
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<PAGE>
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and certain other transactions
resulting in a financial benefit to the stockholders. An "interested
stockholder" is defined as a person who, together with affiliates and
associates, owns, (or, within the prior three years, did own) 15% or more of a
corporation's voting stock. As a result of the application of Section 203,
potential acquirors of the Company may be discouraged from attempting to effect
an acquisition transaction with the Company, thereby possibly depriving holders
of the Company's securities of certain opportunities to sell or otherwise
dispose of such securities at above market prices pursuant to such transactions.
Risks of Low-Priced Stocks
The Commission has adopted regulations which define a "penny stock" to
be an equity security that has a market price (as therein defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require the delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks. The foregoing penny stock restrictions
will not apply to the Company's securities if such securities continue to be
listed on the NASDAQ Small Cap Market, as to which there can be no assurance,
and have certain price and volume information provided on a current and
continuing basis or meet certain minimum net tangible assets or average revenue
criteria. In any event, even if the Company's securities were exempt from such
restrictions, it would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the Commission the authority to prohibit any person engaged in
unlawful conduct while participating in a distribution of penny stock from
associating with a broker-dealer or participating in a distribution of penny
stock, if the Commission finds that such a restriction would be in the public
interest. If the Company's securities were to be removed from listing on the
NASDAQ Small Cap Market or otherwise become subject to the existing rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
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<PAGE>
USE OF PROCEEDS
Upon completion of the Offering, the Company expects to receive net
proceeds of approximately $4,655,000, assuming the sale of $5,000,000 of the
Company's Common Stock offered hereby after deduction of estimated fees and
expenses of the Offering. If and to the extent that the Company's secured
lenders permit it to release cash and marketable securities held as security for
its loans, the Company intends to use the net proceeds of the Offering to reduce
the amount outstanding under the lines of credit and to subsequently withdraw a
corresponding amount from the account securing the lines. These withdrawn funds
will be invested in short-term U.S. government securities pending the uses
described herein.
Of such proceeds, the Company will use approximately $2,000,000 of the
net proceeds of this Offering to complete research and development projects
currently in production and begin production of new research and development
projects, and the balance of the net proceeds for working capital and general
corporate purposes.
Management of the Company estimates, based on currently proposed plans
and assumptions relating to the cash generated by its operations, that the
proceeds of this Offering will be sufficient to enable the Company to satisfy
its contemplated liquidity requirements for at least 12 months (assuming that
the Closing occurs during January, 1997) following the consummation of this
Offering (depending upon the Company's cash requirements for new research and
development projects). The foregoing estimate reflects the Company's present
plans and certain assumptions regarding general economic and industry conditions
and the Company's anticipated revenues and expenditures in the near future.
However, the continuation of the Company's current projects and operations will
require funding substantially in excess of the proceeds of this Offering or any
funds otherwise currently available to the Company. The Company has no current
arrangements with respect to sources of additional financing and there can be no
assurance that any additional future financing will be available to the Company
in the future on commercially reasonable terms, if at all.
PLAN OF DISTRIBUTION
The Company is offering the Shares, on a "best-efforts" basis.
Affiliates of the Company may purchase Shares in this Offering. This offering
will expire on January 22, 1997 or when all of the Shares are sold subject to
the right of the Company and the Placement Agent to extend this Offering for an
additional 7 day period. The Shares will be offered in denominations of $50,000
and integral multiples thereof; however, the Company and the Placement Agent may
accept or reject offers to purchase Shares in any amount in their sole
discretion.
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The Company is offering the Shares exclusively through Fine Equities,
Inc., (the "Placement Agent"). The Company reserves the right to reject any
subscription from a subscriber who the Company believes, in its sole discretion,
does not meet the suitability standards for this Offering. See "Summary of
Offering-Sales to Accredited Investors Only". In such an event, any funds
received from such subscriber will be immediately returned without interest
thereon or deduction therefrom.
All funds received from subscribers will be held in an escrow account
for the benefit of the subscribers by Continental Stock Transfer and Trust
Company until the Closing or earlier termination.
Persons may subscribe by completing and signing each of the
Subscription Agreement and Investment Representation, the Accredited Investor
Questionnaire and the Purchaser Representative Questionnaire attached hereto,
and delivering them, together with payment of the subscription price, to the
Placement Agent. The subscription price must be paid by check or wire transfer
in United States dollars to the order of "Continental Stock Transfer & Trust
Company - The Med-Design Corporation Escrow Account". For wire instructions,
contact the Placement Agent at 212-687-0888.
Prior to the Closing, subscriptions may be revoked, provided that the
written notice of revocation is sent by certified or registered mail, return
receipt requested, and is received by the Placement Agent at least two business
days prior to the Closing. Refunds shall then be promptly made without interest
thereon and without deduction therefrom.
<PAGE>
EXHIBIT A
---------
Form 10-KSB of The Med-Design Corporation
containing its audited consolidated
financial statements
for the year ended December 31, 1995
<PAGE>
EXHIBIT B
---------
Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated
financial statements
for the three month period ended March 31, 1996
<PAGE>
EXHIBIT C
---------
Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated
financial statements
for the three month period ended June 30, 1996
<PAGE>
EXHIBIT D
---------
Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated
financial statements
for the three month period ended September 30, 1996
