SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM ____ to ____.
Commission file number 0-25852
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THE MED-DESIGN CORPORATION
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(Name of small business issuer in its charter)
Delaware 23-2771475
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2810 Bunsen Avenue, Ventura, CA. 93003
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (805) 339-0375
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Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
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(Title of Class)
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-KSB or any amendment to
this Form 10-KSB [ ].
The Issuer's revenues for fiscal year ended December 31, 1997: None
The aggregate market value of voting stock held by non-affiliates of the
registrant (computed by reference to the last reported sale price of such stock
on March 14, 1998): $25,567,979
Documents incorporated by reference:
Certain portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders (which is expected to be filed with the Commission not
later than 120 days after the end of the registrant's last fiscal year) are
incorporated by reference into Part III of this Report.
Total number of consecutively numbered pages is______.
The Exhibit Index appears on page____.
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains
forward-looking statements relating to such matters as anticipated business
performance, business prospects, technological developments, product
development, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, The Med-Design Corporation (the "Company") notes that these
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the sections of this Annual Report
entitled "Business - Products Under Development," "Business - Research and
Development," "Business - Competition," "Business - Marketing and Sales," "
Business Manufacturing," "Business - Patents and Proprietary Rights," " Business
- - Government Regulation," "Management's Discussion and Analysis or Plan of
Operation - Results of Operation," "Management's Discussion and Analysis or Plan
of Operation - Plan of Operation," "Management's Discussion and Analysis or Plan
of Operation - Liquidity and Capital Resources." Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents that the Company
files from time to time with the Securities and Exchange Commission and in
public communications made by the Company.
PART I
ITEM 1. BUSINESS
General Developments of the Company
The Company was incorporated in Delaware on November 14, 1994. On
February 28, 1995, The Med-Design Corporation, a Pennsylvania corporation,
incorporated on December 13, 1993, was merged with and into the Company.
The Company was formed to acquire Med-Design, Inc., a California
corporation ("MDI") incorporated on October 26, 1990, which owned patent and
proprietary rights to certain safety medical devices, including the Safety
Syringe, the Safety Phlebotomy Set and the Safety Catheter (as hereinafter
defined).
On March 14, 1995, the Company organized a wholly-owned subsidiary, MDC
Investment Holdings, Inc. ("MDC Holdings"), under the laws of the State of
Delaware. The Company entered into an Agreement of Merger on April 5, 1995 (the
"Merger Agreement") with MDC Holdings and MDI, pursuant to which MDI merged with
and into MDC Holdings, the surviving corporation (the "Merger"), and the Company
issued and delivered 1,219,742 shares of Common Stock to the MDI shareholders in
exchange for their shares of MDI common stock. In addition, the Company issued a
non-interest bearing promissory note in the principal amount of $1,000,000 (the
"Note") payable to the former MDI shareholders, which was collateralized by all
of the issued and outstanding shares of the common stock, $0.01 par value per
share, of MDC Holdings. In connection with the Merger, the Company issued and
delivered 3,572 shares of Common Stock to a former noteholder of MDI to satisfy
an obligation of MDI. The Company paid the Note in full from the net proceeds of
the Company's Initial Public Offering (as defined below).
As a result of the Merger, MDC Holdings became the sole owner of all of
the worldwide intellectual property rights of MDI including patents, patent
applications, trademarks and trademark applications relating to the Safety
Syringe, Safety Phlebotomy Set and Safety Catheter.
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Immediately following the consummation of the Merger, MDC Holdings
transferred all of the assets it acquired in the Merger, other than its patents
and other intellectual property, and all of its liabilities to MDC Research
Ltd., a California corporation and wholly-owned subsidiary of MDC Holdings.
In June 1995, the company completed an initial public offering of
3,450,000 shares of Common Stock, par value $0.01 per share (the "Initial Public
Offering"). The net proceeds to the Company from the Initial Public Offering
were approximately $9,526,000.
On January 23, 1997, the Company completed a sale ("Placement") of
1,000,000 shares of Common Stock at a price of $5.00 per share pursuant to an
offering to certain "accredited investors" (pursuant to Regulation D of the
Securities Act of 1933, as amended). The Company received proceeds of
approximately $4,617,000, net of expenses incurred in connection with the
Placement.
Description of the Business of the Company
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 which can
then be safely discarded.
The Company also has several new products which are in various stages
of development. These new product developments include the Safety Pre-Filled
Vial Injector, Safety PICC Introducer Catheter Insertion Device, Safety
Guidewire Introducer, Safety Winged Set Blood Collection Needle, and Safety
Arterial Blood Gas Syringe and a number of additional products that have not
been prioritized for development as yet. These products also incorporate the
Company's proprietary retraction technology and are designed to reduce the
incidence of accidental needlesticks. The Company has developed various sizes
and designs of these products to accommodate the specific requirements of
potential strategic allies for medical and dental applications.
The Company believes that its safety medical devices can assist
employers in meeting standards promulgated by Occupational Safety and Health
Administration ("OSHA") to help eliminate or minimize occupational exposure to
bloodborne pathogens. The Company has patent rights and patents pending with
respect to certain of its products in the United States and certain foreign
countries.
The Company completed relocation of its corporate headquarters to 2810
Bunsen Ave, Ventura, California 93003. The Company's telephone number is (805)
339-0375.
Industry
Accidental Needlesticks
Needles for hypodermic syringes, phlebotomy sets and intravenous
catheters are used for introducing drugs and other fluids into the body and
drawing out blood and other bodily fluids. Among the applications for needles
are the injection of drugs (hypodermic syringes), the drawing of blood
(phlebotomy sets) and the infusion of drugs and nutrients (catheters). There is
an increasing awareness of the potential danger of infections and illness that
result from accidental needlesticks and of the need for safer needle devices
which reduce the number of accidental needlesticks that occur each year. Needles
can be broadly categorized as standard needles and safety needles. Safety
needles are designed to perform the same functions as standard needles and to
reduce the risk of accidental needlesticks and the potential danger of
infections and illnesses resulting therefrom.
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Infections contracted as a result of accidental needlesticks are a
major concern to healthcare institutions, healthcare workers, sanitation and
environmental services workers and the regulatory agencies charged with the task
of making their working environment safe. Accidental needlesticks may result in
the spread of infectious diseases such as Hepatitis B, HIV, which may lead to
AIDS, diphtheria, gonorrhea, typhus, herpes, malaria, rocky mountain spotted
fever, syphilis and tuberculosis. According to a December 1992 report issued by
the American Hospital Association, an estimated 800,000 occupational
needlesticks occur nationwide each year. The number of reported needlesticks,
however, is believed to be only a portion of the actual number of occurrences.
The possibility of healthcare workers becoming infected from
contaminated needles has caused, and continues to cause, a great deal of concern
in the healthcare field and the agencies regulating the area. OSHA has adopted
regulations requiring employers to institute universal precautions to prevent
contact with blood and other potentially infectious material. OSHA's regulations
also require employers to establish engineering controls (e.g., sharps disposal
containers and self-sheathing needles) and safe work practices to ensure
compliance with these universal precautions. OSHA does not mandate specific
technologies; rather, employers are permitted to choose the most appropriate and
effective safety control devices to meet their specific institutional needs.
According to OSHA guidelines, while employers do not have to institute the most
sophisticated engineering controls, they must evaluate the effectiveness of
existing controls and evaluate the feasibility of instituting more advanced
engineering controls. OSHA specifically prohibits the recapping, bending or
removal of needles, unless there is no feasible alternative or if required for a
specific medical procedure. If recapping, bending or removal is necessary,
workers must use either a mechanical device or a one-handed technique.
In April 1992, the United States Food and Drug Administration ("FDA")
issued a safety alert to hospitals warning of the risks of needlestick injuries
from the use of hypodermic needles with intravenous equipment. Among other
things, the safety alert stated that although the FDA could not recommend
specific products, it urged the use of needleless systems or recessed needle
system devices with a fixed safety feature. According to the alert, (1) a fixed
safety feature should provide a barrier between the hands and needle after use;
(2) the safety feature should allow or require the worker's hand to remain
behind the needle at all times; (3) the safety feature should be an integral
part of the device, and not an accessory; (4) the safety feature should be in
effect before disassembly and remain in effect after disposal to protect the
users and trash haulers and for environmental safety; and (5) the safety feature
should be as simple as possible, and require little or no training to use
effectively.
In addition, the U.S. government's Centers for Disease Control and the
National Institute of Health have published guidelines that specify that needles
should not be re-sheathed, bent, broken, removed from disposable syringes or
otherwise manipulated by hand because of the potential for needle stick injury,
with the associated risk of blood-related infection.
As a result of the above mentioned regulations and guidelines,
healthcare institutions utilize equipment, including safety needles, and work
practices that offer greater protection for healthcare workers than previously
provided.
Market for Needles and Safety Needles
Safety Needle Syringes. The Company's marketing strategy for its Safety
Syringe sales will be directed at the foreign markets, principally Western
Europe and Japan. The Company is also reassessing the possibilities for
marketing the Safety Syringe in United States. Based upon the limited data
available, the Company estimates the market for disposable syringes and needles
in Western Europe and Japan was approximately 5.2 billion units in 1995, and is
projected to increase to approximately 6.0 billion units in 1998. There is
presently no data available to the Company to determine what percentage safety
syringe and needle devices have or will have of the overall disposable syringe
and needle market in Western Europe and Japan.
Phlebotomy Sets. Based upon the limited data available, the Company
estimates that the annual United States market for vacuum tube phlebotomy sets
was approximately 1.5 billion units in 1995 and that the worldwide market for
phlebotomy sets is two times the size of the United States market, implying a
total annual worldwide market of approximately 3 billion units in 1995. The
Company does not have more current data. There is presently no data available to
the Company to determine what percentage safety phlebotomy sets have or will
have of the overall market for phlebotomy sets.
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Intravenous Catheters. The Theta Corporation, in its January 1996
Report on Catheters, expected 1995 sales of catheters to be approximately 228
million catheters in the U.S. and approximately 620 million catheters worldwide.
The Company believes that its Safety Catheter will have a broad application for
catheter placement which requires insertion of the catheter entry cannula using
a steel needle. The types of catheters which require a catheter insertion device
include intravenous, central venous, oximetry, thermodilution, radiology and
angiographic catheters, which according to a July 1993 Theta Corporation Report,
constitute approximately 50% of the total unit market for catheters. The January
1996 Theta Corporation Report estimates that the unit market annual growth rate
for I.V. catheter devices worldwide to be approximately 10% through 2000. The
January 1996 Theta Corporation Report on Catheters also projected sales for the
market for I.V. catheter devices in 1996 to be approximately 679 million units
worldwide. There is presently no data available to the Company to determine what
percentage safety catheter insertion devices have or will have of the overall
market for catheter insertion devices.
Products Under Development
The Company continues to modify and improve the 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 optimize ergonomic performance, improve
manufacturability and to reduce manufacturing costs. The Company has developed
prototypes for such products, and continues to develop additional generation's
of prototypes to represent any additional modification to their design.
Safety Syringe. The Safety Syringe is similar in appearance, size and
performance to a standard disposable syringe, but can be rendered safe with no
substantial change in operation technique, using one hand. 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, by applying
additional pressure to move the plunger beyond the normal stop, the needle
automatically and fully retracts into the body of the syringe. The needle is
sealed 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 may then 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 (Blood Collection Needles) are
used to obtain 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 MDC Safety Phlebotomy set is similar in
appearance, size, and performance to a standard disposable device, except that
it can be rendered safe by activating the proprietary mechanism. The operation
of the Safety Phlebotomy set is conventional up to the point where sufficient
fluids have been extracted. Then, by depressing a button on the barrel, the
needle automatically and fully retracts into the device, where it is then held
in place and is rendered harmless and inoperable. The Safety Phlebotomy Set and
needle 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 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 Med-Design Safety Catheter is similar in
appearance, size and performance, to a standard disposable device, except that
it can be rendered safe by activating the proprietary mechanism. The operation
of the Safety Catheter is conventional until after the insertion needle is
partially removed from the flexible catheter. Then, upon further removal from
the catheter, the needle automatically and fully retracts into the body of the
Insertion Device. This actuation method is totally passive and insures that the
safety feature (needle retraction) is deployed. The needle is held in place and
is rendered harmless and inoperable. The Safety Catheter and needle cannot
thereafter be used again. The entire retraction procedure takes only a fraction
of a
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second to complete. The Safety Catheter then may be safely handled so that
disposal does not pose a health risk. The Safety Catheter is easy to use and
provides visual and tactile confirmation that the needle has been safely
retracted after use.
In addition, the Company has focused on a number of new products for
development. Five of these products have been designated for priority
development, including the Safety PICC Introducer Catheter Insertion Device, the
Safety Guidewire Introducer, the Safety Winged Set Blood Collection Needle, the
Safety Arterial Blood Gas Syringe Needle and the Safety Pre-Filled Vial Injector
(collectively, the "New Products"). The New Products are in various stages of
development, and prototyping.
Safety PICC Introducer Catheter Insertion Device. The Safety PICC
("Peripherally Inserted Central Catheter") Introducer Catheter Insertion Device
is used to place an axially splitable flexible introducer catheter. The
introducer is used to place a PICC for long term venous access to deliver fluids
into a patient. The splitable introducer catheter is inserted by the insertion
device into patients, by a needle within the splitable flexible catheter. Once
placed, a PICC is inserted within the splitable catheter and into the patient's
vein. The splitable catheter is withdrawn from the patient and peeled apart for
removal from the PICC. The Safety PICC Introducer Catheter Insertion Device is
similar in appearance, size and performance to a standard disposable device,
except that it can be rendered safe by activating the proprietary mechanism. The
operation of the device is conventional until after the insertion needle is
partially removed from the splitable flexible catheter. Then, with activation of
the proprietary retraction, the needle automatically and fully retracts into the
body of the device, where the needle is held in place and is rendered harmless
and inoperable. The Safety PICC Introducer Catheter Insertion Device cannot
thereafter be used again. The entire retraction procedure takes only a fraction
of a second to complete. The device may then be safely handled so that disposal
does not pose a health risk. The Safety PICC Introducer Catheter Insertion
Device is easy to use and provides visual and audible confirmation that the
needle has been safely retracted after use.
Safety Guidewire Introducer. The Safety Guidewire Introducer includes a
thin stainless steel guidewire attached in a slidable fashion to the back end of
the barrel. The guidewire slides through the needle of the Introducer and is
used to place the guidewire in the patients vein. Once the guidewire is placed,
a mid-line or other long term type indwelling catheter is slid over the wire,
and the guidewire is removed. The Safety Guidewire Introducer needle is
withdrawn from the patient's vein once the guidewire is advanced to the desired
position. When the Safety Guidewire Introducer is pulled rearward completely off
the guidewire, the introducer needle can be safely and easily retracted within
the device. The operation of the device is conventional until after the
insertion needle is removed from the guidewire. Then, with a simple action of
releasing a safety latch and pushing the plunger, the needle automatically and
fully retracts into the body of the device, where the needle is held in place
and is rendered harmless and inoperable. The Safety Guidewire Introducer cannot
thereafter be used again. The entire retraction procedure takes only a fraction
of a second to complete. The device may then be safely handled so that disposal
does not pose a health risk. The Safety Guidewire Introducer is easy to use and
provides visual and audible confirmation that the needle has been safely
retracted after use.
Safety Winged Set Blood Collection Needle. The Safety Winged Set Blood
Collection Needle is used to obtain a sufficient volume of blood for a variety
of diagnostic procedures. The Company's Safety Winged Set Blood Collection
Needle is similar in appearance, size and performance to a standard non-safety
winged set, except that it can be rendered safe by activating the proprietary
mechanism. The device works with substantially all standard phlebotomy set
accessories. The operation of the Safety Winged Set Blood Collection Needle is
conventional up to the point where sufficient fluids have been extracted. Then,
when retraction is actuated by depressing a button on the side of the barrel,
the needle automatically and fully retracts into the device, where the needle is
held in place and is rendered harmless and inoperable. The Safety Winged Set
Blood Collection Needle cannot thereafter be used again. The entire retraction
procedure takes only a fraction of a second to complete. The Safety Winged Set
Blood Collection Needle may then be safely handled so the disposal does not pose
a health risk. The Safety Winged Set Blood Collection Needle is easy to use and
provides visual and audible confirmation that the needle has been safely
retracted after use.
Safety Arterial Blood Gas Syringe Needle. The Safety Arterial Blood Gas
Syringe Needle is used to
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obtain a small (0.5 - 3.0 ml) sample of arterial blood, as opposed to venous
blood. This type of blood sampling requires a unique procedure that insures
accurate blood analyzing. The Safety Arterial Blood Gas Syringe Needle is
designed to be attached to any standard non-safety blood gas syringe as you
would attach a non safety needle. The Safety Arterial Blood Gas Syringe Needle
is used in the same way as a standard non-safety device needle, except that it
can be rendered safe by activating the proprietary mechanism. Essentially, the
syringe plunger is preset to the desired fill level by pulling the plunger
rearward. Then arterial access is made and the syringe fills due to blood
pressure, allowing the trapped air to escape through a hydrophobic vent located
on the plunger seal. Once full, the flow of blood stops upon contact with the
vent and the needle is withdrawn. Immediately, while still holding the syringe
somewhat like a pencil, the actuator button is pushed and the needle retracts
within the needle housing. The sealed needle housing can then be safely
discarded into an appropriate sharps container. A venting or sealing cap is
attached to the syringe and then placed in an ice tray for delivery to the
laboratory. Processing at the laboratory is conventional, since the front of the
syringe barrel is fitted with a standard Luer taper. This design eliminates the
requirement of removing a contaminated sharp needle before mounting a vent or
cap to the syringe.
Safety Pre-Filled Vial Injector. The Safety Pre-Filled Vial Injector is
a syringe type device, which allows medication to be injected into the patient
directly from a pre-filled vial. The pre-filled vial is an existing product used
by many pharmaceutical manufacturers and contains fluid medication. These
pre-filled vials have an elastomeric piston comprising a slidable fluid seal
within the forward end of the vial to allow for injection directly from the
vial. The slidable piston is threaded onto the rear end of the stationary
plunger and, upon injection, 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. The operation of the Safety
Pre-Filled Vial Injector is identical 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. The safety retraction is actuated by moving the vial further
forward, causing the needle to automatically and fully retract into the body of
the device, where the needle is held in place and is rendered harmless and
inoperable, and the Safety Pre-Filled Vial Injector cannot be used again. The
Safety Pre-Filled Vial Injector may be safely handled so that disposal does not
pose a health risk. The Safety Pre-Filled Vial Injector is easy to use and
provides visual and audible confirmation that the needle has been safely
retracted after injection, and 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
available research and development resources in 1998 to research and develop
such products.
Research and Development
The Company has devoted substantially all of its research and
development efforts since its formation to development related to safety needles
and the designs and development of the equipment necessary to assemble the
safety needle devices. Research and development expenses amounted to $1,605,668
in 1997 and $1,554,096 in 1996.
In 1995, the Company completed a research and development laboratory in
its facility in Ventura, California which is equipped with assembly and test
equipment for product development and creation of models of products to prove
their feasibility. In addition, the Company completed a machine shop equipped
with machine tools for fabrication of new product parts for concept modeling and
assembly and test fixtures. The Company also installed a Class 100,000 clean
room at the Ventura facility which is currently used for the hand assembly of
prototypes of the Company's products and will ultimately be used in connection
with the pilot manufacturing of various products of the Company on a
semi-automated assembly system or a fully automated robotic assembly system, if
the Company installs such a system.
The Company intends to continue to modify and improve the design of the
Safety Syringe, Safety Phlebotomy Set and Safety Catheter driven by additional
market research and in response to needs developed in discussions with potential
strategic partners. The Company also intends to continue its research and
development of the New Products, which are in various stages of development,
design and prototyping. In addition, the Company intends to devote resources to
the research and development of additional safety needle devices and products
which incorporate the Company's proprietary retraction technology for use in the
healthcare industry.
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Marketing and Sales
The Company currently intends through strategic alliances, licensing or
joint ventures with third parties to market and sell the Safety Phlebotomy Set
and Safety Catheter in the United States and all three of its core safety needle
products in select foreign countries. To avoid the possibility of a charge of
patent infringement, the Company originally elected to market through alliance,
licensing or joint ventures, the Safety Syringe only outside the United States.
In 1996, however, the Company re-engineered certain aspects of the Safety
Syringe and eliminated a potential U.S. patent conflict identified in its
Initial Public Offering prospectus and purchased certain patent rights from Dr.
Kulli. As a result, the Company is reassessing the possibilities for licensing
the Safety Syringe in the United States. See "Patents and Proprietary Rights".
The Company is currently investigating opportunities with third parties
in the United States and abroad to manufacture, market and distribute the Safety
Syringe, the Safety Phlebotomy Set and the Safety Catheter and certain of its
other products under licensing agreements or through other forms of joint
venture. The Company has entered into a significant number of confidentiality
agreements with other companies for the purpose of exploring such opportunities.
The Company anticipates that entering into alliances and licensing arrangements
with third parties would enable the Company to increase the market penetration
of its products more quickly than the Company could achieve on its own.
The Company is not permitted to sell any of its products for commercial
use in the United States until, and only if, such products are cleared for
marketing by the FDA. See "Government Regulation" below. From June 1995 to
December 1996, the Company focused its efforts on the preparation of a 510(k)
pre-market notification for submission to the FDA for the Safety Catheter,
Safety Phlebotomy Set and Safety Syringe. The Company filed the 510(k)
pre-market notification for the Safety Catheter and Safety Phlebotomy Set with
the FDA on December 28, 1995. On February 13, 1996, the FDA notified the Company
that it may begin marketing the Safety Catheter. On March 15, 1996, the FDA
notified the Company that is was holding the 510(k) pre-market notification for
the Safety Phlebotomy Set for 30 days pending receipt of the additional
information requested by the Office of Device Evaluation ("ODE"). A written
request for additional information from the ODE was received by the Company on
March 13, 1996. The Company responded by requesting a ninety day extension,
which was granted on April 18, 1996. The Company voluntarily withdrew the 510(k)
pre-market notification because of modifications and improvements made to the
original design of the Safety Phlebotomy Set. The Company filed a new 510(k)
premarket notification for the modified Safety Phlebotomy Set with the FDA on
August 12, 1997. On November 10, 1997, the FDA notified the Company that it may
begin marketing the Safety Phlebotomy Set. The Company anticipates that it will
complete and file a 510(k) pre-market notification with the FDA during 1998
for the improved design of the Safety Catheter.
In addition to being subject to the U.S. government's Food, Drug and
Cosmetic Act (the "FD&C Act") and the regulations promulgated thereunder, the
Company must comply with the laws and regulations of the various foreign
countries in which the Company plans to sell or license the Safety Catheter,
Safety Phlebotomy, Safety Syringe and other products prior to selling such
products in such foreign countries. Certain foreign countries may only require
the Company to submit evidence of the FDA's pre-market clearance of the
Company's products, prior to selling in such countries. However, some foreign
countries may have more stringent requirements and require additional testing
and approvals.
The Company signed an agreement on February 23, 1998 with Graphic
Controls Corporation for the development and licensing of its proprietary Safety
Intravenous Catheter Insertion Device. The signing of this agreement, and the
completion of a series of mutually agreed upon milestones will result in
payments to the Company totaling as much as $3.72 million, with continuous
royalties for the life of the patents. The Company would receive $1.82 million
of the $3.72 million during the completion of milestones associated with the
development phase and $1.9 million in milestone payments associated with the
granting of the exclusive North American License.
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The Company has provided a limited quantity of its Safety Syringes,
Safety Catheters, Safety Phlebotomy Sets, and certain of the New Products to
third parties in the United States and selected foreign countries under
confidentiality agreements for market research purposes.
Manufacturing
In 1995, the Company leased approximately 26,000 square feet of space
in Ventura, California. In addition to administrative offices, the Ventura
facility contains a research and development laboratory equipped with assembly
and test equipment for concept modeling and product development and a machine
shop equipped with machine tools for fabrication of new products for concept
modeling and assembly and test fixtures. The Company also installed a 3,120
square foot Class 100,000 clean room at the Ventura facility, which is currently
being used for the assembly of prototypes and products. The Company installed a
semi-automated assembly system to pilot manufacture its products.
The semi-automated assembly system, which consists of a series of
manual and semi-automatic stations, will be capable of producing up to 3,000,000
units per year. The assembly system can produce one or more of the Company's
products at a time, and has the capability of being converted at a reasonable
cost with minimal delay to pilot manufacture a different product at such time as
the Company may decide. 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 completed installation
of the system during the third quarter of 1997. The objective of the Company in
installing the assembly system is to demonstrate to potential third party
manufacturers the economic feasibility of the commercial production of its
product.
Although the Company's plans may change as a result of future
discussions with third parties, the Company's current plan is to produce on the
semi-automated assembly system limited quantities each of one or more of its
products in order to demonstrate to potential third party manufacturers the
economic feasibility of the commercial production of its products and such
number of its products necessary for FDA clearance. Although the Company
originally planned to manufacture and distribute the Safety Phlebotomy Set and
Safety Catheter directly, the Company may ultimately contract with third parties
for all or a portion of the needed production of such products on a contract
manufacturing basis, licensing arrangement or other form of joint venture.
The Company may require that any third party manufacturer of its
products use the semi-automated assembly system designed by the Company in order
to maintain quality control over its products. In addition, the Company has
established a quality control and quality assurance program designed to assure
that the Company's products are manufactured in accordance with the FDA's
regulations related to current Good Manufacturing Practices and other applicable
domestic and foreign regulations; however, the Company will be dependent upon
any such third party manufacturers to comply with such procedures and
regulations.
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 U.S. patent rights currently consist of six United States
patents, one relating to the Safety Syringe, another relating to the Safety
Phlebotomy Set, the third relating to the Safety Catheter, and a fourth patent
issued in 1997 relating to the Y-Port Intravenous access device. The remaining
two patents which were purchased in 1997, relate to additional safety syringe
needle arrangements. The Company has been granted patents relating to the Safety
Syringe in Europe, Japan, Australia, Bulgaria, Hungary and in Romania.
Corresponding regional and national patent applications relating to the Safety
Syringe are pending six member countries of the Patent Cooperation Treaty.
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In 1995, the Company filed an international patent application, and a
corresponding Taiwanese patent application which has been granted, directed to
its Safety Catheter, which incorporates several modifications and changes from
the original design on which it obtained a U.S. patent. This application is now
pending in Canada, China, Europe, Japan, Mexico, and Singapore. Also in 1995,
the Company filed a U.S. patent application and a corresponding Taiwanese patent
application directed to its retractable needle Inline Y-Port Injector Access
Needle. In 1996, the Company filed a U.S. patent application directed to its
Self-Contained Pre-Filled Syringe and its MDC Closed Injection 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 two U.S. patent applications directed
to alternative designs for its Pre-Filled Vial Injector System.
The Company filed nine U.S. patent applications in 1997. Of these nine
applications, three relate to various pre-filled injection devices, four relate
to improvements made to the Safety Catheter, and two relate to improvements made
to the Blood Collection Needle. A pending U.S. application covering pre-filled
injection devices has been allowed and is proceeding toward issue.
On April 23, 1997, the European Patent Office granted the Company's
European patent application for its Safety Syringe, which was based on an
international application filed November 20, 1990. The European Patent
designates the countries of Austria, Belgium, Switzerland, Liechtenstein,
Germany, Denmark, Spain, France, Great Britain, Greece, Italy, Netherlands, and
Sweden for protection. The European patent coverage complements the patents that
had already been granted in Romania and Bulgaria. A further European application
is pending aspects of the device covered in the issued European patent. In 1997,
the Company filed three international applications under the Patent Cooperation
Treaty ("PCT"). The Patent Cooperation Treaty includes a total of countries. The
three PCT applications relate to respective pre-filled injection devices, Blood
Collection Needles, and catheter insertion devices.
There can be no assurance that the Company's current patent
applications and provisional 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 such 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 may raise a
possibility of infringement or conflict with the Company's planned activities.
Furthermore, the Company is considering appropriate modification 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 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. 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
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<PAGE>
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
the 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.
With respect to trademarks, the Company has filed an intent to use
trademark application for the mark "Safe Step" with the United States Patent and
Trademark Office. The application for the Safe Step mark has been allowed and
the Statement of Use has been filed to secure the registration. The Company may
apply for other trademarks in the future.
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 Davis and Geck, Terumo Medical, Johnson &
Johnson, and Bio-Plexus, Inc. Four of these companies also manufacture safety
needles. The Company's Safety Syringe, Safety Phlebotomy Set and Safety Catheter
would compete with the standard and safety syringes, phlebotomy sets and
intravenous catheter devices manufactured by these and other companies in the
United States and in certain foreign countries. Many of the Company's
competitors have better name recognition in the market, longer operation
histories, and 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. The Company cannot predict the development of future
competitive products or companies.
Historically, the needle market has been price competitive with little
differentiation between products. In addition to price, safety needles compete
for market share based on operating features and safety. In recent years, the
medical industry has adopted infection control practices which encourage the use
of safe medical devices due principally to the high cost of treating infection
and potential liability resulting from accidental needlesticks.
Safety needle devices are generally estimated to cost two to three
times the price of their counterpart standard needle devices. A major factor in
the introduction of new products designed to reduce the risk of accidental
needlesticks to healthcare workers is whether the increased expense of a safer
device is offset by the savings of preventing accidental needlesticks. According
to the American Hospital Association report dated December 1992 ("AHA Report"),
the direct costs for medical evaluation and follow-up after a single needlestick
injury ranges from $200 to $1,200. This figure does not include indirect costs,
such as time lost from work and other administrative activities. Although it is
difficult to estimate the total costs associated with accidental needlestick
injuries with any degree of confidence, the Report on Medical Needles and
Syringes dated January 1994 by Theta Corporation estimates that the total cost
associated with treating accidental needlesticks in the United States averages
$3 billion each year. The AHA report and other authorities have stated that the
benefit resulting from the prevention of accidental needlesticks cannot be
measured solely by savings in costs of medical treatment, because of the costs
of treating persons who contract an illness or infection from an accidental
needlestick, the time lost from work and death. Although the Company cannot
predict with certainty the prices of its products, currently available safety
needle devices are priced at approximately two to three time times that of
standard devices. Notwithstanding the price differential, the Company believes
that, based upon estimated costs associated with accidental needlesticks, its
products should be considered cost effective by the marketplace.
Except for the Company's products, the Company believes that most of
the current safety needles use an external sheath design or require manual
retraction of the needle. The external sheath design generally requires the
operator to move a protective sheath over the needle after removing the needle
from the patient (a sliding sleeve) or manipulate the device to cover the used
needle tip (a disappearing needle). However, new safety needle products
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<PAGE>
which employ automatic needle retraction have been recently introduced to the
marketplace, and could effectively compete with the company's products. The
methods of use and disposal of the Safety Syringe, Safety Phlebotomy Set and
Safety Catheter are virtually identical to the present methods of use and
disposal for standard syringes, phlebotomy sets and intravenous catheter
insertion devices.
Government Regulation
As medical devices, the Company's products are subject to regulation by
the FDA under the U.S. government's 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 regulations) 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 distributors, to enjoin and/or
impose civil penalties on manufacturers and distributors marketing noncomplying
medical devices, and to criminally prosecute violators.
Pursuant to the FD&C Act, the FDA classifies medical devices intended
for human use into three classes, Class I, Class II, and Class III. In general,
Class I devices are products the safety and effectiveness of which the FDA
determines can be reasonably assured by general controls under the FD&C Act
relating to such matters as adulteration, misbranding, registration,
notification, records and reports, and GMPs. Class II devices are products for
which FDA determines that these general controls are insufficient to provide
reasonable assurance of safety and effectiveness, and that require special
controls such as the promulgation of performance standards, post-market
surveillance, patient registries, or such other actions as FDA deems necessary.
Class III devices are devices for which FDA has insufficient information to
conclude that either general controls or special controls would be sufficient to
assure safety and effectiveness, and which are life-supporting, life-sustaining,
or substantial importance in preventing impairment of human health (e.g., a
diagnostic device to detect a life-threatening illness), or present a potential
unreasonable risk of illness or injury. Devices in this case require pre-market
approval, as described below.
The FD&C Act further 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. There are two review procedures
by which medical devices can receive such approval or clearance. Some products
may qualify for clearance under a Section 510(k) procedure, in which the
manufacturer submits to the 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 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) notification must include
data from human clinical studies. In March 1995, the FDA issued a draft guidance
document on 510(k) notifications for medical devices with sharps injury
prevention features, a category that would cover all of the Company's existing
and new products. The draft guidance provisionally placed this category of
products into Tier 3 for purposes of 510(k) review, meaning that such products
will be subject to the FDA's most comprehensive and rigorous review for 510(k)
products. The draft guidance also states that in most cases, the FDA will
accept, in support of a 510(k) notification, data from tests involving simulated
use of such a product by health care professionals, although in some cases the
agency might require actual clinical data.
Marketing may commence when the FDA issues a clearance letter finding
such substantial equivalence. According to FDA regulations, the agency has 90
days to respond to a 510(k) notification. There can be no assurance, however,
that the FDA will provide a response within that time, or that the agency will
reach a finding of substantial equivalence.
If a product does not qualify for the 510(k) procedure (either because
it is not substantially equivalent to a legally marketed device or because it is
a Class III device), the FDA must approve a pre-market approval ("PMA")
application before marketing can begin. PMA applications must demonstrate, among
other matters, that the medical
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<PAGE>
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, the FDA's review may be lengthy and may include requests for
additional data. By statute and regulation, the FDA may take 180 days to review
a PMA application although such time may be extended. Furthermore, there can be
no assurance that a PMA application will be reviewed within 180 days or that a
PMA application will be approved by the FDA.
Although the 510(k) pre-market clearance process is ordinarily simpler
and faster than the PMA application process, there can be no assurance that the
Company will obtain 510(k) pre-market clearance to market Safety Syringe or
other new products, or that such products will be classified as Class II
devices, or that, in order to obtain 510(k) clearance, the Company will not be
required to submit additional data or meet additional FDA requirements that may
substantially delay the 510(k) process and add to the Company's expenses.
Moreover, such 510(k) pre-market clearance, if obtained, may be subject to
conditions on the marketing or manufacturing of the corresponding products that
may impede the Company's ability to market and/or manufacture such products.
In addition to the requirements described above, the FD&C Act requires
that all medical device manufacturers and distributors register with the FDA
annually and provide the FDA with a list of those medical devices which they
distribute commercially. The FD&C Act also requires that all manufacturers of
medical devices comply with labeling requirements and manufacture devices in
accordance with GMPs, which require that companies manufacture their products
and maintain their documents in a prescribed manner with respect to
manufacturing, testing, and quality control activities. The FDA's Medical Device
Reporting regulation requires that companies provide information to the FDA on
death or serious injuries alleged to have been associated with the use of their
products, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur. The FDA further
requires that certain medical devices not cleared for marketing in the United
States have FDA approval before they are exported.
The FDA inspects medical device manufactures and distributors, and has
broad authority to order recalls of medical devices, to seize noncomplying
medical devices, to enjoin and/or to impose civil penalties on manufacturers and
distributions marketing non-complying medical devices, and to criminally
prosecute violators.
The Company will be required under FDA regulations to register the
pilot manufacturing facility with the FDA before engaging in the commercial
distribution of any of its products. As such, the facilities will be subject to
inspection on a routine basis to assure compliance with the FDA's GMP
regulations.
In addition to laws and regulations enforced by the FDA, the Company is
subject to government regulations applicable to all businesses, including, among
others, regulations related to occupational health and safety, workers' benefits
and environmental protection.
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 its needle devices or any other product outside the United States.
Employees
As of March 15, 1998, the Company employed 21 people on a full-time
basis and one person on a part-time basis. The Company believes its employee
relations are satisfactory. The company does not anticipate increasing the
number of employees in the areas of product development, manufacturing, sales
and marketing at this time. The Company will however reassess its personnel
requirements as business activity dictates.
Environmental Matters
The Company believes its operations are currently in compliance in all
material respects with applicable Federal, state, and local laws, rule,
regulations, and ordinances regarding the discharge of material into the
environment. Such compliance has no material impact upon the Company's capital
expenditures, earnings or competitive position, and no capital expenditures for
environmental control facilities are planned.
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Subsequent Events
On February 23, 1998, the company signed an agreement with Graphic
Controls Corporation for the development and licensing of its proprietary Safety
Intravenous Catheter Insertion Device. The signing of this agreement, and the
completion of a series of mutually agreed upon milestones would result in
payment to Med-Design totaling as much as $3.72 million with continuous
royalties for the life of the patents. Med-Design would receive $1.82 million of
the $3.72 million during the completion of milestones associated with the
development phase and $1.9 million in milestone payments associated with the
granting of an exclusive for North America.
ITEM 2. PROPERTIES
The Company leases approximately 26,000 square feet of space in
Ventura, California ("Ventura Facility") for the Company's corporate
headquarters, pilot manufacturing plant, research and development facilities and
offices for a base rent of $11,708 per month. At the present time, approximately
8,700 square feet of the space is being used by the Company for research and
development, engineering and administrative offices, approximately 2,200 square
feet is being used exclusively for research and development and approximately
3,120 square feet is being used as a clean room for the assembly of prototypes
of the Company's products and ultimately will be used to pilot manufacture its
products. The remaining space is being used for shipping and handling, quality
control inspections and storage parts, furnished products and equipment. The
Company has installed a semi-automated assembly system to pilot manufacture
certain of its products in the clean room. The lease expires on October 31,
2000, although the Company has the option to extend the term for two additional
36 month periods as well as the option to purchase this facility.
The Company leased approximately 3,236 square feet of office space in
Philadelphia, PA., which until recently, was the corporate headquarters for the
Company. In March 1998, the Company completed the relocation of its corporate
headquarters to Ventura, California, although it still maintains an office in
Philadelphia. The balance of the office space previously used by the Company in
Philadelphia was subleased.
The Company believes that its facilities are adequate for its current
needs and that suitable additional or substitute space will be available as well
as needed.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to the knowledge of
management, threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 1997 through the solicitation of proxies or
otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock has been approved for trading in the NASDAQ
SmallCap Market under the symbol ("MEDC") since the Company's Initial Public
Offering on June 7, 1995. The following table sets forth for the fiscal quarters
indicated since the date of the Initial Public Offering, the range of high and
low bid information for the Company's Common Stock in the NASADAQ SmallCap
Market:
Market Information
<TABLE>
<CAPTION>
Fiscal year ended December 31, 1996 High Low
----------------------------------- ---- ---
<S> <C> <C>
First Quarter (January 1, 1996 to March 31, 1996) . . . . . . . $20 $ 9 1/2
Second Quarter (April 1, 1996 to June 30, 1996) . . . . . . . . 21 3/4 15 1/2
Third Quarter (July 1, 1996 to September 30, 1996) . . . . . . . 15 3/4 9 1/2
Fourth Quarter (October 1, 1996 to December 31, 1996) . . . . . 11 3/4 4 7/8
Fiscal year ended December 31, 1997 High Low
------------------------------------ ---- ---
First Quarter (January 1, 1997 to March 31, 1997) . . . . . . . $10 1/4 5 1/8
Second Quarter (April 1, 1997 to June 30, 1997). . . . . . . . . 9 3/8 6
Third Quarter (July 1, 1997 to September 30, 1997) . . . . . . . 7 1/2 3 5/8
Fourth Quarter (October 1, 1997 to December 31, 1997) . . . . . 6 3/4 2 3/4
</TABLE>
On January 31, 1996, the Company declared a 100% Common Stock dividend,
which was distributed on February 26, 1996 to stockholders of record as of
February 12, 1996. All share and per share data in this Annual Report have been
retroactively adjusted to reflect that stock dividend.
Holders
As of March 14, 1998, the Company had 142 holders of record of the
Common Stock. Since a portion of the Company's Common Stock is held in "street"
or nominee name, the Company is unable to determine the exact number of
beneficial holders.
Dividends
The Company has never declared or paid a cash dividend on its Common
Stock. The Company currently anticipates that it will retain any earnings to
finance the operation and expansion of its business, and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Any
determination to pay dividends in the future is at the discretion of the
Company's Board of Directors and will depend upon the Company's financial
conditions, results of operations, capital requirements, limitations contained
in loan agreements and such other factors as the Board of Directors deems
relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto of the Company
which appear elsewhere herein.
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<PAGE>
To date, the Company has received no revenues from product sales. The
Company does, however, anticipate that revenues will be recorded during the next
twelve months from its agreement with Graphic Controls Corporation in accordance
with meeting agreed upon milestones.
Plan of Operation
The Company plans to focus primarily on the completion of all
milestones related to the agreement with Graphic Controls Corporation. This
includes the completion of engineering development and the production of a
limited number of Safety Catheters for proof of functionality, validation
testing, market acceptance and manufacturability. The engineering development
and proof of functionality, validation testing and manufacturability of the
Safety Catheter will also contribute to the development of the Safety PICC
Introducer Catheter Insertion Device, and to some degree to other of the
Company's safety products, because of the commonality of the retraction
technology features. The Company plans to complete all issues pertaining to the
filing and prosecution of the patents on the Safety Catheter, as well as refile
a 510(k) pre-market notification with the FDA.
The Company also plans to continue discussions and negotiations with
third parties regarding the licensing or joint venture of its other products.
The Company plans to support these discussions and negotiations with avialable
funds, including the building of necessary prototypes.
The Ventura Facility contains a research and development laboratory
equipped with assembly and test equipment for concept modeling and product
development and a machine shop equipped with machine tools for fabrication of
new product parts for concept modeling and assembly and test fixtures. The
Company also installed a 3,120 square foot Class 100,000 clean room at the
Ventura facility, which is currently being used for the assembly of prototypes
and products. The Company had originally planned to install in the clean room a
fully automated robotic assembly system to pilot manufacture its products. The
Company, however, elected not to install the fully automated robotic assembly
system at this time because it is currently investigation opportunities with
third parties in the United States and abroad to manufacture the Safety Syringe,
the Safety Phlebotomy Set and the 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 a significant number of confidentiality agreements with other
companies for the purpose of exploring such opportunities. The Company is also
investigating opportunities with third parties to manufacture, market and
distribute the Company's products. The Company anticipates that entering into
alliances and licensing arrangements with third parties would enable the Company
to increase the market penetration of its products more quickly than the Company
could achieve on its own. The Company has entered into such arrangements with
Graphic Controls Corporation as has been previously mentioned.
As a result of discussions which it has had with third parties, the
Company has installed a semi-automated assembly system at the Ventura Facility
to pilot manufacture its products. The objective of the Company in installing
the assembly system is to demonstrate to potential third party manufacturers the
economic feasibility of the commercial production of its products. The
semi-automated assembly system, which consists of a series of manual and
semi-automatic stations, is capable of producing up to 3,000,000 units per year.
The assembly system will produce one or more of the Company's products at a
time, and has the capability of being converted at a reasonable cost with
minimal delay to manufacture a different product at such time as the Company may
decide. During the fourth quarter of 1996, the Company partially completed the
installation of the semi-automated assembly system for the pilot manufacturing
of one of the Company's products. The Company completed the system during the
third quarter of 1997.
The Company anticipates earning revenues in 1998 from its licensing
and development agreement with Graphic Controls Corporation in accordance with
meeting agreed upon milestones.
As of March 15, 1998, the Company employed 21 people on a full-time
basis and one person on a part-time basis. The Company does not anticipate
increasing the number of employees in the areas of product development,
manufacturing, sales and marketing. The Company will however reassess its
personnel requirements as business activity dictates.
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Liquidity and Capital Resources
At December 31, 1997, the Company had an accumulated deficit during the
development stage of $18,967,241, which includes a one-time, nonrecurring
write-off of $5,932,770 for purchase research and development incurred in
connection with the acquisition of MDI by the Company. The Company has financed
its activities through December 31, 1997 principally through debt, the private
placement of equity securities, and the Initial Public Offering.
As of December 31, 1997, the Company's working capital was $1,181,513
including cash and cash equivalents of $114,079, short-term investments of
$546,591, and available-for-sale securities of $5,617,284, as compared to
working capital of $934,637, at December 31, 1996, including cash and cash
equivalents of $1,648,639 short-term investments of $535,248, and
available-for-sale securities of $5,638,498 an increase of $246,876.
The current ratio of current assets to current liabilities was 1.23 to
1 at December 31, 1997, as compared to 1.13 to 1 at the end of 1997. The
Company's primary source of cash in 1996 consisted of (1) proceeds from
short-term borrowings, $184,000; (2) proceeds of private placement $4,617,497;
(3) proceeds from long-term borrowings, $14,410; and (4) funds received from the
issuance of Common Stock in connection with exercise of stock options and
warrants, $254,800. The Company's primary uses of cash in 1997 consisted of (1)
cash used in operations, $4,042,104; (2) payments on debt obligations,
$2,246,933; (3) patents, $215,432; and (4) capital expenditures, $115,195.
Of the $6,277,954 in cash and cash equivalents, short-term investments,
and available-for-sale securities at December 31, 1997, $4,927,040 was
restricted to collateralize borrowings the Company made under its line of credit
and equipment financing agreements. At December 31, 1997 and 1996, all
borrowings made under the line of credit and equipment financing agreements were
fully collateralized.
At December 31, 1997, the Company had a revolving line of credit
totaling $6,750,000 ("Loan Agreement") with its principal lending institution
and a equipment financing facility totaling approximately $545,000 with a second
commercial bank ("Equipment Facility"). The Loan Agreement provides for a credit
facility which can be used to (1) fund working capital needs and (2) finance
capital equipment purchases; provided, however, that advances for capital
equipment financing cannot exceed $600,000 of the $6,750,000. Borrowings to meet
working capital needs bear interest at LIBOR plus 250 basis points (8.22% at
December 31, 1997), while borrowings to finance capital equipment purchases bear
interest at prime plus 2.5%. Pursuant to the terms of the Loan Agreement, all
borrowings must be fully collateralized by available-for-sale securities, cash,
cash equivalents, equipment financed, and general intangibles of the Company.
Under the terms of the Equipment Facility, all borrowings must be fully
collateralized by a short-term investment in the form of a certificate of
deposit. The Loan Agreement expires on June 30,1998. There is no assurance that
the Company will be successful in negotiating a continuation of the availability
of the Loan Agreement and what terms will be made available to the Company.
The Company's debt to equity ratio was 1.73:1 and 3.47:1 at December
31, 1997 and 1996 respectively. At December 31, 1997, the Company had borrowed
$4,630,500 against its availability under the Loan Agreement and $241,068
against its availability under the Equipment Financing Facility.
Net capital expenditures were $115,195 and $541,642 for the year ended
December 31, 1997 and 1996, respectively. In 1997, capital expenditures amounted
to approximately $82,000 for machinery and equipment; and $15,000 for automotive
and transportation. The Company does not anticipate any significant capital
expenditures in 1998.
In 1995, the Company issued warrants (including warrants discussed in
Item 1. Business and Other Business Matters) to purchase 400,000 shares of
Common Stock, of which warrants to purchase 163,000 shares have been exercised
as of March 15, 1998. In 1997, the Company issued warrants to purchase 375,000
shares of Common Stock. As of March 15, 1998, the Company has received an
aggregate of $798,700 upon the exercise of said warrants. If the remainder of
the warrants were exercised, the Company would receive approximately an
additional $3,865,550, net of registration and other costs to be paid by the
Company as required under the terms of such warrants.
17
<PAGE>
The Company believes that it will have sufficient funds to support its
planned operations and capital expenditures for the next twelve months, but
thereafter, the Company believes that it will need to raise additional funds
through public or private financings to support its planned operations and
capital expenditures. The Company believes that it will require additional
capital before it reaches profitability and positive cash flow, if at all. No
assurance can be given that additional financing will be available or that, if
available, it will be available on terms favorable to the Company or its
stockholders. If adequate funds are not available to satisfy short-term or
long-term capital requirements, the Company may be required to reduce
substantially, or eliminate, certain areas of its product development
activities, limit its operations significantly, or otherwise modify its business
strategy. The Company's capital requirements will depend on many factors,
including but not limited, to the progress of its research and development
programs, the development of regulatory submissions and approvals, pilot
manufacturing capability, and the costs associated with protecting its patents
and other proprietary rights.
ITEM 7. FINANCIAL STATEMENTS
Incorporated by reference from the consolidated financial statements
and notes thereto of the Company which are attached hereto beginning on page
F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9 through 12. Incorporated by Reference
The information called for by Item 9 "Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
Act"; Item 10 "Executive Compensation"; Item 11 "Security Ownership of Certain
Beneficial Owners and Management"; and Item 12 "Certain Relationships and
Related Transactions" is incorporated herein by reference to the Company's
definitive proxy statement for its Annual Meeting of Stockholders, which
definitive proxy statement is expected to be filed with the Commission not later
than 120 days after the end of the fiscal year to which this report relates.
18
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. List of Consolidated Financial Statements. The following financial
statements and notes thereto of the Company which are attached hereto beginning
on page F-1, have been incorporated by reference into Item 8 of this Report on
Form 10-KSB:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operation for years ended December 31, 1997 and 1996
and Cumulative During Development Stage F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997
and 1996 and date of inception to December 31, 1995 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996
and Cumulative During Development Stage F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
2. List of Exhibits. The following exhibits are listed in the Exhibits
appearing below and are followed herewith or are incorporated by reference to
exhibits previously filed with the Commission.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
2.1 (1) Agreement of Merger dated as of April 5, 1995 by and among the Company, MDC
Investment Holdings, Inc. ("Holdings") and Med-Design, Inc. ("MDI").
2.2 (1) Joinder dated April 5, 1995 by John A. Botich , Michael J. Botich, Thor R. Halseth and
Rita F. Botich
2.3 (1) Secured Promissory Note dated April 5, 1995 from the Company to Anker & Hymes, a
Law Corporation ("Anker & Hymes"), Client Trust Account for the benefit of all of he
former shareholders of MDI.
2.4 (1) Security and Pledge Agreement dated April 5, 1995 between the Corporation and Anker
& Hymes for the benefit of all of the former shareholders of MDI.
3.1 (1) Certificate of Incorporation of the Company.
3.2 (1) Amendment to Certificate of Incorporation of the Company.
3.3 (1) Bylaws of the Company.
4.1 (1) Specimen of Common Stock Certificate of the Company.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
10.1 (1) Employment Agreement dated as of April 5, 1995 between the Company and James M.
Donegan.
10.2 (1) Employment Agreement dated as of April 5, 1995 between the Company and John A.
Botich.
10.3 (1) Employment Agreement dated as of April 5, 1995 between the Company and Michael J.
Botich.
10.4 (1) Employment Agreement dated as of April 5, 1995 between the Company and Thor R.
Halseth.
10.5 (2) Non-Qualified Stock Option Plan.
10.6 (2) Warrant dated August 15, 1995 from the Company and J.E. Sheehan & Company.
10.7 (2) Warrant dated August 15, 1995 from the Company to Dominque A. Bodevin.
10.8 (2) Warrant dated August 15, 1995 from the Company to Roger Favale.
10.9 (1) Underwriters Warrant Agreement dated June 6, 1995 between the Company and Gilford
Securities Incorporated.
10.10 (3) Placement Agent Agreement dated as of January 8, 1997 by and between the Company
and Fine Equities, Inc. ("Fine").
10.11 (3) Form of Subscription Agreement between the Company dated as of January 23, 1997,
and each of the purchasers of the 1,000,000 shares of Common Stock.
10.12 (3) Placement Agent's Warrant Agreement dated as of January 23, 1997 by and between the
Company and Fine.
10.13 (6) Warrant dated January 23, 1997 from the Company for N. Scott Fine.
10.14 (6) Warrant dated January 23, 1997 from the Company for M. Troy Duncan.
10.15 (6) Warrant dated January 23, 1997 from the Company to Sharon Bronte.
10.16 (6) Warrant dated January 23, 1997 from the Company to William A. Jolly.
10.17 (2) Business Loan Agreement dated July 26, 1995 between MDC Investment Holdings, Inc. ("MDC
Holdings") and Meridian Bank.
10.18 (2) Demand Promissory Note dated July 26, 1995 from MDC Holdings in favor of Meridian Bank.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
10.19 (2) Security Agreement dated July 26, 1995 between MDC Holdings and Meridian Bank.
10.20 (2) Surety Agreement dated July 26, 1995 between the Company and Meridian Bank.
10.21 (2) Security Agreement dated July 26, 1995 between the Company and Meridian Bank.
10.22 (2) Pledge Agreement dated July 26, 1995 between MDC Holdings and Meridian Bank.
10.23 (2) Judgment Note dated July 26, 1995 from the Company in favor of MDC Holdings.
10.24 (2) Business Loan Agreement dated December 29, 1995 between MDC Research Ltd.
and Meridian Bank.
10.25 (2) Business Loan Agreement dated December 29, 1995 between MDC Holdings and
Meridian Bank.
10.26 (2) Demand Promissory Note dated December 29, 1995 from MDC Research Ltd. in
favor of Meridian Bank.
10.27 (2) Demand Promissory Note dated December 29, 1995 from MDC Holdings in favor of
Meridian Bank.
10.28 (2) Security Agreement dated December 29, 1995 between MDC Research Ltd. and Meridian Bank.
10.29 (2) Pledge Agreement dated December 29, 1995 between MDC Holdings and Meridian Bank.
10.30 (2) Assignment of Agency of Fiduciary Account dated December 29, 1995 from MDC
Holdings to Meridian Bank.
10.31 (2) Surety Agreement dated December 29, 1995 between the Company and Meridian
Bank.
10.32 (2) Surety Agreement dated December 29, 1995 between MDC Holdings and Meridian
Bank.
10.33 (2) Amendment to Loan Agreement dated February 16, 1996 among Meridian Bank, MDC
Holdings and MDC Research Ltd.
10.34 (4) Second Amendment to Loan Agreement dated April 4, 1996 among Meridian Bank,
MDC Holdings, The Med-Design Corporation, and MDC Research Ltd.
10.35 (4) Judgement Note dated April 12, 1996 from the Company in favor of MDC
Holdings.
10.36 (4) Amendment to Security Agreement dated April 4, 1996 between the Company and
Meridian Bank.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
10.37 (4) Demand Promissory Note dated April 4, 1996 from MDC Holdings in favor of
Meridian Bank.
10.38 (5) Third Amendment to Loan Agreement dated July 11, 1996 among Meridian Bank,
MDC Holdings, The Med-Design Corporation, and MDC Research Ltd.
10.39 (5) Judgement Note date July 11, 1996 from MDC Holdings in favor of Meridian
Bank.
10.40 (5) Demand Promissory Note dated July 11, 1996 from MDC Holdings in favor of
Meridian Bank.
10.41 (6) Fourth Amendment to Loan Agreement dated November 14, 1996 among CoreStates
Bank, N.A. ("CoreStates") successor by merger to Meridian Bank, MDC Holdings,
The Med-Design Corporation, and MDC Research Ltd.
10.42 (6) Judgement Note dated November 14, 1996 from the Company in favor of MDC
Holdings.
10.43 (6) Demand Promissory Note dated November 14, 1996 from MDC Holdings in favor of
CoreStates.
10.44 (2) Form of Business Loan Agreement dated July 12, 1995 between the Company and
Eagle National Bank ("Eagle Bank").
10.45 (2) Form of Promissory Note dated July 12, 1995 from the Company in favor of
Eagle Bank.
10.46 (2) Form of Security Agreement dated July 12, 1995 between the Company and Eagle
Bank.
10.47 (2) Form of Assignment of Deposit Account dated July 12, 1995 from the Company
to Eagle Bank.
10.48 (2) Lease Agreement dated June 15, 1995 between Moen Development and MDC
Research Ltd. and guaranteed by the Company.
10.49 (2) Lease Agreement dated October 1, 1993 between Arden North American Partners,
L.P. and the Company, as well as amended by the First Amendment dated November
2, 1995.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
10.50 (2) Employment Agreement dated as of August 1, 1995 between the Company and
Donald Shea.
10.51 (2) Employment Agreement between the Company and Patrick E. Rodgers.
10.52 (2) Employment Agreement between the Company and John Osborne.
10.53 (2) Employment Agreement between the Company and Gilbert White.
10.54 (6) Warrant dated March 19, 1997 from the Company to John F. Kelley.
10.55 Warrant dated October 10, 1997 from the Company to John F. Kelley.
10.56 Warrant dated January 14, 1998 from the Company to John F. Kelley.
10.57 Warrant dated January 14, 1998 from the Company to Gilbert White.
10.58 Repriced option agreement from the Company to John Kelley.
10.59 Repriced option agreement from the Company to John Marr.
10.60 Consulting agreement from the Company to John Botich.
10.61 Revised warrant agreement from the Company to John Kelley.
10.62 Revised warrant agreement from the Company the John Kelley.
21 (1) List of Subsidiaries of the Company.
27 (7) Financial Data Schedule.
</TABLE>
(b) No Reports on Form 8-K were filed in the quarter ended December 31, 1997.
- -----------------------
(1) Incorporated by reference to Form SB-2 filed April 7, 1995 and Amendment
Nos. 1, 2 and 3 thereto (File No. 33-901014).
(2) Incorporated by reference to Form 10-KSB filed on March 29, 1996.
(3) Incorporated by reference to Form 8-K filed on February 7, 1997.
(4) Incorporated by reference to Form 10-QSB filed on May 13, 1996.
23
<PAGE>
(5) Incorporated by reference to Form 10-QSB filed on August 7, 1996.
(6) Incorporated by reference to Form 10-KSB filed March 29, 1997.
(7) Electronic filing only.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE MED-DESIGN CORPORATION
Date: March 27, 1998 By: /s/ James M. Donegan
--------------------
James M. Donegan
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James M. Donegan Chairman of the Board, President and Chief March 27, 1998
- -------------------- Executive Officer (Principal Executive Officer)
James M. Donegan
/s/ Lawrence D. Ellis Vice President, Finance and Acting Chief March 27, 1998
- --------------------- Financial Officer (Principal Financial Officer
Lawrence D. Ellis and Principal Accounting Officer)
/s/ Joseph N. Bongiovanni, III Director March 27, 1998
- ------------------------------
Joseph N. Bongiovanni, III
/s/ John A. Botich Director March 27, 1998
- ------------------------------
John A. Botich
/s/ John F. Kelley Director March 27, 1998
- ------------------------------
John F. Kelley
/s/ John S. Marr, M.D. Director March 27, 1998
- ------------------------------
John S. Marr, M.D.
/s/ Gilbert M. White Director March 27, 1998
- ------------------------------
Gilbert M. White
/s/ William A. Jolly Director March 27, 1998
- ------------------------------
William A. Jolly
</TABLE>
24
<PAGE>
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. F-2
Consolidated Balance Sheets as of December 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 and Cumulative during the development stage . . . . . . . . . . . . . . .. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996 and date of inception to December 31, 1995. . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 and Cumulative during the development stage . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. F-7 to F-17
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
The Med-Design Corporation:
We have audited the accompanying consolidated balance sheets of The
Med-Design Corporation and subsidiaries (a development stage company) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1997 and 1996 and for the period from December 13, 1993 (inception) to December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Med-Design Corporation and subsidiaries (a development stage company) as of
December 31, 1997 and 1996, and the consolidated results of their operations and
their cash flow for the year ended December 31, 1997 and 1996 and for the period
from December 13,1993 (inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 16, 1998
F-2
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $114,079 $1,648,639
Short-term investments 546,591 535,248
Available-for-sale securities 5,617,284 5,638,498
Prepaid expenses and other current assets 152,547 97,461
---------- ----------
Total current assets 6,430,501 7,919,846
Property, plant, and equipment, net of accumulated
depreciation and amortization of $406,781 in 1997
and $183,510 in 1996 1,181,481 1,240,557
Patents, net of accumulated amortization of $44,164 in 1997
and $34,324 in 1996 681,048 174,623
Other assets -- 14,136
---------- ----------
$8,293,030 $9,349,162
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $4,630,500 $6,446,500
Accounts payable 205,625 172,911
Accrued expenses 213,042 128,146
Current maturities of long-term debt and capital lease obligations 199,821 237,652
---------- ----------
Total current liabilities 5,248,988 6,985,209
---------- ----------
Long-term debt and capital lease obligations, less current maturities 154,674 300,366
---------- ----------
Total liabilities 5,403,662 7,285,575
---------- ----------
Commitments and Contingencies
Stockholders' equity
Preferred stock, $.01 par value, 5,000,000 shares authorized;
No shares outstanding -- --
Common stock, $.01 par value, 20,000,000 shares authorized;
7,951,570 and 6,899,570 shares issued and outstanding
at December 31, 1997 and 1996, respectively 79,516 68,996
Additional paid-in capital 21,764,194 15,718,504
Deficit accumulated during the development stage (18,967,241) (13,747,408)
Unrealized gain on available-for-sale securities 12,899 23,495
---------- ----------
Total stockholders' equity 2,889,368 2,063,587
---------- ----------
$8,293,030 $9,349,162
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
From Inception Year Ended December 31,
December 13, 1993 --------------------------------
to December 31, 1997 1997 1996
-------------------- ---------- ----------
<S> <C> <C> <C>
Operating expense:
Marketing $ 570,569 $192,201 $219,191
General and administrative 8,065,820 3,410,569 2,592,727
Research and development 3,768,910 1,605,668 1,554,096
Purchased research and development 5,932,770 -- --
----------- ---------- ----------
Total operation expenses 18,338,069 5,208,438 4,366,014
----------- ---------- ----------
Loss from operations (18,338,069) (5,208,438) (4,366,014)
Interest expense (1,630,105) (421,967) (400,649)
Investment income 1,000,933 410,572 443,794
----------- ---------- ----------
Net loss ($18,967,241) ($5,219,833) ($4,322,869)
=========== ========== ==========
Basic and diluted earnings per share ($0.66) ($0.63)
========== ==========
Weighted average common
shares outstanding 7,850,756 6,830,802
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Common Stock Paid-In
Shares Amount Capital
----------------------------------------------
<S> <C> <C> <C>
Balance, December 13, 1993
(inception) -- -- --
Issuance of shares in exchange
for contributed assets 1,541,824 $ 15,418 $ 84,582
Issuance of shares of common
stock for cash 54,520 545 66,705
Issuance of shares of
common stock with debt 182,056 1,821 528,164
Issuance of shares of
common stock for services rendered 240,000 2,400 416,400
Issuance of shares of common stock with debt 42,856 429 149,571
Expiration of option to convert shares of
common stock into $30,000 of senior debt 20,000 200 29,800
Issuance of shares of common stock in
exchange for outstanding shares of MDI 1,247,314 12,473 4,353,126
Issuance of shares of common stock in
initial public offering 3,450,000 34,500 9,491,466
Issuance of warrants in connection with
consulting agreement 21,000
Change in unrealized gains on
available-for-sale securities
Net Loss
----------------------------------------------
Balance, December 31, 1995 6,778,570 67,786 15,140,814
Issuance of shares of common stock related to
the exercise of stock options 10,000 100 34,900
Issuance of shares of common stock in
connection with exercise of warrants 111,000 1,110 542,790
Change in unrealized gains on
available-for-sale securities
Net Loss
----------------------------------------------
Balance, December 31, 1996 6,899,570 68,996 15,718,504
Issuance of shares of common stock in
connection with the private placement (net) 1,000,000 10,000 4,607,497
Issuance of warrants for services 821,000
Repricing of stock option 62,080
Issuance of shares of common stock in
connection with exercise of warrants 52,000 520 254,280
Issuance of warrants in
partial payment of patents 300,833
Change in unrealized gains on
available-for-sale securities
Net Loss
----------------------------------------------
Balance, December 31, 1997 7,951,570 $ 79,516 $21,764,194
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit Unrealized
Accumulated Gains On
During the Available-
Development For-Sale Stockholders'
Stage Securities Equity
------------------------------------------------
<S> <C> <C> <C>
Balance, December 13, 1993
(inception) -- -- --
Issuance of shares in exchange
for contributed assets $100,000
Issuance of shares of common
stock for cash 67,250
Issuance of shares of
common stock with debt 529,985
Issuance of shares of
common stock for services rendered 418,800
Issuance of shares of common stock with debt 150,000
Expiration of option to convert shares of
common stock into $30,000 of senior debt 30,000
Issuance of shares of common stock in
exchange for outstanding shares of MDI 4,365,599
Issuance of shares of common stock in
initial public offering 9,525,966
Issuance of warrants in connection with
consulting agreement
Change in unrealized gains on
available-for-sale securities $26,479 26,479
Net Loss $(9,424,529) (8,492,487)
-----------------------------------------------
Balance, December 31, 1995 (9,424,539) 26,479 5,810,540
Issuance of shares of common stock related to
the exercise of stock options 35,000
Issuance of shares of common stock in
connection with exercise of warrants 543,900
Change in unrealized gains on
available-for-sale securities (2,984) (2,984)
Net Loss (4,322,869) (4,322,869)
-----------------------------------------------
Balance, December 31, 1996 (13,747,408) 23,495 2,063,587
Issuance of shares of common stock in
connection with the private placement (net) 4,617,497
Issuance of warrants for services 821,000
Repricing of stock option 62,080
Issuance of shares of common stock in
connection with exercise of warrants 254,800
Issuance of warrants in
partial payment of patents 300,833
Change in unrealized gains on
available-for-sale securities (10,596) (10,596)
Net Loss (5,219,833) (5,219,833)
----------------------------------------------
Balance, December 31, 1997 $(18,967,241) $12,899 $ 2,889,368
============ ======= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
From Inception
December 13, 1993 December 31, December 31,
To December 31, 1997 1997 1996
------------------------ ---------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $(18,967,241) $(5,219,833) $(4,322,869)
Adjustments to reconcile net loss to operating
cash flows (net of acquisition):
Depreciation and amortization 432,349 233,111 150,337
Issuance of common stock for services 418,800
Purchased research and development 5,932,770
Issuance of common stock for interest 29,985
Issuance of warrants for services 842,000 821,000
Repricing of stock options 62,080 62,080
Amortization of original issued discount 650,000
Loss on sale of available-for-sale securities 2,962 7,046 341
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (150,039) (55,086) (32,276)
Accounts payable 97,904 32,714 (117,003)
Accrued expenses (77,451) 84,896 (108,047)
------------ ----------- -----------
Net cash used by operating activities (10,725,881) (4,034,072) (4,429,517)
------------ ----------- -----------
Cash flows from investing activities
Purchases of property and equipment (1,494,732) (115,195) (541,642)
Additions to patents (267,975) (215,432) (43,475)
Payments for purchase of option to acquire
Med-Design Incorporated (125,000)
Investments in available-for-sale securities, net (5,607,347) 3,572 1,470,463
Notes receivable funded (92,500)
Purchase of short-term investment (546,591) (11,343) (23,340)
------------ ----------- -----------
Net cash (used) provided by investing activities (8,134,145) (338,398) 862,006
------------ ----------- -----------
Cash flows from financing activities:
(Repayment of) advances from related parties -- -- --
(Repayment of) proceeds from short-term borrowing -- -- --
Capital lease payments (27,354) (11,508) (9,813)
Proceeds from long-term borrowings 706,095 14,410 280,187
Repayment of long-term borrowings (409,549) (235,425) (158,217)
Proceeds from issuance of common stock, prior to
initial public offering 97,250
Proceeds from exercise of options 35,000 35,000
Proceeds from issuance of common stock in connection
with exercise of warrants 798,700 254,800 543,900
Proceeds from short-term borrowing 6,630,500 184,000 4,318,000
Repayment of short-term borrowing (2,000,000) (2,000,000)
Other 14,136 (14,136)
Repayment of acquisition note (1,000,000)
Proceeds of initial public offering, net of offering costs 9,525,966
Proceeds of private placement, net of offering costs 4,617,497 4,617,497
------------ ----------- -----------
Net cash provided by financing activities 18,974,105 2,837,910 4,994,921
------------ ----------- -----------
Increase (decrease) in cash 114,079 (1,534,560) 1,427,410
Cash and cash equivalents, beginning of period 1,648,639 221,229
------------ ----------- -----------
Cash and cash equivalents, end of period $ 114,079 $ 114,079 $ 1,648,639
------------ ----------- -----------
Cash paid during the period:
Interest $ 921,682 $ 396,144 $ 378,469
------------ ----------- -----------
Noncash investing and financing activities:
Issuance of common stock for rights under option
to acquire Med-Design, Inc. $ 100,000
------------ ----------- -----------
Issuance of warrants in partial payment of patents $300,833 $300,833
------------ ----------- -----------
Issuance of common stock in connection with
short-term borrowing $ 650,000
Capital lease obligation incurred $ 85,303 $ 49,000 $ 7,697
------------ ----------- -----------
Change in unrealized gain $12,889 $ (10,596) $ (2,984)
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
The Med-Design Corporation (the "Company") designs, develops, manufactures
and markets safety medical devices intended to reduce the incidence of
accidental needlesticks. Accordingly, the Company and its products are subject
to various regulatory processes and approvals. The Company has three core
products under development and several new products which are in the beginning
stages of development. The Company is a development stage enterprise, as defined
by Financial Accounting Standards ("FAS") No. 7, "Accounting and Reporting by
Development Stage Enterprise."
2. Significant Accounting Policies
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
The Med-Design Corporation ("MDC") and its wholly-owned subsidiaries, MDC
Investment Holdings, Inc. and MDC Research Ltd. All intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents:
The Company considers all investments with original maturities of three
months or less to be cash equivalents. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash. At December 31, 1997, none of the Company's balances exceeded FDIC
insurance limits.
Short-term investments:
Short-term investments represent investments in a certificate of deposit
with a maturity greater than three months. This investment is stated at cost
plus accrued interest which equals market value. The short-term investment is
restricted as collateral for an equipment financing facility.
Investments in marketable securities:
The Company's investments are classified as available-for-sale securities
and accordingly any unrealized holding gains or losses, net of taxes, are
excluded from income and recognized as a separate component of stockholders'
equity until realized.
Investments in marketable securities are made consistent with the Company's
investment guidelines as developed by management and approved by the investment
committee of the Board of Directors.
(Continued)
F-7
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. Significant Accounting Policies, continued
Property, plant and equipment:
Property, plant and equipment are carried at cost. Assets held under capital
leases are recorded at the lower of the net present value of the minimum lease
payments or the fair value of the leased assets at the inception of the lease.
Significant additions or improvements extending the asset's useful lives are
capitalized. Normal maintenance and repair costs are expensed as incurred. When
property, plant and equipment are sold, retired or otherwise disposed of, the
applicable costs and accumulated depreciation are removed from the accounts and
the resulting gain or loss recognized.
Depreciation is computed by the straight-line method utilizing rates based
upon the estimated service life of the various classes of assets (5 to 10
years). Leasehold improvements are depreciated over the remaining lease term or
asset life if shorter.
Recoverability of long-lived assets:
The Company's assets are reviewed for impairment whenever events or
circumstances provide evidence that suggest that the carrying amount may not be
recoverable. The Company assesses the recoverability of its assets by
determining whether the carrying value can be recovered through projected
undiscounted future cash flows.
Patents:
Patents, patent applications, and rights are stated at acquisition costs.
Amortization of patents is recorded by using the straight-line method over the
legal lives of the patents, generally for periods ranging up to 17 years.
Amortization expense from the years ended December 31, 1997 and 1996 was $9,840
and $9,600, respectively.
In connection with the acquisition of two patents in August 1997 the Company
paid $75,000 and issued warrants to the seller of these patents to purchase
75,000 shares of Common Stock with a fair value $300,833 and a exercise
price of $5.75 per share. These amounts were capitalized.
Income taxes:
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Research and development:
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. Research and development expenses amounted to $1,605,668
in 1997 and $1,554,096 in 1996.
(Continued)
F-8
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. Significant Account Policies, continued
Basic and diluted loss per share:
The Company adopted FAS No. 128 "Earnings Per Share" effective December 31,
1997. The provisions of FAS No. 128 establish standards for computing and
presenting earnings per share (EPS). This standard replaces the presentation of
primary EPS with a presentation of basic EPS. Additionally it requires dual
presentation of basic and diluted EPS for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. Per share amounts for all periods presented have been restated to
confirm with the provisions of FAS No. 128.
Estimates utilized in the preparation of financial statements;
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of expenses during the reporting period. Actual results could differ
from those estimates.
Recently issued pronouncements:
In June 1997, the FASB issued FAS 130, "Reporting Comprehensive Income,"
which requires changes in comprehensive income be shown in the financial
statement that is displayed with the same prominence as other financial
statements. Additionally, the FASB issued FAS 131 "Disclosures about Segments of
an Enterprise and Related Information," which requires disclosures in financial
statements based on managements' approach to segment reporting and industry
requirements to report selected segment information disclosures about products
and services and major customers, on a quarterly basis. The Company will be
required to adopt FAS 130 and 131 during fiscal 1998. The impact of these new
standards on the Company's future financial statements and disclosures has not
been determined.
3. Available-for-Sale Securities
The Company has recorded investments in available-for-sale securities at
fair value and gross unrealized gains and losses as a separate component of
stockholders' equity. Realized gains and losses on the sale of investment
securities are recognized using the specific identification method.
Gross unrealized gains and losses for the years ended December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
Gross
Unrealized
Gains
Cost (Losses) Fair Value
---- ---------- ----------
<S> <C> <C> <C>
At December 31, 1997:
U.S. Government Obligations $3,657,275 $12,476 $3,669,750
Corporate Debt Securities 1,947,111 423 1,947,534
---------- ------- ----------
Total $5,604,386 $12,899 $5,617,284
========== ======= ==========
At December 31, 1996:
U.S. Government Obligations $3,010,309 $31,228 $3,041,537
Corporate Debt Securities 2,604,694 (7,733) 2,596,961
---------- ------- ----------
Total $5,615,003 $23,495 $5,638,498
========== ======= ==========
</TABLE>
(Continued)
F-9
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. Available-for-Sale Securities, continued
Investment income for the years ended December 31, 1997 and 1996 consisted
of the following:
1997 1996
---- ----
Realized gain on sale of
available-for-sale securities $817 $15,035
Realized loss on sale of
available-for-sale securities (7,863) (15,376)
Interest income 409,361 416,413
Dividend income 8,257 6,148
------- -------
Total $410,572 $422,220
======== ========
4. Property, Plant And Equipment
Balances of major classes of assets and accumulated depreciation and
amortization at December 31, 1997 and 1996 are as follows:
1997 1996
---- ----
Leasehold improvements $160,127 $160,127
Automotive and Transportation 15,104
Machinery and equipment 466,044 433,863
Office furniture & fixtures 422,087 413,178
Computer equipment & software 337,768 320,788
Equipment under capital lease 85,303 36,303
Construction in progress 101,829 59,808
---------- ----------
$1,588,262 $1,424,067
Less:
Accumulated depreciation 391,105 174,319
Accumulated amortization of
Equipment held under capital
Lease 15,676 9,191
---------- ----------
$1,181,481 $1,240,557
========== ==========
Depreciation and amortization expense was $223,271 and $140,737 for the
years ended December 31, 1997 and 1996, respectively.
(Continued)
F-10
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. Short-Term Borrowings
In July 1995, the Company entered into a $3,000,000 revolving line of credit
("Loan Agreement") with its principal lending institution (the "Bank"). In 1996,
The Loan Agreement was amended to $6,750,000, and the Company's equipment
financing facility ("Equipment Loans") with the Bank was consolidated into the
Loan Agreement. The amended Loan Agreement provides that advances under
Equipment Loans will not exceed $600,000 of the $6,750,000. Borrowings to meet
working capital needs bear interest at LIBOR plus 250 basis points (8.22% at
December 31, 1997). Under the terms of the Loan Agreement, all borrowings must
be fully collateralized by available-for-sale securities, cash equivalents,
equipment financed, and general intangibles of the Company. The line of credit
is due on June 30, 1998. At December 31, 1997 and 1996, including Equipment
Loans, the Company had $4,685,972 and $6,563,056 outstanding under the Loan
Agreement, respectively.
Equipment Loans are classified as long-term debt (See Note 6).
6. Long-Term Debt
Long-term debt at December 31, 1997 and 1996 consisted of the following:
December 31,
-------------------
1997 1996
---- ----
Bank term note, under equipment
financing facility, interest at prime plus
.25%; fully collateralized, payable in
monthly installments through December
1998 (See Note 5). $ 55,472 $116,556
Bank term note, under financing facility
interest at the Bank's prime rate, payable
in equal monthly installments through
1999; fully collateralized by applicable
equipment and the short-term
investment. At December 31, 1997,
approximately $305,523 was available for
additional equipment financing. 241,068 401,005
Capital lease obligations, at interest rates
ranging from 4.4% to 9.3%, with monthly
payments ranging from $182 to $987;
lease obligations are due through 2002. 57,955 20,457
-------- --------
354,495 538,018
Less: current maturities 199,821 237,652
-------- --------
$154,674 $300,366
======== ========
(Continued)
F-11
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. Long-Term Debt, continued
The aggregated amount of debt and capital lease obligations maturing in each
of the next five years, is as follows:
1998 $199,821
1999 121,000
2000 11,707
2001 10,546
2002 11,421
--------
$354,495
========
7. Commitments and Contingencies
The Company leases a building, office space, and other office equipment
under noncancellable operating leases expiring at various times through December
31, 2000. The building lease provides an option to renew the lease for two
additional thirty-six month periods (See Note 16).
The following is a schedule of future minimum payments, by year and in the
aggregate, of noncancellable operating leases with initial or remaining terms of
greater than one year at December 31, 1997:
1998 $191,996
1999 196,411
2000 134,776
-------
Total minimum
lease payments $523,183
========
Total rent expense under all operating leases for year ended December 31,
1997 and 1996 was $187,709 and $189,774 respectively.
The Company has employment agreements renewable annually with the Chief
Executive Officer, and certain other executives providing for salary to be paid
over the term of their agreements which expire in the year 2000 and 1998,
respectively. At December 31, 1997, the payments remaining under employment
contracts total approximately $669,000.
In March, 1998, the Company's Chairman, President and Chief Executive
Officer, who is also a shareholder, committed to provide up to $1,400,000 to
fund the Company's operation should the necessity arise.
(Continued)
F-12
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. Basic and Diluted Loss Per Share
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
Loss Common Shares
Numerator Denominator EPS
--------- ------------- ---
<S> <C> <C> <C>
1997
- ----
Basic and diluted EPS
- -------------------------------
Net loss to common shareholders $ (5,219,833) 7,850,756 $ (0.66)
------------ --------- --------
1996
- ----
Basic and diluted EPS
- -------------------------------
Net loss to common shareholders $ (4,322,869) 6,830,802 $ (0.63)
------------ --------- --------
</TABLE>
Options and warrants to purchase 1,504,000 shares of common stock as of December
31, 1997 and 578,000 as of December 31, 1996 were not included in computing
diluted earnings per share as the effect was antidiluted.
9. Stockholders' Equity
Common Stock
On January 31, 1996, the Board of Directors authorized a two-for-one
stock split in the form of a stock dividend payable to shareholders of record as
of February 12, 1996. All references in the consolidated financial statements to
average number of shares outstanding and related prices, per share amounts, and
stock plan data have been restated to reflect this split.
The Company was originally capitalized by the contribution of a $100,000
option to acquire MDI in exchange for 1,541,824 shares of the Company.
During the years ended December 31, 1995 and 1994 the Company issued three
notes totaling $650,000 with 182,056 shares of Common Stock in the aggregate.
The value of the stock represents $650,000 of original issue discount on the
debt which was charged to income through the first quarter of fiscal year 1995.
The debt along with accrued interest of 10% was paid upon the consummation of
the Company's initial public offering. Two of these notes aggregating $400,000
and 114,286 shares were issued to shareholders of the Company.
In addition to shares purchased for cash or in connection with debt
issuances during the year ended December 31, 1994, the Company issued 240,000
shares of its Common Stock to various individuals in exchange for services
rendered. The fair market value of those shares has been recorded as
compensation expense of $418,800.
In accordance with an agreement between the Company and a shareholder, based
on the outcome of the Company's initial public offering, the shareholder had the
option to convert 20,000 shares of stock into $30,000 of senior corporate debt
bearing interest at 10%. Based on the outcome of the initial public offering
this option expired unexercised.
(Continued)
F-13
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. Stockholders' Equity, continued
Stock Option Plan
In 1995, the Company created a Non-Qualified Stock Option Plan ("Stock
Option Plan") which provides for the granting of 500,000 options to directors,
officers, and other employees of the Company. Under the Stock Option Plan, the
exercise price of each option may not be less than the fair market value (as of
the date of grant) of Common Stock subject thereto and the term of each option
may be no more than 10 years from the date of grant. Additionally, the Stock
Option Plan provides for the issuance of options for the purchase of 16,000
shares of Common Stock annually to each non-employee director.
Activity under the Stock Option Plan during the years ended December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ----------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 289,000 $8.48 123,000 $4.80
Granted 186,500 $7.78 176,000 $10.77
Exercised -- -- (10,000) $3.50
Canceled (33,500) $11.79 -- --
----------------------------------------------------------------------------------
Outstanding at end of year 442,000 $5.53 289,000 $8.48
==================================================================================
Options exercisable at
year-end 135,400 81,000
============== ===============
Option price range at end
of year $3.50 to $8.00 $3.50 to $20.50
============== ===============
Weighted-average fair
value of options granted
during year $5.52 $5.94
============== ===============
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.50 52,000 3.7 $3.50 52,000 $ 3.50
$4.50 to $8.00 390,000 3.9 $7.22 83,400 $ 6.08
$3.50 to $8.00 442,000 3.8 $6.78 135,400 $ 5.09
======= === ===== ======= ======
</TABLE>
(Continued)
F-14
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. Stockholders' Equity, continued
Stock Option Plan, continued
On October 10, 1997, the Company repriced previously issued stock options on
32,000 shares of Common Stock for two directors. The options were issued on June
3, 1996 at an exercise price of $20.50 a share and were repriced to $4.50 a
share. In connection with the repricing of these stock options the Company
recorded compensation expense of $62,080.
The company has adopted the disclosure only provisions of FAS No. 123,
"Accounting for Stock-based Compensation." Accordingly, no compensation cost has
been recognized for the Company's Stock Option Plan. Had compensation cost for
the Company's Stock Option Plan been determined based on the fair value at the
grant date for awards in 1997 and 1996 consistent with the provisions of FAS No.
123, the Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below:
1997 1996
---- ----
Net loss - as reported ($5,219,833) ($4,322,869)
Net loss - pro forma ($6,261,171) ($4,919,601)
Net loss per share - as reported ($0.66) ($0.63)
Net loss per share - pro forma ($0.80) ($0.72)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumption used for grants in 1997 and 1996: dividend yield of 0.00%; expected
volatility of .92%; risk free interest rate of 6.29%; and expected lives based
on actual terms of options granted.
Warrants
In connection with the initial public offering (Note 15), the Company
issued warrants to the Underwriter to purchase 300,000 shares of Common Stock,
of which warrants to purchase 111,000 were exercised in 1996 and 52,000 were
exercised in 1997. In addition, on August 15, 1995 the Company issued warrants
to purchase from the Company 100,000 shares of Common Stock at $7.50 per share,
in consideration for the execution of an agreement for consulting services. The
warrants are exercisable upon issuance and expire on August 15, 1998. In
connection with the issuance of these warrants, the Company recorded consulting
expense in the amount of $21,000 for the year ended December 31, 1995.
On January 23, 1997, the Company completed the sale of 1,000,000 shares of
Common Stock. In connection with the sale, the Company also sold to the
placement agent, for the sale, for nominal consideration, warrants to purchase
100,000 shares of Common Stock. These warrants are exercisable at a price of
$5.50 per share of Common Stock for a period of four years commencing January
22, 1998.
On March 19, 1997, the Company issued warrants to purchase 100,000 shares of
Common Stock at an exercise price of $7.50 per share to a director of the
Company, who was engaged to perform certain consulting services on behalf of the
Company. The warrants are exercisable upon issuance and expire on March 19,
2000. In connection with the issuance of these warrants, the Company recorded
consulting expense in the amount of $436,000 for the year ended December 31,
1997.
On August 6, 1997, in connection with the acquisition of two patents, the
Company issued warrants to purchase 75,000 shares of Common Stock at an exercise
price of $5.75 per share. These warrants are exercisable on or before August 6,
2002.
On October 10, 1997, the Company issued warrants to purchase 100,000 shares
of Common Stock at an exercise price of $5.44 to a director of the Company who
was engaged to perform certain consulting services on behalf of the Company.
These warrants are exercisable upon issuance and expire on October 10, 2000. In
connection with the issuance of these warrants, the Company recorded consulting
expense in the amount of $385,000 for the year ended December 31, 1997.
(Continued)
F-15
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. Income Taxes
On December 31, 1997 and 1996, the Company had a net operating loss carry
forward for federal income tax purposes of approximately $8,940,000 and
$6,092,000, respectively, and for state tax purposes of approximately $6,695,000
and $5,966,000, respectively. These net operating losses are available to offset
future taxable income, if any, through 2011 and 2001 for federal and state tax
purposes, respectively. A valuation allowance has been provided for the deferred
tax asset resulting from the net operating loss carry forward. Other temporary
differences are insignificant. The utilization of net operating loss
carryforward may be limited by Section 382 of the Internal Revenue Code.
11. Related Party Transactions
During 1997 and 1996, the Company paid $31,830 and $33,182 respectively, for
legal services to a firm, of which a partner is a director, officer and
shareholder of the Company.
12. Fair Value of Financial Statements
The fair value of financial instruments approximates carrying value. The
following methods and assumptions were considered by the Company in determining
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Marketable securities: Available-for-sale securities consist of corporate
bonds and U.S. Government Obligations. Fair value is based on quoted market
prices.
Debt: The Company's debt is primarily variable in nature and based on LIBOR
or the prime rate. As a whole the carrying amount of debt instruments
approximates fair value.
13. Management's Plan
The Company has incurred losses of $5,220,000 and $4,323,000 for the years
ended December 31, 1997 and 1996, respectively, and has a deficit of $18,967,000
as of December 31, 1997. Management developed a plan of action during 1997 which
included cost containment measures with a focus on strategic alliances and
licensing arrangements that will enable the Company to increase its market
penetration and provide positive cash flow. Cost containment measures include,
among other strategies, relocating the Company's headquarters to its research
and development facility in Ventura, California. Management intends to refine
and enhance this plan during 1998.
(Continued)
F-16
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. Acquisition of MDI
On April 5, 1995 the Company acquired the outstanding stock of MDI in
exchange for 1,247,314 (valued at $4,365,599) shares of the Company, of which
3,572 shares were delivered to certain creditors of MDI to satisfy $12,500 of
outstanding obligations of MDI, 24,000 shares to a former noteholder of MDI to
satisfy an obligation of MDI, and a $1,000,000 non-interest bearing promissory
note. The Note was satisfied on June 12, 1995 utilizing the net proceeds of the
Company's initial public offering.
This acquisition was accounted for in accordance with the purchase method,
under which the purchase price was allocated to the assets of MDI based on the
fair market value of such assets. The excess of the purchase price over the fair
market value of the net assets acquired was treated as purchased research and
development as follows:
Value of 1,247,314 shares of stock
granted at a price of $3.50 a share $4,365,599
Issuance of note to former
shareholders of MDI 1,000,000
Payments in connection with
option to acquire MDI 225,000
Negative net book valued acquired 342,171
----------
$5,932,770
==========
15. Initial Public Offering
In June 1995, the Company consummated an initial public offering (the
"Offering") of 3,000,000 shares of Common Stock at a price of $3.50 per share
(1,500,000 shares at $7.00 per share prior to stock). An additional 450,000
shares were issued at $3.50 per share to the Underwriter of the initial public
offering. The Company received $9,525,966 in proceeds, net of costs incurred in
connection with the Offering.
Additionally, in connection with the Offering, the Company agreed to sell
the Underwriter, for nominal consideration, warrants to purchase 300,000 shares
of Common Stock ("the Underwriter's Warrants"). The Underwriter's Warrants are
exercisable at a price of $4.90 per share of Common Stock for a period of four
years commencing one year from the effective date of the Offering.
16. Subsequent Events
On February 23, 1998, the company signed an agreement with Graphic Controls
Corporation for the development and licensing of its proprietary Safety
Intravenous Catheter Insertion Device. The signing of this agreement, and the
completion of a series of mutually agreed upon milestones would result in
payment to Med-Design totaling as much as $3.72 million with continuous
royalties for the life of the patents. Med-Design would receive $1.82 million of
the $3.72 million during the completion of milestones associated with the
development phase and $1.9 million in milestone payments associated with the
granting of the exclusive North American License.
On January 14, 1998 the Company issued warrants to purchase 150,000 shares
of its Common Stock at a price of $2.88 to two directors. These warrants are
exercisable on or before January 14, 2001.
In March 1998, the Company completed relocating corporate headquarters to
its Ventura, California facility from its offices in Philadelphia, PA. The
Company subleased the majority of the office space previously used by the
Company in Philadelphia as its corporate headquarters, but will continue to
maintain an office at that location.
F-17
WARRANT NO. _____
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK UNDERLYING THIS
WARRANT OF THE MED-DESIGN CORPORATION (THE "COMPANY") HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN
OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
WARRANT OR SHARES MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Warrant to Purchase up to 100,000 Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, John F. Kelley (the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant, from The Med-Design Corporation, a Delaware Corporation (the
"Company"), one hundred thousand (100,000) fully paid, validly issued and
nonassessable shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company (the "Warrant Shares") at a price equal to $5.438 per
share (the "Exercise Price").
(1) EXERCISE OF WARRANT.
(A) This Warrant may be exercised in whole or in part at any
time or from time to time on or after the date hereof and until October 10, 2000
(the "Expiration Date"), provided, however, that if any such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price of the
number of Warrant Shares specified in such form. As soon as practicable
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after each such exercise of the Warrant, but not later than seven (7) days from
the date of such exercise, the Company shall issue and deliver to the
Warrantholder a certificate or certificates for the Warrant Shares issuable upon
such exercise, registered in the name of the Warrantholder. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Warrantholder thereof to purchase the balance of the Warrant
Shares purchasable thereunder. Upon receipt by the Company of this Warrant at
its office, or by the stock transfer agent of the Company at its office, in
proper form for exercise, the Warrantholder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Warrantholder.
(B) In the event the Company shall at any time subdivide,
combine or reclassify the outstanding shares of Common Stock, the number of
Warrant Shares subject to this Warrant shall be adjusted accordingly and the
Exercise Price shall forthwith be proportionately decreased in the case of a
subdivision or increased in the case of a combination.
(2) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrant.
(3) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(4) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Warrantholder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the Warrantholder thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company at its principal office or at the office of its stock transfer agent, if
any, with the Assignment Form annexed hereto duly executed and funds sufficient
to pay any transfer tax the Company shall, without charge, subject to the
restrictions set forth in Section (5), execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment and this Warrant
shall promptly be canceled. This Warrant may be divided or combined with other
warrants which carry
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the same rights upon presentation hereof at the principal office of the Company
or at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Warrantholder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
(5) RESTRICTIONS ON TRANSFER. This Warrant and all rights hereunder are
transferrable, in whole or in part, only to the Company by the Warrantholder in
person or by a duly authorized attorney except as set forth in Subparagraph (A).
(A) Restrictions in General. Prior to any Transfer (as defined
below) of this Warrant or the Warrant Shares, the Warrantholder will give ten
(10) days' written notice to the Company of such Warrantholder's intention to
effect such Transfer. Each such notice shall describe the manner and
circumstances of the proposed Transfer and shall be accompanied by an opinion,
addressed to the Company and reasonably satisfactory in form and substance to
it, of counsel for such Warrantholder, stating whether, in the opinion of such
counsel, such Transfer will be a transaction exempt from registration under the
Securities Act and applicable state securities laws. If such Transfer may in the
opinion of such counsel be effected without registration under the Securities
Act and applicable state securities laws, such Warrantholder shall thereupon be
entitled to Transfer this Warrant and the Warrant Shares in accordance with the
terms of the notice delivered by such Warrantholder to the Company. If in the
opinion of such counsel such Transfer may not be effected without registration
under the Securities Act, such Warrantholder shall not be entitled to so
Transfer this Warrant or the Warrant Shares unless the Company elects or is
obligated under Section (7) to file a registration statement relating to such
proposed Transfer and such registration statement has become effective under the
Securities Act and applicable state securities laws.
(B) "Transfer" means, with respect to the Warrants, the
Warrant Shares, or any interest therein, any disposition which would constitute
a sale thereof within the meaning of the Securities Act.
(6) RIGHTS OF THE WARRANTHOLDER. The Warrantholder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights
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of the Warrantholder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
(7) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Company shall,
for a period of five (5) years from the date of the Warrant herein granted,
advise the Warrantholder or any then holder of Warrant Shares (such persons
being collectively referred to herein as "Warrantholders") by written notice at
least thirty (30) days prior to the filing of any registration statement (other
than a registration effected solely to implement a transaction of the type for
which form S-4 or form S-8 or any successor form is available) with the
Securities and Exchange Commission (the "Commission") under the Securities Act
covering securities of the Company. Each filing notice shall offer to the
Warrantholder the opportunity to include such number of shares as it may request
in the registration statement to which the filing notice relates and shall
advise the Warrantholder whether or not such registration statement is intended
to cover an underwritten public offering (an "Underwritten Offering"). If the
Warrantholder desires to have his shares included in a registration statement,
he shall so advise the Company in writing (a "Registration Request") within ten
(10) days after the date of receipt of the related filing notice, which
Registration Request shall set forth the number of shares for which registration
is requested. Subject to the provisions of Section (8) of this Agreement, the
Company shall include in a registration statement all shares for which it has
timely received a Registration Request.
Notwithstanding anything to the contrary herein, the Company shall have
the right at any time (irrespective of whether a written Registration Request
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.
(8) UNDERWRITTEN OFFERINGS.
(A) Participation and Limitations. If a registration statement
is for an Underwritten Offering, the right of Warrantholder to registration
pursuant to Section (7) hereof shall be conditioned upon (1) the Warrantholder's
participation in such Underwritten Offering and the inclusion of Warrantholder's
Warrant Shares in the Underwritten Offering to the extent provided herein and
(2) the execution and delivery by Warrantholder of an underwriting agreement in
customary form with the underwriter or underwriters selected by the Company to
manage such Underwritten Offering (individually or collectively, the
"Underwriter"). If the Underwriter determines that the inclusion of Warrant
Shares in such Underwritten Offering would adversely affect the success of such
offering, then the amount of securities to be included in the Underwritten
Offering shall, subject to then existing agreements to
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which the Company is presently a party concerning the registration of Common
Stock, be as follows: (1) first, the number of shares of Common Stock to be
offered and sold for the account of the Company (up to the maximum number of
shares of Common Stock as determined by the Underwriter) and (2) second, if
additional shares of Common Stock may then be included in such Underwritten
Offering, such additional number of shares of Common Stock to be offered and
sold for the account of the Warrantholders, which (a) together with the shares
of Common Stock to be offered and sold for the account of the Company shall not
exceed the maximum number of shares of Common Stock as determined by the
Underwriter and (b) shall be allocated among the Warrantholders pro rata based
upon the aggregate number of Warrant Shares requested by each such Warrantholder
to be included in such Underwritten Offering. In addition, the number of Shares
to be included in any Underwritten Offering may, in the discretion of the
Company or the Underwriter, be rounded to the nearest one hundred (100) shares.
If a Warrantholder disapproves of the terms of such Underwritten Offering, then
he may elect to withdraw therefrom by written notice to the Company and the
Underwriter at any time prior to the date on which the registration statement
therefore is declared effective by the Commission (a "Withdrawal Notice"). Any
Shares subject to a Withdrawal Notice shall be withdrawn and excluded from the
registration statement for the Underwritten Offering to which the Withdrawal
Notice relates.
(B) Restrictions on Sales of Shares. If Warrant Shares are
covered by a registration statement for an Underwritten Offering, Warrantholder
agrees, if requested by the Underwriter and timely notified in writing by the
Company or the Underwriter, not to effect any public sale or distribution of
Shares (including a sale pursuant to Rule 144 under the Securities Act) except
as part of such Underwritten Offering during the period commencing on the tenth
day prior to the closing date for such Underwritten Offering and ending on the
forty-sixth day after such closing date.
(9) REGISTRATION PROCEDURES. In the case of each registration of
securities covered by Section (7) hereof (each a "Registration") for which
Warrantholder has timely delivered a Registration Request and has not delivered
a Withdrawal Notice, the Company will keep Warrantholder advised in writing of
the initiation and completion of such registration and will take the following
actions at its own expense:
(A) prepare and file with the Commission a registration
statement for such Shares as are entitled to be included therein, use its best
efforts to cause such registration statement to become effective, and, upon the
request of Warrantholder, keep such registration statement effective for not
less than ninety (90) days;
(B) prepare and file with the Commission such
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amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(C) furnish to Warrantholder at least one (1) copy of the
registration statement and any post-effective amendments thereto and such number
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, as he may reasonably request;
(D) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by
Warrantholder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction;
(E) in any Underwritten Offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the Underwriter;
(F) promptly notify Warrantholder at any time when a
prospectus relating to such registration statement is required to be delivered
under the Securities Act because of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an 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
not misleading in the light of the circumstances then existing; and
(G) bear the entire cost and expense of any registration of
securities initiated by it under Section (9)(A) notwithstanding that Warrant
Shares subject to this Warrant may be included in any such registration
statement pursuant to this Section (9) Warrantholder shall, however, bear the
fees of his own counsel and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to the Warrant Shares sold by
it pursuant thereto.
The Company's agreements with respect to Warrants or Warrant Shares in
Section (7), (8) and (9) shall continue in effect as provided therein regardless
of the exercise and surrender of this Warrant.
(10) WARRANTHOLDER NOT OBLIGATED. Neither the giving of any notice by
any Warrantholder nor the making of any request for prospectuses shall impose
any obligation to sell any Warrant Shares, or exercise any Warrants upon such
Warrantholder or owner making such request.
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(11) INDEMNIFICATION.
(A) The Company shall indemnify and hold harmless each such
Warrantholder and each Underwriter, within the meaning of the Securities Act,
who may purchase from or sell for any such Warrantholder any Warrant Shares from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement or any post-effective amendment thereto or any
registration statement under the Securities Act or any prospectus included
therein required to be filed or furnished by reason of Section (7) or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished or required to be furnished in writing
to the Company by such Warrantholder or Underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls any such
person within the meaning of the Securities Act; provided however, that the
Company shall not be obliged so to indemnify any such Underwriter or controlling
person unless such Underwriter shall at the same time indemnify the Company, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any and all losses, claims, damages and liabilities caused
by any untrue statement or alleged untrue statement of a material fact contained
in the registration statement or amendments thereto or any prospectus required
to be filed or furnished by reason of Section (7) or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
alleged untrue statement or omission based upon information furnished in writing
to the Company by any such Underwriter expressly for use therein.
(B) Warrantholder will, if Shares are included in the
securities as to which such Registration is being effected, indemnify the
Company, each of its directors and officers, each Underwriter of securities
covered by such a registration statement, and each person who controls the
Company or such Underwriter within the meaning of Section 15 of the Securities
Act against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, whether commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, any prospectus, offering circular or other
document related thereto, or any amendment or supplement to any of the
foregoing, or any omission (or alleged omission) to state therein
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a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
directors, officers, persons, Underwriter or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by Warrantholder and stated to be specifically for use therein;
(C) Each party entitled to indemnification or contribution
under this Section (11) (an "Indemnified Party") shall give notice to the party
required to provide indemnification (an "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section (11), unless such
failure is prejudicial to the Indemnifying Party's ability to defend such
action. An Indemnifying Party, in the defense of any such claim or litigation,
shall not except with the consent of each Indemnified Party, consent to entry of
any judgement or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(D) If the indemnification provided herein is unavailable to
an Indemnified Party in respect of any losses, claims, damages or liabilities
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and Warrantholder from the offering or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the benefits referred to
in clause (i), but also the relative fault of the Company and Warrantholder in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and Warrantholder
shall be deemed to be in the same
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respective proportions as the net proceeds from the offering (before deducting
expenses) received by each of the Company and Warrantholder. The relative fault
of Warrantholder shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Warrantholder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(12) NO LIMITATION ON CORPORATE ACTION. No provisions of this Warrant
and no right or option granted or conferred hereunder shall in any way limit,
affect, or abridge the exercise by the Company of its corporate rights or powers
to recapitalize, amend its articles or incorporation or bylaws, reorganize,
consolidate or merge with or into any corporation, or transfer all or any part
of its property or assets or the exercise of any other of its corporate rights
and powers.
(13) REPRESENTATION OF WARRANTHOLDER. Warrantholder, by the acceptance
hereof, represents that it is acquiring this Warrant for its own account for
investment and not with a view to, or sale in connection with, any distribution
hereof or of any of the Warrant Shares issuable upon the exercise hereof, nor
with the present intention of distributing any of such securities.
(14) RESTRICTIVE LEGEND. Each certificate representing Warrant Shares
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Securities Act, shall bear the
following legend (and any additional legend required by any applicable state
securities laws) on the face thereof:
The securities represented hereby have not been registered under
the Securities Act of 1933 and the transfer of such securities is
subject to the restrictions set forth in Section (5) of the
Warrant delivered to the registered Warrantholder thereof, a copy
of which is available for inspection at the principal office and
no transfer of such securities shall be valid or effective unless
and until the terms and conditions of such Section (5) shall have
been in satisfied.
Any certificate issued at any time upon transfer or, or in
exchange for or replacement of, any certificate bearing such legend (except a
new certificate issued upon completion of a public distribution pursuant to a
registration under the Securities Act)
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shall also bear such legend unless, in the opinion of counsel for the
Warrantholder, addressed and delivered to the Company, which opinion shall be in
a form reasonably satisfactory and acceptable to the Company and such
Warrantholder, the securities represented thereby need no longer be subject to
the restrictions contained in Section (5). The provisions of this Warrant shall
be binding upon all subsequent Warrantholders of certificates bearing the legend
hereinbefore described and shall also be applicable to all subsequent
Warrantholders.
(15) GOVERNING LAW. This Warrant shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws.
(16) NOTICE. All notices and other communications under this Warrant
shall (a) be in writing (which shall include communications by telex and
telecopy), (b) be (i) sent by registered or certified mail, postage prepaid, or
by a reputable overnight courier (ii) delivered by hand or (iii) transmitted by
telex or telecopier (c) be given at the following respective addresses and
telex, telecopier and telephone numbers and to the attention of the following
persons:
If the Company, to it at:
The Med-Design Corporation
2810 Bunsen Avenue
Ventura, CA 93003
Telecopier No.: (805) 339-9375
Telephone No.: (805) 339-0375
Attn: James M. Donegan
If the Warrantholder, to it at:
John F. Kelley
6 Hathaway Drive
Princeton Junction, NJ 08550
Telecopier No.: (609) 275-8865
Telephone No.: (609) 275-9163
or at such other address or telex, telecopier or telephone number or to the
attention of such other person as the party to whom such information pertains
may hereafter specify for the purpose in a notice to the other specifically
captioned "Notice of Change of Address", and (d) be effective or deemed
delivered or furnished (i) if given by mail, on the fifth (5th) Business Day
after such communication is deposited in the mail, addressed as above provided,
(ii) if given by telex or telecopier, when such communication is transmitted to
the appropriate number determined
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as above provided in this Section and the appropriate answer back is received or
receipt is otherwise acknowledged, (iii) if given by hand delivery, when left at
the address of the addressee addressed as above provided, and (iv) if sent by
overnight courier, the day after the communication is delivered to such carrier
except that notices of a change of address, telex, telecopier or telephone
number, shall not be deemed furnished, until received.
(17) MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
(18) DATE AND EFFECTIVENESS. The date of this Warrant is October 10,
1997. This Warrant, in all events, shall be wholly void and of no effect after
the close of business on the Expiration Date, unless the Warrant shall have been
exercised, in which case this Agreement shall terminate on the third anniversary
of the date of the exercise or partial exercise of the Warrant herein granted
except as provided in Sections (7) and (9).
The undersigned hereby set their hands and seals to this Warrant
Agreement with full knowledge of its contents and intending thereby to be
legally bound.
ATTEST: THE MED-DESIGN CORPORATION
By:____________________________ By:_____________________________
Secretary James M. Donegan
President, CEO
WITNESS:
______________________________ ________________________________
John F. Kelley
DATED:
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PURCHASE FORM
Dated____________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and hereby
makes payment of ___________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Signature________________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________________________
hereby sells, assigns and transfers unto
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ________________ Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Date:________________
Signature_________________________
12
WARRANT NO. _____ Exhibit 10.56
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK UNDERLYING THIS WARRANT
OF THE MED-DESIGN CORPORATION (THE "COMPANY") HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN
OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
WARRANT OR SHARES MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Warrant to Purchase up to 100,000 Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, John F. Kelley (the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant, from The Med-Design Corporation, a Delaware Corporation (the
"Company"), one hundred thousand (100,000) fully paid, validly issued and
nonassessable shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company (the "Warrant Shares") at a price equal to 2 & 7/8 per
share (the "Exercise Price").
(1) EXERCISE OF WARRANT.
(A) This Warrant may be exercised in whole or in part at any time or
from time to time on or after the date hereof and until January 14, 2001
(the "Expiration Date"), provided, however, that if any such day is a day
on which banking
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institutions in the State of New York are authorized by law to close, then
on the next succeeding day. This Warrant may be exercised by presentation
and surrender hereof to the Company at its principal office, or at the
office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price of
the number of Warrant Shares specified in such form. As soon as practicable
after each such exercise of the Warrant, but not later than seven (7) days
from the date of such exercise, the Company shall issue and deliver to the
Warrantholder a certificate or certificates for the Warrant Shares issuable
upon such exercise, registered in the name of the Warrantholder. If this
Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Warrantholder thereof to purchase the balance
of the Warrant Shares purchasable thereunder. Upon receipt by the Company
of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Warrantholder shall
be deemed to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be physically delivered to the
Warrantholder.
(B) In the event the Company shall at any time subdivide, combine or
reclassify the outstanding shares of Common Stock, the number of Warrant
Shares subject to this Warrant shall be adjusted accordingly and the
Exercise Price shall forthwith be proportionately decreased in the case of
a subdivision or increased in the case of a combination.
(2) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrant.
(3) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(4) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of
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the Warrantholder, upon presentation and surrender hereof to the Company or at
the office of its stock transfer agent, if any, for other warrants of different
denominations entitling the Warrantholder thereof to purchase in the aggregate
the same number of shares of Common Stock purchasable hereunder. Upon surrender
of this Warrant to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax the Company shall, without
charge, subject to the restrictions set forth in Section (5), execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other warrants which carry the same rights upon
presentation hereof at the principal office of the Company or at the office of
its stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by the
Warrantholder hereof. The term "Warrant" as used herein includes any Warrants
into which this Warrant may be divided or exchanged. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date.
(5) RESTRICTIONS ON TRANSFER. This Warrant and all rights hereunder are
transferrable, in whole or in part, only to the Company by the Warrantholder in
person or by a duly authorized attorney except as set forth in Subparagraph (A).
(A) Restrictions in General. Prior to any Transfer (as defined below)
of this Warrant or the Warrant Shares, the Warrantholder will give ten (10)
days' written notice to the Company of such Warrantholder's intention to
effect such Transfer. Each such notice shall describe the manner and
circumstances of the proposed Transfer and shall be accompanied by an
opinion, addressed to the Company and reasonably satisfactory in form and
substance to it, of counsel for such Warrantholder, stating whether, in the
opinion of such counsel, such Transfer will be a transaction exempt from
registration under the Securities Act and applicable state securities laws.
If such Transfer may in the opinion of such counsel be effected without
registration under the Securities Act and applicable state securities laws,
If such Transfer may in the
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<PAGE>
opinion of such counsel be effected without registration under the
Securities Act and applicable state securities laws, such Warrantholder
shall thereupon be entitled to Transfer this Warrant and the Warrant Shares
in accordance with the terms of the notice delivered by such Warrantholder
to the Company. If in the opinion of such counsel such Transfer may not be
effected without registration under the Securitues Act, such Warrantholder
shall not be entitled to so Transfer this Warrant or the Warrant Shares
unless the Company elects or is obligated under Section (7) to file a
registration statement relating to such proposed Transfer and such
registration statement has become effective under the Securities Act and
applicable state securities laws.
(B) "Transfer" means, with respect to the Warrants, the Warrant
Shares, or any interest therein, any disposition which would constitute a
sale thereof within the meaning of the Securities Act.
(6) RIGHTS OF THE WARRANTHOLDER. The Warrantholder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Warrantholder are limited to those expressed in
the Warrant and are not enforceable against the Company except to the extent set
forth herein.
(7) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Company shall, for a
period of five (5) years from the date of the Warrant herein granted, advise the
Warrantholder or any then holder of Warrant Shares (such persons being
collectively referred to herein as "Warrantholders") by written notice at least
thirty (30) days prior to the filing of any registration statement (other than a
registration effected solely to implement a transaction of the type for which
form S-4 or form S-8 or any successor form is available) with the Securities and
Exchange Commission (the "Commission") under the Securities Act covering
securities of the Company. Each filing notice shall offer to the Warrantholder
the opportunity to include such number of shares as it may request in the
registration statement to which the filing notice relates and shall advise the
Warrantholder whether or not such registration statement is intended to cover an
underwritten public offering (an "Underwritten Offering"). If the Warrantholder
desires to have his shares included in a registration statement, he shall so
advise the Company in writing (a "Registration Request") within ten (10) days
after the date of receipt of the related filing
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notice, which Registration Request shall set forth the number of shares for
which registration is requested. Subject to the provisions of Section (8) of
this Agreement, the Company shall include in a registration statement all shares
for which it has timely received a Registration Request.
Notwithstanding anything to the contrary herein, the Company shall have the
right at any time (irrespective of whether a written Registration Request 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.
(8) UNDERWRITTEN OFFERINGS.
(A) Participation and Limitations. If a registration statement is for
an Underwritten Offering, the right of Warrantholder to registration
pursuant to Section (7) hereof shall be conditioned upon (1) the
Warrantholder's participation in such Underwritten Offering and the
inclusion of Warrantholder's Warrant Shares in the Underwritten Offering to
the extent provided herein and (2) the execution and delivery by
Warrantholder of an underwriting agreement in customary form with the
underwriter or underwriters selected by the Company to manage such
Underwritten Offering (individually or collectively, the "Underwriter"). If
the Underwriter determines that the inclusion of Warrant Shares in such
Underwritten Offering would adversely affect the success of such offering,
then the amount of securities to be included in the Underwritten Offering
shall, subject to then existing agreements to which the Company is
presently a party concerning the registration of Common Stock, be as
follows: (1) first, the number of shares of Common Stock to be offered and
sold for the account of the Company (up to the maximum number of shares of
Common Stock as determined by the Underwriter) and (2) second, if
additional shares of Common Stock may then be included in such Underwritten
Offering, such additional number of shares of Common Stock to be offered
and sold for the account of the Warrantholders, which (a) together with the
shares of Common Stock to be offered and sold for the account of the
Company shall not exceed the maximum number of shares of Common Stock as
determined by the Underwriter and (b) shall be allocated among the
Warrantholders pro rata based upon the aggregate number of Warrant Shares
requested by each such Warrantholder to be included in such Underwritten
Offering. In
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addition, the number of Shares to be included in any Underwritten Offering
may, in the discretion of the Company or the Underwriter, be rounded to the
nearest one hundred (100) shares. If a Warrantholder disapproves of the
terms of such Underwritten Offering, then he may elect to withdraw
therefrom by written notice to the Company and the Underwriter at any time
prior to the date on which the registration statement therefore is declared
effective by the Commission (a "Withdrawal Notice"). Any Shares subject to
a Withdrawal Notice shall be withdrawn and excluded from the registration
statement for the Underwritten Offering to which the Withdrawal Notice
relates.
(B) Restrictions on Sales of Shares. If Warrant Shares are covered by
a registration statement for an Underwritten Offering, Warrantholder
agrees, if requested by the Underwriter and timely notified in writing by
the Company or the Underwriter, not to effect any public sale or
distribution of Shares (including a sale pursuant to Rule 144 under the
Securities Act) except as part of such Underwritten Offering during the
period commencing on the tenth day prior to the closing date for such
Underwritten Offering and ending on the forty-sixth day after such closing
date.
(9) REGISTRATION PROCEDURES. In the case of each registration of securities
covered by Section (7) hereof (each a "Registration") for which Warrantholder
has timely delivered a Registration Request and has not delivered a Withdrawal
Notice, the Company will keep Warrantholder advised in writing of the initiation
and completion of such registration and will take the following actions at its
own expense:
(A) prepare and file with the Commission a registration statement for
such Shares as are entitled to be included therein, use its best efforts to
cause such registration statement to become effective, and, upon the
request of Warrantholder, keep such registration statement effective for
not less than ninety (90) days;
(B) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered
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<PAGE>
by such registration statement;
(C) furnish to Warrantholder at least one (1) copy of the registration
statement and any post-effective amendments thereto and such number of
copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, as he may reasonably request;
(D) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by
Warrantholder, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such jurisdiction;
(E) in any Underwritten Offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
with the Underwriter;
(F) promptly notify Warrantholder at any time when a prospectus
relating to such registration statement is required to be delivered under
the Securities Act because of the happening of any event as a result of
which the prospectus included in such registration statement, as then in
effect, includes an 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 not misleading in the light of the circumstances then
existing; and
(G) bear the entire cost and expense of any registration of securities
initiated by it under Section (9)(A) notwithstanding that Warrant Shares
subject to this Warrant may be included in any such registration statement
pursuant to this Section (9) Warrantholder shall, however, bear the fees of
his own counsel and any registration fees, transfer taxes or underwriting
discounts or commissions applicable to the Warrant Shares sold by it
pursuant thereto.
The Company's agreements with respect to Warrants or Warrant Shares in
Section (7), (8) and (9) shall continue in effect as provided therein
regardless of the exercise and surrender of this Warrant.
7
<PAGE>
(10) WARRANTHOLDER NOT OBLIGATED. Neither the giving of any notice by any
Warrantholder nor the making of any request for prospectuses shall impose any
obligation to sell any Warrant Shares, or exercise any Warrants upon such
Warrantholder or owner making such request.
8
<PAGE>
(11) INDEMNIFICATION.
(A) The Company shall indemnify and hold harmless each such
Warrantholder and each Underwriter, within the meaning of the Securities
Act, who may purchase from or sell for any such Warrantholder any Warrant
Shares from and against any and all losses, claims, damages and liabilities
caused by any untrue statement or alleged untrue statement of a material
fact contained in the registration statement or any post-effective
amendment thereto or any registration statement under the Securities Act or
any prospectus included therein required to be filed or furnished by reason
of Section (7) or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
alleged untrue statement or omission or alleged omission based upon
information furnished or required to be furnished in writing to the Company
by such Warrantholder or Underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such
person within the meaning of the Securities Act; provided however, that the
Company shall not be obliged so to indemnify any such Underwriter or
controlling person unless such Underwriter shall at the same time indemnify
the Company, its directors, each officer signing the related registration
statement and each person, if any, who controls the Company within the
meaning of the Securities Act, from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in the registration statement or
amendments thereto or any prospectus required to be filed or furnished by
reason of Section (7) or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statement therein not misleading, insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or alleged untrue
statement or omission based upon information furnished in writing to the
Company by any such Underwriter expressly for use therein.
(B) Warrantholder will, if Shares are included in the securities as to
which such Registration is being effected, indemnify the Company, each of
its directors and officers, each Underwriter of securities covered by such
a registration
9
<PAGE>
statement, and each person who controls the Company or such Underwriter
within the meaning of Section 15 of the Securities Act against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, whether commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, any prospectus, offering circular or
other document related thereto, or any amendment or supplement to any of
the foregoing, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
directors, officers, persons, Underwriter or control persons for any legal
or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each
case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by Warrantholder and stated to be
specifically for use therein;
(C) Each party entitled to indemnification or contribution under this
Section (11) (an "Indemnified Party") shall give notice to the party
required to provide indemnification (an "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section (11), unless such failure is prejudicial to
the Indemnifying Party's ability to defend such action. An Indemnifying
Party, in the defense of any such claim or litigation, shall not except
with the consent of each Indemnified Party, consent to entry of any
judgement or enter into
10
<PAGE>
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
(D) If the indemnification provided herein is unavailable to an
Indemnified Party in respect of any losses, claims, damages or liabilities
referred to herein, then the Indemnifying Party, in lieu of indemnifying
such Indemnified Party hereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and Warrantholder from the
offering or (ii) if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only
the benefits referred to in clause (i), but also the relative fault of the
Company and Warrantholder in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The relative benefits received
by the Company and Warrantholder shall be deemed to be in the same
respective proportions as the net proceeds from the offering (before
deducting expenses) received by each of the Company and Warrantholder. The
relative fault of Warrantholder shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates
to information supplied by Warrantholder and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(12) NO LIMITATION ON CORPORATE ACTION. No provisions of this Warrant and
no right or option granted or conferred hereunder shall in any way limit,
affect, or abridge the exercise by the Company of its corporate rights or powers
to recapitalize, amend its articles or incorporation or bylaws, reorganize,
consolidate or merge with or into any corporation, or transfer all or any part
of its property or assets or the exercise of any other of its corporate rights
and powers.
(13) REPRESENTATION OF WARRANTHOLDER. Warrantholder, by the acceptance
hereof, represents that it is acquiring this
11
<PAGE>
Warrant for its own account for investment and not with a view to, or sale in
connection with, any distribution hereof or of any of the Warrant Shares
issuable upon the exercise hereof, nor with the present intention of
distributing any of such securities.
(14) RESTRICTIVE LEGEND. Each certificate representing Warrant Shares
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Securities Act, shall bear the
following legend (and any additional legend required by any applicable state
securities laws) on the face thereof:
The securities represented hereby have not been registered under the
Securities Act of 1933 and the transfer of such securities is subject
to the restrictions set forth in Section (5) of the Warrant delivered
to the registered Warrantholder thereof, a copy of which is available
for inspection at the principal office and no transfer of such
securities shall be valid or effective unless and until the terms and
conditions of such Section (5) shall have been in satisfied.
Any certificate issued at any time upon transfer or, or in exchange
for or replacement of, any certificate bearing such legend (except a new
certificate issued upon completion of a public distribution pursuant to a
registration under the Securities Act) shall also bear such legend unless,
in the opinion of counsel for the Warrantholder, addressed and delivered to
the Company, which opinion shall be in a form reasonably satisfactory and
acceptable to the Company and such Warrantholder, the securities
represented thereby need no longer be subject to the restrictions contained
in Section (5). The provisions of this Warrant shall be binding upon all
subsequent Warrantholders of certificates bearing the legend hereinbefore
described and shall also be applicable to all subsequent Warrantholders.
(15) GOVERNING LAW. This Warrant shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws.
12
<PAGE>
(16) NOTICE. All notices and other communications under this Warrant shall
(a) be in writing (which shall include communications by telex and telecopy),
(b) be (i) sent by registered or certified mail, postage prepaid, or by a
reputable overnight courier (ii) delivered by hand or (iii) transmitted by telex
or telecopier (c) be given at the following respective addresses and telex,
telecopier and telephone numbers and to the attention of the following persons:
If the Company, to it at:
The Med-Design Corporation
2810 Bunsen Avenue
Ventura, CA 93003
Telecopier No.: (805) 339-9375
Telephone No.: (805) 339-0375
Attn: James M. Donegan
If the Warrantholder, to it at:
John F. Kelley
6 Hathaway Drive
Princeton Junction, NJ 08550
Telecopier No.: (609) 275-8865
Telephone No.: (609) 275-9163
or at such other address or telex, telecopier or telephone number or to the
attention of such other person as the party to whom such information pertains
may hereafter specify for the purpose in a notice to the other specifically
captioned "Notice of Change of Address", and (d) be effective or deemed
delivered or furnished (i) if given by mail, on the fifth (5th) Business Day
after such communication is deposited in the mail, addressed as above provided,
(ii) if given by telex or telecopier, when such communication is transmitted to
the appropriate number determined as above provided in this Section and the
appropriate answer back is received or receipt is otherwise acknowledged, (iii)
if given by hand delivery, when left at the address of the addressee addressed
as above provided, and (iv) if sent by overnight courier, the day after the
communication is delivered to such
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<PAGE>
carrier except that notices of a change of address, telex, telecopier or
telephone number, shall not be deemed furnished, until received.
(17) MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
(18) DATE AND EFFECTIVENESS. The date of this Warrant is January 14, 1998.
This Warrant, in all events, shall be wholly void and of no effect after the
close of business on the Expiration Date, unless the Warrant shall have been
exercised, in which case this Agreement shall terminate on the third anniversary
of the date of the exercise or partial exercise of the Warrant herein granted
except as provided in Sections (7) and (9).
The undersigned hereby set their hands and seals to this Warrant Agreement
with full knowledge of its contents and intending thereby to be legally bound.
ATTEST: THE MED-DESIGN CORPORATION
By: /s/
--------------------------------
By: /s/
--------------------------------
Secretary James M. Donegan
President, CEO
WITNESS:
- -------------------------------------------------------------------------------
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<PAGE>
John F. Kelley
DATED:
-------------------
F:\WPF\FORMS\MEDESIGN\WARRANTJ.FK3
PURCHASE FORM
Dated____________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and
hereby makes payment of ___________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name___________________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________________
Signature/s/___________________________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________________________________________________
hereby sells, assigns and transfers unto
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<PAGE>
Name___________________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ________________ Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Date:________________
Signature/s/_________________________
16
WARRANT NO. _____
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK UNDERLYING THIS
WARRANT OF THE MED-DESIGN CORPORATION (THE "COMPANY") HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN
OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
WARRANT OR SHARES MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Warrant to Purchase up to 50,000 Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, Gilbert White (the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant, from The Med-Design Corporation, a Delaware Corporation (the
"Company"), fifty thousand (50,000) fully paid, validly issued and nonassessable
shares of Common Stock, $.01 par value per share (the "Common Stock"), of the
Company (the "Warrant Shares") at a price equal to 2 & 7/8 per share (the
"Exercise Price").
(1) EXERCISE OF WARRANT.
(A) This Warrant may be exercised in whole or in part at any
time or from time to time on or after the date hereof and until January 14, 2001
(the "Expiration Date"), provided, however, that if any such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price of the
number of Warrant Shares specified in such form. As soon as practicable after
each such exercise of the Warrant, but not later than seven
<PAGE>
(7) days from the date of such exercise, the Company shall issue and deliver to
the Warrantholder a certificate or certificates for the Warrant Shares issuable
upon such exercise, registered in the name of the Warrantholder. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Warrantholder thereof to purchase the balance of the Warrant
Shares purchasable thereunder. Upon receipt by the Company of this Warrant at
its office, or by the stock transfer agent of the Company at its office, in
proper form for exercise, the Warrantholder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Warrantholder.
(B) In the event the Company shall at any time subdivide,
combine or reclassify the outstanding shares of Common Stock, the number of
Warrant Shares subject to this Warrant shall be adjusted accordingly and the
Exercise Price shall forthwith be proportionately decreased in the case of a
subdivision or increased in the case of a combination.
(2) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrant.
(3) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(4) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Warrantholder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the Warrantholder thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company at its principal office or at the office of its stock transfer agent, if
any, with the Assignment Form annexed hereto duly executed and funds sufficient
to pay any transfer tax the Company shall, without charge, subject to the
restrictions set forth in Section (5), execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment and this Warrant
shall promptly be canceled. This Warrant may be divided or combined with other
warrants which carry
2
<PAGE>
the same rights upon presentation hereof at the principal office of the Company
or at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Warrantholder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
(5) RESTRICTIONS ON TRANSFER. This Warrant and all rights hereunder are
transferrable, in whole or in part, only to the Company by the Warrantholder in
person or by a duly authorized attorney except as set forth in Subparagraph (A).
(A) Restrictions in General. Prior to any Transfer (as defined
below) of this Warrant or the Warrant Shares, the Warrantholder will give ten
(10) days' written notice to the Company of such Warrantholder's intention to
effect such Transfer. Each such notice shall describe the manner and
circumstances of the proposed Transfer and shall be accompanied by an opinion,
addressed to the Company and reasonably satisfactory in form and substance to
it, of counsel for such Warrantholder, stating whether, in the opinion of such
counsel, such Transfer will be a transaction exempt from registration under the
Securities Act and applicable state securities laws. If such Transfer may in the
opinion of such counsel be effected without registration under the Securities
Act and applicable state securities laws, such Warrantholder shall thereupon be
entitled to Transfer this Warrant and the Warrant Shares in accordance with the
terms of the notice delivered by such Warrantholder to the Company. If in the
opinion of such counsel such Transfer may not be effected without registration
under the Securities Act, such Warrantholder shall not be entitled to so
Transfer this Warrant or the Warrant Shares unless the Company elects or is
obligated under Section (7) to file a registration statement relating to such
proposed Transfer and such registration statement has become effective under the
Securities Act and applicable state securities laws.
(B) "Transfer" means, with respect to the Warrants, the
Warrant Shares, or any interest therein, any disposition which would constitute
a sale thereof within the meaning of the Securities Act.
(6) RIGHTS OF THE WARRANTHOLDER. The Warrantholder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights
3
<PAGE>
of the Warrantholder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
(7) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Company shall,
for a period of five (5) years from the date of the Warrant herein granted,
advise the Warrantholder or any then holder of Warrant Shares (such persons
being collectively referred to herein as "Warrantholders") by written notice at
least thirty (30) days prior to the filing of any registration statement (other
than a registration effected solely to implement a transaction of the type for
which form S-4 or form S-8 or any successor form is available) with the
Securities and Exchange Commission (the "Commission") under the Securities Act
covering securities of the Company. Each filing notice shall offer to the
Warrantholder the opportunity to include such number of shares as it may request
in the registration statement to which the filing notice relates and shall
advise the Warrantholder whether or not such registration statement is intended
to cover an underwritten public offering (an "Underwritten Offering"). If the
Warrantholder desires to have his shares included in a registration statement,
he shall so advise the Company in writing (a "Registration Request") within ten
(10) days after the date of receipt of the related filing notice, which
Registration Request shall set forth the number of shares for which registration
is requested. Subject to the provisions of Section (8) of this Agreement, the
Company shall include in a registration statement all shares for which it has
timely received a Registration Request.
Notwithstanding anything to the contrary herein, the Company shall have
the right at any time (irrespective of whether a written Registration Request
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.
(8) UNDERWRITTEN OFFERINGS.
(A) Participation and Limitations. If a registration statement
is for an Underwritten Offering, the right of Warrantholder to registration
pursuant to Section (7) hereof shall be conditioned upon (1) the Warrantholder's
participation in such Underwritten Offering and the inclusion of Warrantholder's
Warrant Shares in the Underwritten Offering to the extent provided herein and
(2) the execution and delivery by Warrantholder of an underwriting agreement in
customary form with the underwriter or underwriters selected by the Company to
manage such Underwritten Offering (individually or collectively, the
"Underwriter"). If the Underwriter determines that the inclusion of Warrant
Shares in such Underwritten Offering would adversely affect the success of such
offering, then the amount of securities to be included in the Underwritten
Offering shall, subject to then existing agreements to
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which the Company is presently a party concerning the registration of Common
Stock, be as follows: (1) first, the number of shares of Common Stock to be
offered and sold for the account of the Company (up to the maximum number of
shares of Common Stock as determined by the Underwriter) and (2) second, if
additional shares of Common Stock may then be included in such Underwritten
Offering, such additional number of shares of Common Stock to be offered and
sold for the account of the Warrantholders, which (a) together with the shares
of Common Stock to be offered and sold for the account of the Company shall not
exceed the maximum number of shares of Common Stock as determined by the
Underwriter and (b) shall be allocated among the Warrantholders pro rata based
upon the aggregate number of Warrant Shares requested by each such Warrantholder
to be included in such Underwritten Offering. In addition, the number of Shares
to be included in any Underwritten Offering may, in the discretion of the
Company or the Underwriter, be rounded to the nearest one hundred (100) shares.
If a Warrantholder disapproves of the terms of such Underwritten Offering, then
he may elect to withdraw therefrom by written notice to the Company and the
Underwriter at any time prior to the date on which the registration statement
therefore is declared effective by the Commission (a "Withdrawal Notice"). Any
Shares subject to a Withdrawal Notice shall be withdrawn and excluded from the
registration statement for the Underwritten Offering to which the Withdrawal
Notice relates.
(B) Restrictions on Sales of Shares. If Warrant Shares are
covered by a registration statement for an Underwritten Offering, Warrantholder
agrees, if requested by the Underwriter and timely notified in writing by the
Company or the Underwriter, not to effect any public sale or distribution of
Shares (including a sale pursuant to Rule 144 under the Securities Act) except
as part of such Underwritten Offering during the period commencing on the tenth
day prior to the closing date for such Underwritten Offering and ending on the
forty-sixth day after such closing date.
(9) REGISTRATION PROCEDURES. In the case of each registration of
securities covered by Section (7) hereof (each a "Registration") for which
Warrantholder has timely delivered a Registration Request and has not delivered
a Withdrawal Notice, the Company will keep Warrantholder advised in writing of
the initiation and completion of such registration and will take the following
actions at its own expense:
(A) prepare and file with the Commission a registration
statement for such Shares as are entitled to be included therein, use its best
efforts to cause such registration statement to become effective, and, upon the
request of Warrantholder, keep such registration statement effective for not
less than ninety (90) days;
(B) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
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(C) furnish to Warrantholder at least one (1) copy of the
registration statement and any post-effective amendments thereto and such number
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, as he may reasonably request;
(D) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by
Warrantholder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction;
(E) in any Underwritten Offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the Underwriter;
(F) promptly notify Warrantholder at any time when a
prospectus relating to such registration statement is required to be delivered
under the Securities Act because of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an 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
not misleading in the light of the circumstances then existing; and
(G) bear the entire cost and expense of any registration of
securities initiated by it under Section (9)(A) notwithstanding that Warrant
Shares subject to this Warrant may be included in any such registration
statement pursuant to this Section (9) Warrantholder shall, however, bear the
fees of his own counsel and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to the Warrant Shares sold by
it pursuant thereto.
The Company's agreements with respect to Warrants or Warrant
Shares in Section (7), (8) and (9) shall continue in effect as provided therein
regardless of the exercise and surrender of this Warrant.
(10) WARRANTHOLDER NOT OBLIGATED. Neither the giving of any notice by
any Warrantholder nor the making of any request for prospectuses shall impose
any obligation to sell any Warrant Shares, or exercise any Warrants upon such
Warrantholder or owner making such request.
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(11) INDEMNIFICATION.
(A) The Company shall indemnify and hold harmless each such
Warrantholder and each Underwriter, within the meaning of the Securities Act,
who may purchase from or sell for any such Warrantholder any Warrant Shares from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement or any post-effective amendment thereto or any
registration statement under the Securities Act or any prospectus included
therein required to be filed or furnished by reason of Section (7) or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished or required to be furnished in writing
to the Company by such Warrantholder or Underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls any such
person within the meaning of the Securities Act; provided however, that the
Company shall not be obliged so to indemnify any such Underwriter or controlling
person unless such Underwriter shall at the same time indemnify the Company, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any and all losses, claims, damages and liabilities caused
by any untrue statement or alleged untrue statement of a material fact contained
in the registration statement or amendments thereto or any prospectus required
to be filed or furnished by reason of Section (7) or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
alleged untrue statement or omission based upon information furnished in writing
to the Company by any such Underwriter expressly for use therein.
(B) Warrantholder will, if Shares are included in the
securities as to which such Registration is being effected, indemnify the
Company, each of its directors and officers, each Underwriter of securities
covered by such a registration statement, and each person who controls the
Company or such Underwriter within the meaning of Section 15 of the Securities
Act against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, whether commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, any prospectus, offering circular or other
document related thereto, or any amendment or supplement to any of the
foregoing, or any omission (or alleged omission) to state therein
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a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
directors, officers, persons, Underwriter or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by Warrantholder and stated to be specifically for use therein;
(C) Each party entitled to indemnification or contribution
under this Section (11) (an "Indemnified Party") shall give notice to the party
required to provide indemnification (an "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section (11), unless such
failure is prejudicial to the Indemnifying Party's ability to defend such
action. An Indemnifying Party, in the defense of any such claim or litigation,
shall not except with the consent of each Indemnified Party, consent to entry of
any judgement or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(D) If the indemnification provided herein is unavailable to
an Indemnified Party in respect of any losses, claims, damages or liabilities
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and Warrantholder from the offering or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the benefits referred to
in clause (i), but also the relative fault of the Company and Warrantholder in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and Warrantholder
shall be deemed to be in the same
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respective proportions as the net proceeds from the offering (before deducting
expenses) received by each of the Company and Warrantholder. The relative fault
of Warrantholder shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Warrantholder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(12) NO LIMITATION ON CORPORATE ACTION. No provisions of this Warrant
and no right or option granted or conferred hereunder shall in any way limit,
affect, or abridge the exercise by the Company of its corporate rights or powers
to recapitalize, amend its articles or incorporation or bylaws, reorganize,
consolidate or merge with or into any corporation, or transfer all or any part
of its property or assets or the exercise of any other of its corporate rights
and powers.
(13) REPRESENTATION OF WARRANTHOLDER. Warrantholder, by the acceptance
hereof, represents that it is acquiring this Warrant for its own account for
investment and not with a view to, or sale in connection with, any distribution
hereof or of any of the Warrant Shares issuable upon the exercise hereof, nor
with the present intention of distributing any of such securities.
(14) RESTRICTIVE LEGEND. Each certificate representing Warrant Shares
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Securities Act, shall bear the
following legend (and any additional legend required by any applicable state
securities laws) on the face thereof:
The securities represented hereby have not been
registered under the Securities Act of 1933 and the
transfer of such securities is subject to the
restrictions set forth in Section (5) of the Warrant
delivered to the registered Warrantholder thereof, a
copy of which is available for inspection at the
principal office and no transfer of such securities
shall be valid or effective unless and until the
terms and conditions of such Section (5) shall have
been in satisfied.
Any certificate issued at any time upon transfer or, or in exchange for
or replacement of, any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution pursuant to a registration under
the Securities Act)
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shall also bear such legend unless, in the opinion of counsel for the
Warrantholder, addressed and delivered to the Company, which opinion shall be in
a form reasonably satisfactory and acceptable to the Company and such
Warrantholder, the securities represented thereby need no longer be subject to
the restrictions contained in Section (5). The provisions of this Warrant shall
be binding upon all subsequent Warrantholders of certificates bearing the legend
hereinbefore described and shall also be applicable to all subsequent
Warrantholders.
(15) GOVERNING LAW. This Warrant shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws.
(16) NOTICE. All notices and other communications under this Warrant
shall (a) be in writing (which shall include communications by telex and
telecopy), (b) be (i) sent by registered or certified mail, postage prepaid, or
by a reputable overnight courier (ii) delivered by hand or (iii) transmitted by
telex or telecopier (c) be given at the following respective addresses and
telex, telecopier and telephone numbers and to the attention of the following
persons:
If the Company, to it at:
The Med-Design Corporation
2810 Bunsen Avenue
Ventura, CA 93003
Telecopier No.: (805) 339-9375
Telephone No.: (805) 339-0375
Attn: James M. Donegan
If the Warrantholder, to it at:
Gilbert White
The Academy House, Apt 18K
1420 Locust Street
Philadelphia, PA 19102
Telephone No.: (215) 735-4565
or at such other address or telex, telecopier or telephone number or to the
attention of such other person as the party to whom such information pertains
may hereafter specify for the purpose in a notice to the other specifically
captioned "Notice of Change of Address", and (d) be effective or deemed
delivered or furnished (i) if given by mail, on the fifth (5th) Business Day
after such communication is deposited in the mail, addressed as above provided,
(ii) if given by telex or telecopier, when such communication is transmitted to
the appropriate number determined
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as above provided in this Section and the appropriate answer back is received or
receipt is otherwise acknowledged, (iii) if given by hand delivery, when left at
the address of the addressee addressed as above provided, and (iv) if sent by
overnight courier, the day after the communication is delivered to such carrier
except that notices of a change of address, telex, telecopier or telephone
number, shall not be deemed furnished, until received.
(17) MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
(18) DATE AND EFFECTIVENESS. The date of this Warrant is January 14,
1998. This Warrant, in all events, shall be wholly void and of no effect after
the close of business on the Expiration Date, unless the Warrant shall have been
exercised, in which case this Agreement shall terminate on the third anniversary
of the date of the exercise or partial exercise of the Warrant herein granted
except as provided in Sections (7) and (9).
The undersigned hereby set their hands and seals to this Warrant
Agreement with full knowledge of its contents and intending thereby to be
legally bound.
ATTEST: THE MED-DESIGN CORPORATION
By:____________________________ By:_____________________________
Secretary James M. Donegan
President, CEO
WITNESS:
________________________________ _______________________________
Gilbert White
DATED:
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PURCHASE FORM
Dated____________
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing __________ shares of Common Stock and
hereby makes payment of ___________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Signature________________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________________
hereby sells, assigns and transfers unto
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ________________ Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Date:________________
Signature_________________________
12
THE MED-DESIGN CORPORATION
NON-QUALIFIED STOCK OPTION PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made by and
between The Med-Design Corporation, a Delaware corporation (the "Company"), and
John Kelley (the "Option Holder"), governing the grant by the Company to the
Option Holder, effective as of June 3,1996, of a Non-Qualified Stock Option to
purchase an aggregate of 16,000 shares of common stock, $.01 par value, of the
Company under The Med-Design Corporation Non-Qualified Stock Option Plan (the
"Plan"). This Agreement is to replace the original Agreement in that the option
is repriced as hereinafter provided, that original Agreement is hereby cancelled
and void.
ARTICLE I
DEFINITIONS
1.1. In this Agreement, unless the context otherwise requires,
references to the following words shall have the following meanings:
"Board of Directors" shall mean the Board of Directors of the
Company as constituted from time to time.
"Business Day" shall mean a day (other than a Saturday or
Sunday) on which the principal office of the Company in Philadelphia,
Pennsylvania, is open for the conduct of normal business.
"Change in Control" shall mean a change in control of
the Company of a nature that would be required to be reported
<PAGE>
(assuming such event has not been previously reported) to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Exchange Act; provided that, without limiting the foregoing,
a "Change in Control" shall be deemed to have occurred at such time as (a) any
Person (as defined in the Exchange Act) after the date hereof becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 10% or more of the combined voting power to the Company's
outstanding securities ordinarily having the right to vote at elections of
directors ("Voting Securities"), or (b) during any period of two consecutive
years after the date of the initial acquisition by such Person of Voting
Securities of the Company, individuals who constitute the members of the Board
of Directors of the Company on the date of such acquisition, or at the
commencement of any two year period thereafter (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date of such acquisition whose election,
or nomination for election by the Company's shareholders, was approved by a vote
of at least eighty percent (80%) of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without objection to
such nomination) shall be considered as though such person were a member of the
Incumbent Board, or (c) the shareholders of the Company approve a merger or
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consolidation of the Company with any other entity other than (i) a merger or
consolidation that would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into Voting Securities of the entity
surviving such merger or consolidation), in combination with Voting Securities
of the Company or such surviving entity held by a trustee or other fiduciary
pursuant to any employee benefit plan of the Company or such surviving entity or
any Subsidiary of the Company or such surviving entity, at least 75% of the
combined voting power of the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person becomes the beneficial owner of
securities of the Company or the entity outstanding immediately after such
merger or consolidation than such Person was the beneficial owner of immediately
prior to such recapitalization, or (d) the shareholders of the Company approve
an agreement for the sale or disposition by the Company of all or substantially
all of the Company's assets.
"Committee" shall mean the Compensation Committee of the Board
of Directors of the Company as constituted by the Board of Directors of the
Company from time to time.
"Company" shall mean The Med-Design Corporation.
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"Date of Grant" shall mean the date on which an Option is
granted by the Company pursuant to Article V of the Plan.
"Disability" means permanent and total disability as defined
in Section 422(c)(6) of the Internal Revenue Code of 1986, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as it may be amended from time to time, or any successor act or statue.
"Expiration Date" shall mean the expiration date of the Option
fixed by the Committee and set forth in Section 3.1 of this Agreement.
"Independent Director" shall mean any director of the Company
who is not an employee or officer of the Company or any Subsidiary.
"Market Value," on the Date of Grant of any Option, shall mean
(i) the last sale price (regular way) of the Shares on the Date of Grant or, if
no such sale takes place on such day, the average of the closing bid and asked
prices on the New York Stock Exchange Composite Tape or, if the Shares are not
listed or admitted to trading on the New York Stock Exchange on the Date of
Grant, on the national securities exchange in or nearest the City of New York on
which the Shares are listed or admitted to trading, or (ii) if on the Date of
Grant the Shares are not listed or admitted to trading on any national
securities exchange, the last sale price (regular way) of the Shares on the Date
of Grant or, if no such sale takes place on such day, the
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<PAGE>
average of the highest reported bid and lowest reported asked prices as
furnished by the National Association of Securities Dealers, Inc. through the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or a similar organization if NASDAQ is no longer reporting such information, or
(iii) if on the Date of Grant the Shares are not quoted by any such
organization, the fair market value of the Shares on the Date of Grant as
determined by the Committee.
"Option" shall mean a right to subscribe for Shares granted to
a Qualified Person pursuant to the Plan.
"Option Holder" shall mean a Qualified Person or a former
Qualified Person who holds an Option.
"Option Shares" shall mean unissued Shares in respect of which
Options are granted.
"Plan" shall mean The Med-Design Corporation Non-Qualified
Stock Option Plan.
"Qualified Person" shall mean any employee or officer of, or
consultant to, the Company or any Subsidiary or any Independent Director of the
Company.
"Retirement" means retirement from active employment with the
Company or any Subsidiary at or after the age established by the Committee from
time to time for purposes of the Plan, or earlier in any particular case with
the consent of the Committee.
"Shares" shall mean the authorized shares of common
stock of the Company.
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"Subscription Price" shall mean the price payable for a Share
on the exercise of an Option, as set forth in Section 2.1 hereof and as it may
be adjusted pursuant to Section 8.1 hereof.
"Subsidiary" shall mean any corporation which at the time
qualifies as a subsidiary of the Company under the definition of "subsidiary
corporation" in Section 424(f) of the Internal Revenue Code of 1986, as amended.
"Termination Date" shall mean the first to occur of the dates
described in Article V of this Agreement.
ARTICLE II
CONFIRMATION OF GRANT AND SUBSCRIPTION PRICE
2.1. Subject to the terms and conditions of the Plan, the
provisions of which are hereby made a part of this Agreement, and the return of
this Agreement signed by the Option Holder, the Company hereby confirms its
grant to the Option Holder of an Option to purchase 16,000 Shares at the
Subscription Price of $4.50 Dollars per Share.
ARTICLE III
VESTING
3.1. The schedule for the exercise of the Options granted pursuant to
this Agreement shall be as follows:
No. of Date First Available Expiration Date of
Shares for Exercise Right of Exercise
------ -------------------- ------------------
3200 June 3, 1997 June 3, 2002
3200 June 3, 1998 June 3, 2002
3200 June 3, 1999 June 3, 2002
3200 June 3, 2000 June 3, 2002
3200 June 3, 2001 June 3, 2002
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The number of Shares as to which the Option becomes available
for exercise may be purchased after the date first available for exercise
indicated above, subject to the provisions hereof, and at any time prior to the
Expiration Date, subject to prior termination pursuant to Article V.
3.2. Each Option held by a Qualified Person who is not an
Independent Director shall automatically be vested and exercisable in full
(subject to termination pursuant to Section 5.1) if the employment of such
Qualified Person by the Company or any Subsidiary is terminated by the Company
or such Subsidiary (other than by reason of death or Disability) within six (6)
months after the occurrence of any Change in Control.
If the employment of an Option Holder by the Company or any
Subsidiary is terminated (other than by reason of Retirement, death or
Disability), each Option of such Option Holder shall be exercisable prior to its
Expiration Date (subject to Section 5.1) only if, and only to the extent that,
such Option, in accordance with its terms, is vested and exercisable on the date
on which the employment of the Option Holder by the Company or such Subsidiary
is terminated.
3.3. Each Option held by an Independent Director shall
automatically be vested and exercisable in full (subject to termination pursuant
to Section 5.2) if such Independent Director is removed as a director of the
Company (other than by reason of Disability) within six (6) months after the
occurrence of any Change in Control.
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ARTICLE IV
EXERCISE OF OPTION
4.1. An Option may be exercised only for full Shares. No
fractional Shares shall be issued.
4.2. No Option may be exercised in whole or in part and the
Company shall not be required to issue or deliver any certificate evidencing
Shares purchasable upon the exercise of any Option prior to fulfillment of all
of the following conditions:
(a) receipt by the Secretary of the Company from the
Option Holder or his executor or administrator of a written notice of exercise
of the Option specifying the number of Shares for which the Option is to be
exercised, substantially in the form set out as Exhibit 1 to such Option
Holder's Stock Option Agreement, together with full payment of the Subscription
Price per Share in United States dollars for each Share for which the Option is
to be exercised;
(b) if the Option is to be exercised by an executor or
administrator of the Option Holder, receipt by the Secretary of the Company from
such executor or administrator of evidence satisfactory to the Company of such
person's right to exercise the Option;
(c) (i) receipt by the Secretary of the Company from the
Option Holder or his executor or administrator of such documents as the Company
shall deem necessary to determine whether registration of the Shares is required
under the
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Securities Act of 1933 or to comply with such act or any other law and (ii) the
completion of any such registration or other qualification of such Shares under
any federal or state law or under the rulings or regulations of the Securities
and Exchange Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
(d) receipt by the Company of any approval or other
consent from any federal, state of foreign governmental agency that the
Committee shall in its sole discretion deem necessary or advisable;
(e) if requested by the Company, receipt by the Secretary
of the Company from the Option Holder or his executor or administrator of a
letter representing that the Shares to be acquired upon exercise of the Option
are to be acquired for the account of the Option Holder or for the account of
his executor or administrator for investment and not with a view to distribution
of such Shares; and
(f) for issuance of certificates evidencing Shares for
which the Option has been exercised, the lapse of such reasonable period of time
following the exercise of the Option as the Committee from time to time may
establish for reasons of administrative convenience.
4.3. If notice is duly given of a Resolution for the voluntary
winding up of the Company an Option Holder may forthwith and before the
commencement of the winding-up exercise
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his Option up to the full extent to which it remains vested and unexercised (but
so that such exercise shall be conditional upon such Resolution being passed)
provided that an Option shall not be exercisable later than the Termination
Date.
ARTICLE V
TERMINATION OF OPTION
5.1. Except as otherwise stated herein, each Option held by a
Qualified Person other than an Independent Director shall terminate on the first
to occur of the following dates:
(a) The expiration of thirty (30) calendar days after the
date on which the employment of such Qualified Person by the Company or any
Subsidiary is terminated by the Company or such Subsidiary for cause (which
shall not include Disability), except if such termination occurs within six (6)
months after a Change in Control.
(b) The expiration of ninety (90) calendar days after the
date on which the employment of such Qualified Person by the Company or any
Subsidiary is terminated by such Qualified Person (except if such termination
occurs by reason of Retirement, death or Disability).
(c) The Expiration Date.
The granting of an Option to a Qualified Person does not alter
in any way the existing rights of the Company or any Subsidiary to terminate the
employment of such Qualified Person with or without cause and does not create an
actual or implied contract of employment.
10
<PAGE>
If an Option terminates on either of the dates described in
subsections (a) and (b) of this Section 5.1, the Option may be exercised prior
to the Termination Date only if, and only to the extent that, the Option, in
accordance with its terms, is vested and exercisable on the date on which the
employment of the Qualified Person by the Company or any Subsidiary is
terminated.
5.2. Except as otherwise stated herein, each Option held by an
Independent Director shall terminate on the first to occur of the following
dates:
(a) The expiration of thirty (30) calendar days after the
date on which such Independent Director resigns as a director of the Company or
the term of such Independent Director as a director of the Company expires and
such Independent Director is not reelected (in either case, other than by reason
of death or Disability) or after the date on which such Independent Director is
removed as a director by the Company for cause (which shall not include
Disability), except if such termination occurs within six (6) months after the
occurrence of any Change in Control.
(b) The Expiration Date.
If an Option is to terminate pursuant to subsection (a) of
this Section 5.2, the Option may be exercised prior to the Termination Date only
if, and only to the extent that, the Option, in accordance with its terms, is
vested and exercisable on the date on which the Independent Director resigns
11
<PAGE>
or is removed as a director of the Company or the term of such Independent
Director expires.
ARTICLE VI
NON-ASSIGNABILITY
6.1. An Option may not be transferred by the Option Holder
(other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employee Retirement Income Security Act, or
the rules thereunder).
ARTICLE VII
RIGHTS AS SHAREHOLDER
7.1. No Option Holder shall have any rights as a shareholder
with respect to Shares subject to an Option until the date of exercise of such
Option in accordance with the Plan and the issuance of the Shares for which the
Option has been exercised. All Shares acquired by an Option Holder pursuant to
the Plan shall be subject to the restrictions contained in the Certificate of
Incorporation and Bylaws of the Company, as in effect on the date hereof and as
they may be amended or restated from time to time, and (subject thereto) shall
be effective on the date of issue thereof and rank pari passu with the Shares of
the Company then issued and outstanding (including the right to receive all
dividends or other distributions thereafter declared, paid or made by reference
to a record date falling on or after the date of issue thereof). Except for
adjustments to be made to
12
<PAGE>
Options pursuant to the terms of the Plan, no adjustment shall be made for
dividends or other rights that have accrued to shareholders of the Company prior
to the date of issue of such Shares.
ARTICLE VIII
CAPITAL ADJUSTMENTS
8.1. If and to the extent that the number of Shares shall be
increased or reduced by reason of a recapitalization, a reclassification, a
distribution or a dividend payable in stock, a rights issue, a sub-division or
consolidation of Shares or an increase or reduction of capital, then the number
of Shares subject to the Option and Subscription Price per Share shall be
proportionately adjusted. If the Company is reorganized or consolidated or
merged with another entity, the Option Holder shall be entitled to receive an
Option in exchange for this Option, but only if this Option has not terminated
pursuant to 5.1 or 5.2 hereof and only to the extent this Option has not
theretofore been exercised, covering Shares or such other ownership interest of
such reorganized, consolidated, or merged entity in the same proportion, at an
equivalent price, and subject to the same terms and conditions; provided,
however, that the issuance of securities by the Company as consideration for the
acquisition by the Company of securities of another corporation or any other
asset shall not be regarded as a circumstance requiring adjustment.
13
<PAGE>
ARTICLE IX
DISPOSITION OF SHARES
9.1. If the Option Holder disposes of any Shares received upon
exercise of an Option within a one-year period beginning on the day the Shares
were transferred to the Option Holder, the Option Holder shall notify the
Secretary of the Company of the number of, and the date on which, the Shares
were disposed of, the manner of disposition (whether by sale, exchange, gift or
otherwise) and the amount, if any, realized upon such disposition.
ARTICLE X
NOTICE
10.1. All notices to the Secretary of the Company hereunder
shall be in writing and shall be made by personal delivery or by certified mail,
return receipt requested, to the Secretary at the then principal office of the
Company.
ARTICLE XI
INTERPRETATION OF AGREEMENT: GOVERNING LAW
11.1. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware.
14
<PAGE>
IN WITNESS WHEREOF, the Company and the Option Holder have
duly executed this Agreement as of _________________,
__________.
ATTEST: THE MED-DESIGN CORPORATION
By:_________________________ By:__________________________
Joseph N. Bongiovanni, III James M. Donegan
Secretary President/CEO
WITNESS: OPTION HOLDER
____________________________ _____________________________
John F. Kelley
15
<PAGE>
EXHIBIT 1
Secretary
The Med-Design Corporation
Philadelphia, Pennsylvania
Dear ____________:
FORM OF EXERCISE OF NON-QUALIFIED STOCK OPTIONS
AND INDEPENDENT DIRECTOR'S NON-QUALIFIED STOCK OPTIONS
I wish to exercise Options for _________________ shares of
common stock of The Med-Design Corporation now available to me under the grant
of Options for ______________ shares made to me effective as of _______________,
_____, at $______________ per share pursuant to The Med-Design Corporation
Non-Qualified Stock Option Plan and the Stock Option Agreement, made as of
_____________, _______, between The Med-Design Corporation and me. My check
drawn to the order of The Med-Design Corporation in the amount of
$________________ is attached.
Name:_____________________________________
SS No:____________________________________
Address of Record:_____________________________________________________________
(Street) (City) (State) (Zip)
Please forward my certificate to the following address
_______________________________________________________________________________
(Street) (City) (State) (Zip)
______________________________ ___________________
Signature of Option Holder Date
To be completed by Personnel Manager:
The above individual is a current employee: Yes____ No____
Termination Date_____________________ (if applicable)
______________________________ ___________________
Authorized Corporate Officer Date
16
THE MED-DESIGN CORPORATION
NON-QUALIFIED STOCK OPTION PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made by and
between The Med-Design Corporation, a Delaware corporation (the "Company"), and
John Marr, MD (the "Option Holder"), governing the grant by the Company to the
Option Holder, effective as of June 3, 1996, of a Non-Qualified Stock Option to
purchase an aggregate of 16,000 shares of common stock, $.01 par value, of the
Company under The Med-Design Corporation Non-Qualified Stock Option Plan (the
"Plan"). This Agreement is to replace the original Agreement in that the option
is repriced as hereinafter provided and that original Agreement is hereby
cancelled and void.
ARTICLE I
DEFINITIONS
1.1. In this Agreement, unless the context otherwise requires,
references to the following words shall have the following meanings:
"Board of Directors" shall mean the Board of Directors of the
Company as constituted from time to time.
"Business Day" shall mean a day (other than a Saturday or
Sunday) on which the principal office of the Company in Philadelphia,
Pennsylvania, is open for the conduct of normal business.
"Change in Control" shall mean a change in control of the
Company of a nature that would be required to be reported
<PAGE>
(assuming such event has not been previously reported) to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Exchange Act; provided that, without limiting the foregoing,
a "Change in Control" shall be deemed to have occurred at such time as (a) any
Person (as defined in the Exchange Act) after the date hereof becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 10% or more of the combined voting power to the Company's
outstanding securities ordinarily having the right to vote at elections of
directors ("Voting Securities"), or (b) during any period of two consecutive
years after the date of the initial acquisition by such Person of Voting
Securities of the Company, individuals who constitute the members of the Board
of Directors of the Company on the date of such acquisition, or at the
commencement of any two year period thereafter (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date of such acquisition whose election,
or nomination for election by the Company's shareholders, was approved by a vote
of at least eighty percent (80%) of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without objection to
such nomination) shall be considered as though such person were a member of the
Incumbent Board, or (c) the shareholders of the Company approve a merger or
2
<PAGE>
consolidation of the Company with any other entity other than (i) a merger or
consolidation that would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into Voting Securities of the entity
surviving such merger or consolidation), in combination with Voting Securities
of the Company or such surviving entity held by a trustee or other fiduciary
pursuant to any employee benefit plan of the Company or such surviving entity or
any Subsidiary of the Company or such surviving entity, at least 75% of the
combined voting power of the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person becomes the beneficial owner of
securities of the Company or the entity outstanding immediately after such
merger or consolidation than such Person was the beneficial owner of immediately
prior to such recapitalization, or (d) the shareholders of the Company approve
an agreement for the sale or disposition by the Company of all or substantially
all of the Company's assets.
"Committee" shall mean the Compensation Committee of the Board
of Directors of the Company as constituted by the Board of Directors of the
Company from time to time.
"Company" shall mean The Med-Design Corporation.
3
<PAGE>
"Date of Grant" shall mean the date on which an Option is
granted by the Company pursuant to Article V of the Plan.
"Disability" means permanent and total disability as defined
in Section 422(c)(6) of the Internal Revenue Code of 1986, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as it may be amended from time to time, or any successor act or statue.
"Expiration Date" shall mean the expiration date of the Option
fixed by the Committee and set forth in Section 3.1 of this Agreement.
"Independent Director" shall mean any director of the Company
who is not an employee or officer of the Company or any Subsidiary.
"Market Value," on the Date of Grant of any Option, shall mean
(i) the last sale price (regular way) of the Shares on the Date of Grant or, if
no such sale takes place on such day, the average of the closing bid and asked
prices on the New York Stock Exchange Composite Tape or, if the Shares are not
listed or admitted to trading on the New York Stock Exchange on the Date of
Grant, on the national securities exchange in or nearest the City of New York on
which the Shares are listed or admitted to trading, or (ii) if on the Date of
Grant the Shares are not listed or admitted to trading on any national
securities exchange, the last sale price (regular way) of the Shares on the Date
of Grant or, if no such sale takes place on such day, the
4
<PAGE>
average of the highest reported bid and lowest reported asked prices as
furnished by the National Association of Securities Dealers, Inc. through the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or a similar organization if NASDAQ is no longer reporting such information, or
(iii) if on the Date of Grant the Shares are not quoted by any such
organization, the fair market value of the Shares on the Date of Grant as
determined by the Committee.
"Option" shall mean a right to subscribe for Shares granted to
a Qualified Person pursuant to the Plan.
"Option Holder" shall mean a Qualified Person or a former
Qualified Person who holds an Option.
"Option Shares" shall mean unissued Shares in respect of which
Options are granted.
"Plan" shall mean The Med-Design Corporation Non-Qualified
Stock Option Plan.
"Qualified Person" shall mean any employee or officer of, or
consultant to, the Company or any Subsidiary or any Independent Director of the
Company.
"Retirement" means retirement from active employment with the
Company or any Subsidiary at or after the age established by the Committee from
time to time for purposes of the Plan, or earlier in any particular case with
the consent of the Committee.
"Shares" shall mean the authorized shares of common
stock of the Company.
5
<PAGE>
"Subscription Price" shall mean the price payable for a Share
on the exercise of an Option, as set forth in Section 2.1 hereof and as it may
be adjusted pursuant to Section 8.1 hereof.
"Subsidiary" shall mean any corporation which at the time
qualifies as a subsidiary of the Company under the definition of "subsidiary
corporation" in Section 424(f) of the Internal Revenue Code of 1986, as amended.
"Termination Date" shall mean the first to occur of the dates
described in Article V of this Agreement.
ARTICLE II
CONFIRMATION OF GRANT AND SUBSCRIPTION PRICE
2.1. Subject to the terms and conditions of the Plan, the
provisions of which are hereby made a part of this Agreement, and the return of
this Agreement signed by the Option Holder, the Company hereby confirms its
grant to the Option Holder of an Option to purchase 16,000 Shares at the
Subscription Price of $4.50 Dollars per Share.
ARTICLE III
VESTING
3.1. The schedule for the exercise of the Options granted pursuant to
this Agreement shall be as follows:
No. of Date First Available Expiration Date of
Shares for Exercise Right of Exercise
------ --------------------- ------------------
3200 June 3, 1997 June 3, 2002
3200 June 3, 1998 June 3, 2002
3200 June 3, 1999 June 3, 2002
3200 June 3, 2000 June 3, 2002
3200 June 3, 2001 June 3, 2002
6
<PAGE>
The number of Shares as to which the Option becomes available
for exercise may be purchased after the date first available for exercise
indicated above, subject to the provisions hereof, and at any time prior to the
Expiration Date, subject to prior termination pursuant to Article V.
3.2. Each Option held by a Qualified Person who is not an
Independent Director shall automatically be vested and exercisable in full
(subject to termination pursuant to Section 5.1) if the employment of such
Qualified Person by the Company or any Subsidiary is terminated by the Company
or such Subsidiary (other than by reason of death or Disability) within six (6)
months after the occurrence of any Change in Control.
If the employment of an Option Holder by the Company or any
Subsidiary is terminated (other than by reason of Retirement, death or
Disability), each Option of such Option Holder shall be exercisable prior to its
Expiration Date (subject to Section 5.1) only if, and only to the extent that,
such Option, in accordance with its terms, is vested and exercisable on the date
on which the employment of the Option Holder by the Company or such Subsidiary
is terminated.
3.3. Each Option held by an Independent Director shall
automatically be vested and exercisable in full (subject to termination pursuant
to Section 5.2) if such Independent Director is removed as a director of the
Company (other than by reason of Disability) within six (6) months after the
occurrence of any Change in Control.
7
<PAGE>
ARTICLE IV
EXERCISE OF OPTION
4.1. An Option may be exercised only for full Shares. No
fractional Shares shall be issued.
4.2. No Option may be exercised in whole or in part and the
Company shall not be required to issue or deliver any certificate evidencing
Shares purchasable upon the exercise of any Option prior to fulfillment of all
of the following conditions:
(a) receipt by the Secretary of the Company from the
Option Holder or his executor or administrator of a written notice of exercise
of the Option specifying the number of Shares for which the Option is to be
exercised, substantially in the form set out as Exhibit 1 to such Option
Holder's Stock Option Agreement, together with full payment of the Subscription
Price per Share in United States dollars for each Share for which the Option is
to be exercised;
(b) if the Option is to be exercised by an executor or
administrator of the Option Holder, receipt by the Secretary of the Company from
such executor or administrator of evidence satisfactory to the Company of such
person's right to exercise the Option;
(c) (i) receipt by the Secretary of the Company from the
Option Holder or his executor or administrator of such documents as the Company
shall deem necessary to determine whether registration of the Shares is required
under the
8
<PAGE>
Securities Act of 1933 or to comply with such act or any other law and (ii) the
completion of any such registration or other qualification of such Shares under
any federal or state law or under the rulings or regulations of the Securities
and Exchange Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
(d) receipt by the Company of any approval or other
consent from any federal, state of foreign governmental agency that the
Committee shall in its sole discretion deem necessary or advisable;
(e) if requested by the Company, receipt by the Secretary
of the Company from the Option Holder or his executor or administrator of a
letter representing that the Shares to be acquired upon exercise of the Option
are to be acquired for the account of the Option Holder or for the account of
his executor or administrator for investment and not with a view to distribution
of such Shares; and
(f) for issuance of certificates evidencing Shares for
which the Option has been exercised, the lapse of such reasonable period of time
following the exercise of the Option as the Committee from time to time may
establish for reasons of administrative convenience.
4.3. If notice is duly given of a Resolution for the voluntary
winding up of the Company an Option Holder may forthwith and before the
commencement of the winding-up exercise
9
<PAGE>
his Option up to the full extent to which it remains vested and unexercised (but
so that such exercise shall be conditional upon such Resolution being passed)
provided that an Option shall not be exercisable later than the Termination
Date.
ARTICLE V
TERMINATION OF OPTION
5.1. Except as otherwise stated herein, each Option held by a
Qualified Person other than an Independent Director shall terminate on the first
to occur of the following dates:
(a) The expiration of thirty (30) calendar days after the
date on which the employment of such Qualified Person by the Company or any
Subsidiary is terminated by the Company or such Subsidiary for cause (which
shall not include Disability), except if such termination occurs within six (6)
months after a Change in Control.
(b) The expiration of ninety (90) calendar days after the
date on which the employment of such Qualified Person by the Company or any
Subsidiary is terminated by such Qualified Person (except if such termination
occurs by reason of Retirement, death or Disability).
(c) The Expiration Date.
The granting of an Option to a Qualified Person does not alter
in any way the existing rights of the Company or any Subsidiary to terminate the
employment of such Qualified Person with or without cause and does not create an
actual or implied contract of employment.
10
<PAGE>
If an Option terminates on either of the dates described in
subsections (a) and (b) of this Section 5.1, the Option may be exercised prior
to the Termination Date only if, and only to the extent that, the Option, in
accordance with its terms, is vested and exercisable on the date on which the
employment of the Qualified Person by the Company or any Subsidiary is
terminated.
5.2. Except as otherwise stated herein, each Option held by an
Independent Director shall terminate on the first to occur of the following
dates:
(a) The expiration of thirty (30) calendar days after the
date on which such Independent Director resigns as a director of the Company or
the term of such Independent Director as a director of the Company expires and
such Independent Director is not reelected (in either case, other than by reason
of death or Disability) or after the date on which such Independent Director is
removed as a director by the Company for cause (which shall not include
Disability), except if such termination occurs within six (6) months after the
occurrence of any Change in Control.
(b) The Expiration Date.
If an Option is to terminate pursuant to subsection (a) of
this Section 5.2, the Option may be exercised prior to the Termination Date only
if, and only to the extent that, the Option, in accordance with its terms, is
vested and exercisable on the date on which the Independent Director resigns
11
<PAGE>
or is removed as a director of the Company or the term of such Independent
Director expires.
ARTICLE VI
NON-ASSIGNABILITY
6.1. An Option may not be transferred by the Option Holder
(other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employee Retirement Income Security Act, or
the rules thereunder).
ARTICLE VII
RIGHTS AS SHAREHOLDER
7.1. No Option Holder shall have any rights as a shareholder
with respect to Shares subject to an Option until the date of exercise of such
Option in accordance with the Plan and the issuance of the Shares for which the
Option has been exercised. All Shares acquired by an Option Holder pursuant to
the Plan shall be subject to the restrictions contained in the Certificate of
Incorporation and Bylaws of the Company, as in effect on the date hereof and as
they may be amended or restated from time to time, and (subject thereto) shall
be effective on the date of issue thereof and rank pari passu with the Shares of
the Company then issued and outstanding (including the right to receive all
dividends or other distributions thereafter declared, paid or made by reference
to a record date falling on or after the date of issue thereof). Except for
adjustments to be made to
12
<PAGE>
Options pursuant to the terms of the Plan, no adjustment shall be made for
dividends or other rights that have accrued to shareholders of the Company prior
to the date of issue of such Shares.
ARTICLE VIII
CAPITAL ADJUSTMENTS
8.1. If and to the extent that the number of Shares shall be
increased or reduced by reason of a recapitalization, a reclassification, a
distribution or a dividend payable in stock, a rights issue, a sub-division or
consolidation of Shares or an increase or reduction of capital, then the number
of Shares subject to the Option and Subscription Price per Share shall be
proportionately adjusted. If the Company is reorganized or consolidated or
merged with another entity, the Option Holder shall be entitled to receive an
Option in exchange for this Option, but only if this Option has not terminated
pursuant to 5.1 or 5.2 hereof and only to the extent this Option has not
theretofore been exercised, covering Shares or such other ownership interest of
such reorganized, consolidated, or merged entity in the same proportion, at an
equivalent price, and subject to the same terms and conditions; provided,
however, that the issuance of securities by the Company as consideration for the
acquisition by the Company of securities of another corporation or any other
asset shall not be regarded as a circumstance requiring adjustment.
13
<PAGE>
ARTICLE IX
DISPOSITION OF SHARES
9.1. If the Option Holder disposes of any Shares received upon
exercise of an Option within a one-year period beginning on the day the Shares
were transferred to the Option Holder, the Option Holder shall notify the
Secretary of the Company of the number of, and the date on which, the Shares
were disposed of, the manner of disposition (whether by sale, exchange, gift or
otherwise) and the amount, if any, realized upon such disposition.
ARTICLE X
NOTICE
10.1. All notices to the Secretary of the Company hereunder
shall be in writing and shall be made by personal delivery or by certified mail,
return receipt requested, to the Secretary at the then principal office of the
Company.
ARTICLE XI
INTERPRETATION OF AGREEMENT: GOVERNING LAW
11.1. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware.
14
<PAGE>
IN WITNESS WHEREOF, the Company and the Option Holder have
duly executed this Agreement as of _________________, __________.
ATTEST: THE MED-DESIGN CORPORATION
By:_________________________ By:__________________________
Joseph N. Bongiovanni, III James M. Donegan
Secretary President/CEO
WITNESS: OPTION HOLDER
____________________________ _____________________________
John Marr, MD
15
<PAGE>
EXHIBIT 1
Secretary
The Med-Design Corporation
Philadelphia, Pennsylvania
Dear ____________:
FORM OF EXERCISE OF NON-QUALIFIED STOCK OPTIONS
AND INDEPENDENT DIRECTOR'S NON-QUALIFIED STOCK OPTIONS
I wish to exercise Options for _________________ shares of
common stock of The Med-Design Corporation now available to me under the grant
of Options for ______________ shares made to me effective as of _______________,
_____, at $______________ per share pursuant to The Med-Design Corporation
Non-Qualified Stock Option Plan and the Stock Option Agreement, made as of
_____________, _______, between The Med-Design Corporation and me. My check
drawn to the order of The Med-Design Corporation in the amount of
$________________ is attached.
Name:_____________________________________
SS No:____________________________________
Address of Record:_____________________________________________________________
(Street) (City) (State) (Zip)
Please forward my certificate to the following address
_______________________________________________________________________________
(Street) (City) (State) (Zip)
______________________________ ____________________
Signature of Option Holder Date
To be completed by Personnel Manager:
The above individual is a current employee: Yes____ No____
Termination Date_____________________ (if applicable)
______________________________ ___________________
Authorized Corporate Officer Date
16
AGREEMENT
AGREEMENT MADE THIS DAY OF A.D., 1997 by and between
the Med-Design Corporation, a Delaware Corporation with its principal place of
business in Pennsylvania, MDC Research Ltd., a California Corporation with
principal place of business in Ventura, California on the one part, hereinafter
collectively referred to as the "Companies" and John Botich, hereinafter
referred to as the "Consultant":
RECITALS
WHEREAS, Consultant and Companies have previously entered into a
written Employment Agreement dated April 5, 1995, the terms of which are hereby
incorporated by reference; and
WHEREAS, The parties wish to terminate said Agreement providing
full-time employment for Consultant with the Companies as Executive Vice
President and Chief Operating Officer; and
WHEREAS, The parties wish to enter into a new agreement the
terms of which are hereinafter set forth;
In consideration of the foregoing and the mutual promises and
undertakings hereinafter set forth the parties agree as follows:
<PAGE>
1. INCORPORATION. The provisions of the Employment Agreement dated
April 5, 1995 are hereby incorporated by reference into this Agreement to the
extent that they are not inconsistent with the provisions hereinafter set forth.
2. RESIGNATION. Effective August 1, 1997, Consultant hereby tenders his
resignation as Executive Vice President and Chief Operating Officer of both
Companies. The Companies accept his resignation with grateful appreciation for
his years of faithful services.
3. DIRECTOR. The resignation of Consultant in no way effects his status
as Director of the Companies and he will continue to serve in that capacity for
the duration of his election with respect to the Med-Design Corporation and his
appointment with respect to MDC Research Ltd.
4. CONSULTANCY. Consultant agrees to work for the Companies as a
consultant for six months following his resignation. Consultant shall work up to
twenty hours per week.
5. COMPENSATION. Fifty Thousand Dollars shall be paid to the Consultant
by regular bi-weekly payments. The health insurance that was previously been
afforded to Consultant will be continued and maintained during the six months.
<PAGE>
6. OVERTIME. Should Consultant work less than twenty hours in a given
week, the balance of the twenty hour obligation shall be carried forward. Should
Consultant believe that it is necessary for him to work more than twenty hours
in a given week, and only with the advance written authorization of James M.
Donegan, he shall be paid an overtime rate of $75.00 per hour for such overtime
hours worked.
7. OPTION TO EXTEND. At the expiration of said six months time period,
the Companies, at their option, may extend the consultation period for an
additional six months for an additional payment of Fifty Thousand Dollars and
the continuation of health benefits. In the event that the company elects to
renew the consultancy arrangement for an additional six months under said terms,
Consultant agrees to accept said employment.
8. DUTIES. The Consultant shall make himself available to consult with
the Board of Directors, the officers of the Companies and the department heads
of the administrative staff at reasonable times concerning matters pertaining to
the organization of the administrative staff, the fiscal policy of the
Companies, the relationship of the Companies with its employees and in general
the important problems and concerns in the business affairs of the Companies.
Consultant shall assist with strategic planning and negotiation with potential
licensees, joint ventures or contract manufacturers and with such projects as
the Companies may from time to time assign to him.
<PAGE>
9. LOCATION AND SUPPORT. The Consultant shall perform services for the
Companies either at the facilities in Ventura, California, at Consultant's own
facilities or at such other locations as the Companies may direct, as
appropriate to the tasks being performed. The Companies shall make available to
Consultant the office space, furnishings, and a computer work station as
required for the performance of a Consultant's work. The Companies shall provide
secretarial and other support services deemed necessary by the Companies for the
performance of Consultant's work.
10. TRAVEL EXPENSES. To the extent that Consultant is required by the
Companies to travel, his attendant expenses shall be paid by the Companies in
accordance with its policies for travel by officers.
11. RESTRICTIONS. All provisions of his previous full-time employment
contract with respect to non-competition confidentiality and ownership of
patents or other intellectual property by the Companies are hereby ratified and
reaffirmed.
12. CONSTRUCTION. The parties agree that this contract will be
interpreted in accordance with the laws of the Commonwealth of Pennsylvania.
13. ARBITRATION. Any claim or controversy arising out of or relating to
this Agreement, or the breach hereof, shall be settled
<PAGE>
and determined by binding arbitration in Philadelphia, Pennsylvania in
accordance with the then current rules of the American Arbitration Association,
and a non-appealable judgment upon the award rendered by the arbitrators may be
entered in and specifically enforced by any court having jurisdiction.
14. WHOLE AGREEMENT. This Agreement, including the terms of the prior
Agreement which have been incorporated by reference constitutes the sole and
only Agreement of the parties and supersedes any prior understanding or written
or oral Agreements between the parties respecting its subject matter.
15. MODIFICATION. The terms of this Agreement cannot be changed,
altered or abrogated except in a written document signed by the parties.
The undersigned hereby set their hands and seals to this Agreement on
the above written date with full knowledge of its contents and intending thereby
to be legally bound.
ATTEST: THE MED-DESIGN CORPORATION
- ----------------------------- -------------------------------
BY: James M. Donegan, President
ATTEST: MDC RESEARCH LTD.
- ----------------------------- -------------------------------
BY:
- ----------------------------- -------------------------------
WITNESS BY: John Botich, Consultant
WARRANT NO. _____
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK UNDERLYING THIS
WARRANT OF THE MED-DESIGN CORPORATION (THE "COMPANY") HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN
OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
WARRANT OR SHARES MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Warrant to Purchase up to 100,000 Shares of Common Stock issued to replace the
Warrant issued on March 19, 1997, that original Warrant now being cancelled and
void.
WARRANT TO PURCHASE COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, John F. Kelley (the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant, from The Med-Design Corporation, a Delaware Corporation (the
"Company"), one hundred thousand (100,000) fully paid, validly issued and
nonassessable shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company (the "Warrant Shares") at a price equal to 2 & 7/8 per
share (the "Exercise Price").
(1) EXERCISE OF WARRANT.
(A) This Warrant may be exercised in whole or in part at any
time or from time to time on or after the date hereof and until March 19, 2000
(the "Expiration Date"), provided, however, that if any such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and
<PAGE>
accompanied by payment of the Exercise Price of the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
Warrant, but not later than seven (7) days from the date of such exercise, the
Company shall issue and deliver to the Warrantholder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Warrantholder. If this Warrant should be exercised in part only,
the Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Warrantholder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Warrantholder shall
be deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Warrantholder.
(B) In the event the Company shall at any time subdivide,
combine or reclassify the outstanding shares of Common Stock, the number of
Warrant Shares subject to this Warrant shall be adjusted accordingly and the
Exercise Price shall forthwith be proportionately decreased in the case of a
subdivision or increased in the case of a combination.
(2) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrant.
(3) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(4) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Warrantholder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the Warrantholder thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company at its principal office or at the office of its stock transfer agent, if
any, with the Assignment Form annexed hereto duly executed and funds sufficient
to pay any transfer tax the Company shall, without charge, subject to the
restrictions set forth in Section (5), execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment and this Warrant
shall promptly be canceled. This Warrant may be divided or combined with other
warrants which carry
2
<PAGE>
the same rights upon presentation hereof at the principal office of the Company
or at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Warrantholder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
(5) RESTRICTIONS ON TRANSFER. This Warrant and all rights hereunder are
transferrable, in whole or in part, only to the Company by the Warrantholder in
person or by a duly authorized attorney except as set forth in Subparagraph (A).
(A) Restrictions in General. Prior to any Transfer (as defined
below) of this Warrant or the Warrant Shares, the Warrantholder will give ten
(10) days' written notice to the Company of such Warrantholder's intention to
effect such Transfer. Each such notice shall describe the manner and
circumstances of the proposed Transfer and shall be accompanied by an opinion,
addressed to the Company and reasonably satisfactory in form and substance to
it, of counsel for such Warrantholder, stating whether, in the opinion of such
counsel, such Transfer will be a transaction exempt from registration under the
Securities Act and applicable state securities laws. If such Transfer may in the
opinion of such counsel be effected without registration under the Securities
Act and applicable state securities laws, such Warrantholder shall thereupon be
entitled to Transfer this Warrant and the Warrant Shares in accordance with the
terms of the notice delivered by such Warrantholder to the Company. If in the
opinion of such counsel such Transfer may not be effected without registration
under the Securities Act, such Warrantholder shall not be entitled to so
Transfer this Warrant or the Warrant Shares unless the Company elects or is
obligated under Section (7) to file a registration statement relating to such
proposed Transfer and such registration statement has become effective under the
Securities Act and applicable state securities laws.
(B) "Transfer" means, with respect to the Warrants, the
Warrant Shares, or any interest therein, any disposition which would constitute
a sale thereof within the meaning of the Securities Act.
(6) RIGHTS OF THE WARRANTHOLDER. The Warrantholder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights
3
<PAGE>
of the Warrantholder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
(7) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Company shall,
for a period of five (5) years from the date of the Warrant herein granted,
advise the Warrantholder or any then holder of Warrant Shares (such persons
being collectively referred to herein as "Warrantholders") by written notice at
least thirty (30) days prior to the filing of any registration statement (other
than a registration effected solely to implement a transaction of the type for
which form S-4 or form S-8 or any successor form is available) with the
Securities and Exchange Commission (the "Commission") under the Securities Act
covering securities of the Company. Each filing notice shall offer to the
Warrantholder the opportunity to include such number of shares as it may request
in the registration statement to which the filing notice relates and shall
advise the Warrantholder whether or not such registration statement is intended
to cover an underwritten public offering (an "Underwritten Offering"). If the
Warrantholder desires to have his shares included in a registration statement,
he shall so advise the Company in writing (a "Registration Request") within ten
(10) days after the date of receipt of the related filing notice, which
Registration Request shall set forth the number of shares for which registration
is requested. Subject to the provisions of Section (8) of this Agreement, the
Company shall include in a registration statement all shares for which it has
timely received a Registration Request.
Notwithstanding anything to the contrary herein, the Company shall have
the right at any time (irrespective of whether a written Registration Request
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.
(8) UNDERWRITTEN OFFERINGS.
(A) Participation and Limitations. If a registration statement
is for an Underwritten Offering, the right of Warrantholder to registration
pursuant to Section (7) hereof shall be conditioned upon (1) the Warrantholder's
participation in such Underwritten Offering and the inclusion of Warrantholder's
Warrant Shares in the Underwritten Offering to the extent provided herein and
(2) the execution and delivery by Warrantholder of an underwriting agreement in
customary form with the underwriter or underwriters selected by the Company to
manage such Underwritten Offering (individually or collectively, the
"Underwriter"). If the Underwriter determines that the inclusion of Warrant
Shares in such Underwritten Offering would adversely affect the success of such
offering, then the amount of securities to be included in the Underwritten
Offering shall, subject to then existing agreements to
4
<PAGE>
which the Company is presently a party concerning the registration of Common
Stock, be as follows: (1) first, the number of shares of Common Stock to be
offered and sold for the account of the Company (up to the maximum number of
shares of Common Stock as determined by the Underwriter) and (2) second, if
additional shares of Common Stock may then be included in such Underwritten
Offering, such additional number of shares of Common Stock to be offered and
sold for the account of the Warrantholders, which (a) together with the shares
of Common Stock to be offered and sold for the account of the Company shall not
exceed the maximum number of shares of Common Stock as determined by the
Underwriter and (b) shall be allocated among the Warrantholders pro rata based
upon the aggregate number of Warrant Shares requested by each such Warrantholder
to be included in such Underwritten Offering. In addition, the number of Shares
to be included in any Underwritten Offering may, in the discretion of the
Company or the Underwriter, be rounded to the nearest one hundred (100) shares.
If a Warrantholder disapproves of the terms of such Underwritten Offering, then
he may elect to withdraw therefrom by written notice to the Company and the
Underwriter at any time prior to the date on which the registration statement
therefore is declared effective by the Commission (a "Withdrawal Notice"). Any
Shares subject to a Withdrawal Notice shall be withdrawn and excluded from the
registration statement for the Underwritten Offering to which the Withdrawal
Notice relates.
(B) Restrictions on Sales of Shares. If Warrant Shares are
covered by a registration statement for an Underwritten Offering, Warrantholder
agrees, if requested by the Underwriter and timely notified in writing by the
Company or the Underwriter, not to effect any public sale or distribution of
Shares (including a sale pursuant to Rule 144 under the Securities Act) except
as part of such Underwritten Offering during the period commencing on the tenth
day prior to the closing date for such Underwritten Offering and ending on the
forty-sixth day after such closing date.
(9) REGISTRATION PROCEDURES. In the case of each registration of
securities covered by Section (7) hereof (each a "Registration") for which
Warrantholder has timely delivered a Registration Request and has not delivered
a Withdrawal Notice, the Company will keep Warrantholder advised in writing of
the initiation and completion of such registration and will take the following
actions at its own expense:
(A) prepare and file with the Commission a registration
statement for such Shares as are entitled to be included therein, use its best
efforts to cause such registration statement to become effective, and, upon the
request of Warrantholder, keep such registration statement effective for not
less than ninety (90) days;
(B) prepare and file with the Commission such
5
<PAGE>
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(C) furnish to Warrantholder at least one (1) copy of the
registration statement and any post-effective amendments thereto and such number
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, as he may reasonably request;
(D) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by
Warrantholder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction;
(E) in any Underwritten Offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the Underwriter;
(F) promptly notify Warrantholder at any time when a
prospectus relating to such registration statement is required to be delivered
under the Securities Act because of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an 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
not misleading in the light of the circumstances then existing; and
(G) bear the entire cost and expense of any registration of
securities initiated by it under Section (9)(A) notwithstanding that Warrant
Shares subject to this Warrant may be included in any such registration
statement pursuant to this Section (9) Warrantholder shall, however, bear the
fees of his own counsel and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to the Warrant Shares sold by
it pursuant thereto.
The Company's agreements with respect to Warrants or Warrant Shares in
Section (7), (8) and (9) shall continue in effect as provided therein regardless
of the exercise and surrender of this Warrant.
(10) WARRANTHOLDER NOT OBLIGATED. Neither the giving of any notice by
any Warrantholder nor the making of any request for prospectuses shall impose
any obligation to sell any Warrant Shares, or exercise any Warrants upon such
Warrantholder or owner making such request.
6
<PAGE>
(11) INDEMNIFICATION.
(A) The Company shall indemnify and hold harmless each such
Warrantholder and each Underwriter, within the meaning of the Securities Act,
who may purchase from or sell for any such Warrantholder any Warrant Shares from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement or any post-effective amendment thereto or any
registration statement under the Securities Act or any prospectus included
therein required to be filed or furnished by reason of Section (7) or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished or required to be furnished in writing
to the Company by such Warrantholder or Underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls any such
person within the meaning of the Securities Act; provided however, that the
Company shall not be obliged so to indemnify any such Underwriter or controlling
person unless such Underwriter shall at the same time indemnify the Company, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any and all losses, claims, damages and liabilities caused
by any untrue statement or alleged untrue statement of a material fact contained
in the registration statement or amendments thereto or any prospectus required
to be filed or furnished by reason of Section (7) or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
alleged untrue statement or omission based upon information furnished in writing
to the Company by any such Underwriter expressly for use therein.
(B) Warrantholder will, if Shares are included in the
securities as to which such Registration is being effected, indemnify the
Company, each of its directors and officers, each Underwriter of securities
covered by such a registration statement, and each person who controls the
Company or such Underwriter within the meaning of Section 15 of the Securities
Act against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, whether commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, any prospectus, offering circular or other
document related thereto, or any amendment or supplement to any of the
foregoing, or any omission (or alleged omission) to state therein
7
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
directors, officers, persons, Underwriter or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by Warrantholder and stated to be specifically for use therein;
(C) Each party entitled to indemnification or contribution
under this Section (11) (an "Indemnified Party") shall give notice to the party
required to provide indemnification (an "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section (11), unless such
failure is prejudicial to the Indemnifying Party's ability to defend such
action. An Indemnifying Party, in the defense of any such claim or litigation,
shall not except with the consent of each Indemnified Party, consent to entry of
any judgement or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(D) If the indemnification provided herein is unavailable to
an Indemnified Party in respect of any losses, claims, damages or liabilities
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and Warrantholder from the offering or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the benefits referred to
in clause (i), but also the relative fault of the Company and Warrantholder in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and Warrantholder
shall be deemed to be in the same
8
<PAGE>
respective proportions as the net proceeds from the offering (before deducting
expenses) received by each of the Company and Warrantholder. The relative fault
of Warrantholder shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Warrantholder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(12) NO LIMITATION ON CORPORATE ACTION. No provisions of this Warrant
and no right or option granted or conferred hereunder shall in any way limit,
affect, or abridge the exercise by the Company of its corporate rights or powers
to recapitalize, amend its articles or incorporation or bylaws, reorganize,
consolidate or merge with or into any corporation, or transfer all or any part
of its property or assets or the exercise of any other of its corporate rights
and powers.
(13) REPRESENTATION OF WARRANTHOLDER. Warrantholder, by the acceptance
hereof, represents that it is acquiring this Warrant for its own account for
investment and not with a view to, or sale in connection with, any distribution
hereof or of any of the Warrant Shares issuable upon the exercise hereof, nor
with the present intention of distributing any of such securities.
(14) RESTRICTIVE LEGEND. Each certificate representing Warrant Shares
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Securities Act, shall bear the
following legend (and any additional legend required by any applicable state
securities laws) on the face thereof:
The securities represented hereby have not been
registered under the Securities Act of 1933 and the
transfer of such securities is subject to the
restrictions set forth in Section (5) of the Warrant
delivered to the registered Warrantholder thereof, a
copy of which is available for inspection at the
principal office and no transfer of such securities
shall be valid or effective unless and until the
terms and conditions of such Section (5) shall have
been in satisfied.
Any certificate issued at any time upon transfer or, or in exchange for
or replacement of, any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution pursuant to a registration under
the Securities Act) shall also bear such legend unless, in the opinion of
counsel for
9
<PAGE>
the Warrantholder, addressed and delivered to the Company, which opinion shall
be in a form reasonably satisfactory and acceptable to the Company and such
Warrantholder, the securities represented thereby need no longer be subject to
the restrictions contained in Section (5). The provisions of this Warrant shall
be binding upon all subsequent Warrantholders of certificates bearing the legend
hereinbefore described and shall also be applicable to all subsequent
Warrantholders.
(15) GOVERNING LAW. This Warrant shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws.
(16) NOTICE. All notices and other communications under this Warrant
shall (a) be in writing (which shall include communications by telex and
telecopy), (b) be (i) sent by registered or certified mail, postage prepaid, or
by a reputable overnight courier (ii) delivered by hand or (iii) transmitted by
telex or telecopier (c) be given at the following respective addresses and
telex, telecopier and telephone numbers and to the attention of the following
persons:
If the Company, to it at:
The Med-Design Corporation
2810 Bunsen Avenue
Ventura, CA 93003
Telecopier No.: (805) 339-9375
Telephone No.: (805) 339-0375
Attn: James M. Donegan
If the Warrantholder, to it at:
John F. Kelley
6 Hathaway Drive
Princeton Junction, NJ 08550
Telecopier No.: (609) 275-8865
Telephone No.: (609) 275-9163
or at such other address or telex, telecopier or telephone number or to the
attention of such other person as the party to whom such information pertains
may hereafter specify for the purpose in a notice to the other specifically
captioned "Notice of Change of Address", and (d) be effective or deemed
delivered or furnished (i) if given by mail, on the fifth (5th) Business Day
after such communication is deposited in the mail, addressed as above provided,
(ii) if given by telex or telecopier, when such communication is transmitted to
the appropriate number determined
10
<PAGE>
as above provided in this Section and the appropriate answer back is received or
receipt is otherwise acknowledged, (iii) if given by hand delivery, when left at
the address of the addressee addressed as above provided, and (iv) if sent by
overnight courier, the day after the communication is delivered to such carrier
except that notices of a change of address, telex, telecopier or telephone
number, shall not be deemed furnished, until received.
(17) MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
(18) DATE AND EFFECTIVENESS. The effective date of this Warrant is
March 19, 1997, although it has been issued as of January 14, 1998. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, unless the Warrant shall have been exercised,
in which case this Agreement shall terminate on the third anniversary of the
date of the exercise or partial exercise of the Warrant herein granted except as
provided in Sections (7) and (9).
The undersigned hereby set their hands and seals to this Warrant
Agreement with full knowledge of its contents and intending thereby to be
legally bound.
ATTEST: THE MED-DESIGN CORPORATION
By:____________________________ By:_____________________________
Secretary James M. Donegan
President, CEO
WITNESS:
______________________________ _______________________________
John F. Kelley
DATED:
11
<PAGE>
PURCHASE FORM
Dated____________
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing __________ shares of Common Stock and
hereby makes payment of ___________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Signature________________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________________________
hereby sells, assigns and transfers unto
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ________________ Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Date:________________
Signature_________________________
12
WARRANT NO. _____
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK UNDERLYING THIS
WARRANT OF THE MED-DESIGN CORPORATION (THE "COMPANY") HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN
OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
WARRANT OR SHARES MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Warrant to Purchase up to 100,000 Shares of Common Stock issued to replace the
Warrant issued on October 10, 1997, that original Warrant now being cancelled
and void.
WARRANT TO PURCHASE COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, John F. Kelley (the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant, from The Med-Design Corporation, a Delaware Corporation (the
"Company"), one hundred thousand (100,000) fully paid, validly issued and
nonassessable shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company (the "Warrant Shares") at a price equal to 2 & 7/8 per
share (the "Exercise Price").
(1) EXERCISE OF WARRANT.
(A) This Warrant may be exercised in whole or in part at any
time or from time to time on or after the date hereof and until October 10, 2000
(the "Expiration Date"), provided, however, that if any such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and
<PAGE>
accompanied by payment of the Exercise Price of the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
Warrant, but not later than seven (7) days from the date of such exercise, the
Company shall issue and deliver to the Warrantholder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Warrantholder. If this Warrant should be exercised in part only,
the Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Warrantholder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Warrantholder shall
be deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Warrantholder.
(B) In the event the Company shall at any time subdivide,
combine or reclassify the outstanding shares of Common Stock, the number of
Warrant Shares subject to this Warrant shall be adjusted accordingly and the
Exercise Price shall forthwith be proportionately decreased in the case of a
subdivision or increased in the case of a combination.
(2) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrant.
(3) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(4) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Warrantholder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the Warrantholder thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company at its principal office or at the office of its stock transfer agent, if
any, with the Assignment Form annexed hereto duly executed and funds sufficient
to pay any transfer tax the Company shall, without charge, subject to the
restrictions set forth in Section (5), execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment and this Warrant
shall promptly be canceled. This Warrant may be divided or combined with other
warrants which carry
2
<PAGE>
the same rights upon presentation hereof at the principal office of the Company
or at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Warrantholder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
(5) RESTRICTIONS ON TRANSFER. This Warrant and all rights hereunder are
transferrable, in whole or in part, only to the Company by the Warrantholder in
person or by a duly authorized attorney except as set forth in Subparagraph (A).
(A) Restrictions in General. Prior to any Transfer (as defined
below) of this Warrant or the Warrant Shares, the Warrantholder will give ten
(10) days' written notice to the Company of such Warrantholder's intention to
effect such Transfer. Each such notice shall describe the manner and
circumstances of the proposed Transfer and shall be accompanied by an opinion,
addressed to the Company and reasonably satisfactory in form and substance to
it, of counsel for such Warrantholder, stating whether, in the opinion of such
counsel, such Transfer will be a transaction exempt from registration under the
Securities Act and applicable state securities laws. If such Transfer may in the
opinion of such counsel be effected without registration under the Securities
Act and applicable state securities laws, such Warrantholder shall thereupon be
entitled to Transfer this Warrant and the Warrant Shares in accordance with the
terms of the notice delivered by such Warrantholder to the Company. If in the
opinion of such counsel such Transfer may not be effected without registration
under the Securities Act, such Warrantholder shall not be entitled to so
Transfer this Warrant or the Warrant Shares unless the Company elects or is
obligated under Section (7) to file a registration statement relating to such
proposed Transfer and such registration statement has become effective under the
Securities Act and applicable state securities laws.
(B) "Transfer" means, with respect to the Warrants, the
Warrant Shares, or any interest therein, any disposition which would constitute
a sale thereof within the meaning of the Securities Act.
(6) RIGHTS OF THE WARRANTHOLDER. The Warrantholder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights
3
<PAGE>
of the Warrantholder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
(7) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Company shall,
for a period of five (5) years from the date of the Warrant herein granted,
advise the Warrantholder or any then holder of Warrant Shares (such persons
being collectively referred to herein as "Warrantholders") by written notice at
least thirty (30) days prior to the filing of any registration statement (other
than a registration effected solely to implement a transaction of the type for
which form S-4 or form S-8 or any successor form is available) with the
Securities and Exchange Commission (the "Commission") under the Securities Act
covering securities of the Company. Each filing notice shall offer to the
Warrantholder the opportunity to include such number of shares as it may request
in the registration statement to which the filing notice relates and shall
advise the Warrantholder whether or not such registration statement is intended
to cover an underwritten public offering (an "Underwritten Offering"). If the
Warrantholder desires to have his shares included in a registration statement,
he shall so advise the Company in writing (a "Registration Request") within ten
(10) days after the date of receipt of the related filing notice, which
Registration Request shall set forth the number of shares for which registration
is requested. Subject to the provisions of Section (8) of this Agreement, the
Company shall include in a registration statement all shares for which it has
timely received a Registration Request.
Notwithstanding anything to the contrary herein, the Company shall have
the right at any time (irrespective of whether a written Registration Request
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.
(8) UNDERWRITTEN OFFERINGS.
(A) Participation and Limitations. If a registration statement
is for an Underwritten Offering, the right of Warrantholder to registration
pursuant to Section (7) hereof shall be conditioned upon (1) the Warrantholder's
participation in such Underwritten Offering and the inclusion of Warrantholder's
Warrant Shares in the Underwritten Offering to the extent provided herein and
(2) the execution and delivery by Warrantholder of an underwriting agreement in
customary form with the underwriter or underwriters selected by the Company to
manage such Underwritten Offering (individually or collectively, the
"Underwriter"). If the Underwriter determines that the inclusion of Warrant
Shares in such Underwritten Offering would adversely affect the success of such
offering, then the amount of securities to be included in the Underwritten
Offering shall, subject to then existing agreements to
4
<PAGE>
which the Company is presently a party concerning the registration of Common
Stock, be as follows: (1) first, the number of shares of Common Stock to be
offered and sold for the account of the Company (up to the maximum number of
shares of Common Stock as determined by the Underwriter) and (2) second, if
additional shares of Common Stock may then be included in such Underwritten
Offering, such additional number of shares of Common Stock to be offered and
sold for the account of the Warrantholders, which (a) together with the shares
of Common Stock to be offered and sold for the account of the Company shall not
exceed the maximum number of shares of Common Stock as determined by the
Underwriter and (b) shall be allocated among the Warrantholders pro rata based
upon the aggregate number of Warrant Shares requested by each such Warrantholder
to be included in such Underwritten Offering. In addition, the number of Shares
to be included in any Underwritten Offering may, in the discretion of the
Company or the Underwriter, be rounded to the nearest one hundred (100) shares.
If a Warrantholder disapproves of the terms of such Underwritten Offering, then
he may elect to withdraw therefrom by written notice to the Company and the
Underwriter at any time prior to the date on which the registration statement
therefore is declared effective by the Commission (a "Withdrawal Notice"). Any
Shares subject to a Withdrawal Notice shall be withdrawn and excluded from the
registration statement for the Underwritten Offering to which the Withdrawal
Notice relates.
(B) Restrictions on Sales of Shares. If Warrant Shares are
covered by a registration statement for an Underwritten Offering, Warrantholder
agrees, if requested by the Underwriter and timely notified in writing by the
Company or the Underwriter, not to effect any public sale or distribution of
Shares (including a sale pursuant to Rule 144 under the Securities Act) except
as part of such Underwritten Offering during the period commencing on the tenth
day prior to the closing date for such Underwritten Offering and ending on the
forty-sixth day after such closing date.
(9) REGISTRATION PROCEDURES. In the case of each registration of
securities covered by Section (7) hereof (each a "Registration") for which
Warrantholder has timely delivered a Registration Request and has not delivered
a Withdrawal Notice, the Company will keep Warrantholder advised in writing of
the initiation and completion of such registration and will take the following
actions at its own expense:
(A) prepare and file with the Commission a registration
statement for such Shares as are entitled to be included therein, use its best
efforts to cause such registration statement to become effective, and, upon the
request of Warrantholder, keep such registration statement effective for not
less than ninety (90) days;
(B) prepare and file with the Commission such
5
<PAGE>
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(C) furnish to Warrantholder at least one (1) copy of the
registration statement and any post-effective amendments thereto and such number
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, as he may reasonably request;
(D) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by
Warrantholder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction;
(E) in any Underwritten Offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the Underwriter;
(F) promptly notify Warrantholder at any time when a
prospectus relating to such registration statement is required to be delivered
under the Securities Act because of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an 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
not misleading in the light of the circumstances then existing; and
(G) bear the entire cost and expense of any registration of
securities initiated by it under Section (9)(A) notwithstanding that Warrant
Shares subject to this Warrant may be included in any such registration
statement pursuant to this Section (9) Warrantholder shall, however, bear the
fees of his own counsel and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to the Warrant Shares sold by
it pursuant thereto.
The Company's agreements with respect to Warrants or Warrant Shares in
Section (7), (8) and (9) shall continue in effect as provided therein regardless
of the exercise and surrender of this Warrant.
(10) WARRANTHOLDER NOT OBLIGATED. Neither the giving of any notice by
any Warrantholder nor the making of any request for prospectuses shall impose
any obligation to sell any Warrant Shares, or exercise any Warrants upon such
Warrantholder or owner making such request.
6
<PAGE>
(11) INDEMNIFICATION.
(A) The Company shall indemnify and hold harmless each such
Warrantholder and each Underwriter, within the meaning of the Securities Act,
who may purchase from or sell for any such Warrantholder any Warrant Shares from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement or any post-effective amendment thereto or any
registration statement under the Securities Act or any prospectus included
therein required to be filed or furnished by reason of Section (7) or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished or required to be furnished in writing
to the Company by such Warrantholder or Underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls any such
person within the meaning of the Securities Act; provided however, that the
Company shall not be obliged so to indemnify any such Underwriter or controlling
person unless such Underwriter shall at the same time indemnify the Company, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any and all losses, claims, damages and liabilities caused
by any untrue statement or alleged untrue statement of a material fact contained
in the registration statement or amendments thereto or any prospectus required
to be filed or furnished by reason of Section (7) or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
alleged untrue statement or omission based upon information furnished in writing
to the Company by any such Underwriter expressly for use therein.
(B) Warrantholder will, if Shares are included in the
securities as to which such Registration is being effected, indemnify the
Company, each of its directors and officers, each Underwriter of securities
covered by such a registration statement, and each person who controls the
Company or such Underwriter within the meaning of Section 15 of the Securities
Act against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, whether commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, any prospectus, offering circular or other
document related thereto, or any amendment or supplement to any of the
foregoing, or any omission (or alleged omission) to state therein
7
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
directors, officers, persons, Underwriter or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by Warrantholder and stated to be specifically for use therein;
(C) Each party entitled to indemnification or contribution
under this Section (11) (an "Indemnified Party") shall give notice to the party
required to provide indemnification (an "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section (11), unless such
failure is prejudicial to the Indemnifying Party's ability to defend such
action. An Indemnifying Party, in the defense of any such claim or litigation,
shall not except with the consent of each Indemnified Party, consent to entry of
any judgement or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(D) If the indemnification provided herein is unavailable to
an Indemnified Party in respect of any losses, claims, damages or liabilities
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and Warrantholder from the offering or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the benefits referred to
in clause (i), but also the relative fault of the Company and Warrantholder in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and Warrantholder
shall be deemed to be in the same
8
<PAGE>
respective proportions as the net proceeds from the offering (before deducting
expenses) received by each of the Company and Warrantholder. The relative fault
of Warrantholder shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Warrantholder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(12) NO LIMITATION ON CORPORATE ACTION. No provisions of this Warrant
and no right or option granted or conferred hereunder shall in any way limit,
affect, or abridge the exercise by the Company of its corporate rights or powers
to recapitalize, amend its articles or incorporation or bylaws, reorganize,
consolidate or merge with or into any corporation, or transfer all or any part
of its property or assets or the exercise of any other of its corporate rights
and powers.
(13) REPRESENTATION OF WARRANTHOLDER. Warrantholder, by the acceptance
hereof, represents that it is acquiring this Warrant for its own account for
investment and not with a view to, or sale in connection with, any distribution
hereof or of any of the Warrant Shares issuable upon the exercise hereof, nor
with the present intention of distributing any of such securities.
(14) RESTRICTIVE LEGEND. Each certificate representing Warrant Shares
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Securities Act, shall bear the
following legend (and any additional legend required by any applicable state
securities laws) on the face thereof:
The securities represented hereby have not been registered under
the Securities Act of 1933 and the transfer of such securities is
subject to the restrictions set forth in Section (5) of the
Warrant delivered to the registered Warrantholder thereof, a copy
of which is available for inspection at the principal office and
no transfer of such securities shall be valid or effective unless
and until the terms and conditions of such Section (5) shall have
been in satisfied.
Any certificate issued at any time upon transfer or, or in exchange for
or replacement of, any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution pursuant to a registration under
the Securities Act) shall also bear such legend unless, in the opinion of
counsel for
9
<PAGE>
the Warrantholder, addressed and delivered to the Company, which opinion shall
be in a form reasonably satisfactory and acceptable to the Company and such
Warrantholder, the securities represented thereby need no longer be subject to
the restrictions contained in Section (5). The provisions of this Warrant shall
be binding upon all subsequent Warrantholders of certificates bearing the legend
hereinbefore described and shall also be applicable to all subsequent
Warrantholders.
(15) GOVERNING LAW. This Warrant shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws.
(16) NOTICE. All notices and other communications under this Warrant
shall (a) be in writing (which shall include communications by telex and
telecopy), (b) be (i) sent by registered or certified mail, postage prepaid, or
by a reputable overnight courier (ii) delivered by hand or (iii) transmitted by
telex or telecopier (c) be given at the following respective addresses and
telex, telecopier and telephone numbers and to the attention of the following
persons:
If the Company, to it at:
The Med-Design Corporation
2810 Bunsen Avenue
Ventura, CA 93003
Telecopier No.: (805) 339-9375
Telephone No.: (805) 339-0375
Attn: James M. Donegan
If the Warrantholder, to it at:
John F. Kelley
6 Hathaway Drive
Princeton Junction, NJ 08550
Telecopier No.: (609) 275-8865
Telephone No.: (609) 275-9163
or at such other address or telex, telecopier or telephone number or to the
attention of such other person as the party to whom such information pertains
may hereafter specify for the purpose in a notice to the other specifically
captioned "Notice of Change of Address", and (d) be effective or deemed
delivered or furnished (i) if given by mail, on the fifth (5th) Business Day
after such communication is deposited in the mail, addressed as above provided,
(ii) if given by telex or telecopier, when such communication is transmitted to
the appropriate number determined
10
<PAGE>
as above provided in this Section and the appropriate answer back is received or
receipt is otherwise acknowledged, (iii) if given by hand delivery, when left at
the address of the addressee addressed as above provided, and (iv) if sent by
overnight courier, the day after the communication is delivered to such carrier
except that notices of a change of address, telex, telecopier or telephone
number, shall not be deemed furnished, until received.
(17) MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
(18) DATE AND EFFECTIVENESS. The effective date of this Warrant is
October 10, 1997, although it has been issued as of January 14, 1998. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, unless the Warrant shall have been exercised,
in which case this Agreement shall terminate on the third anniversary of the
date of the exercise or partial exercise of the Warrant herein granted except as
provided in Sections (7) and (9).
The undersigned hereby set their hands and seals to this Warrant
Agreement with full knowledge of its contents and intending thereby to be
legally bound.
ATTEST: THE MED-DESIGN CORPORATION
By: By:
------------------------------ ----------------------------
Secretary James M. Donegan
President, CEO
WITNESS:
- --------------------------------- ----------------------------
John F. Kelley
DATED:
11
<PAGE>
PURCHASE FORM
Dated____________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and hereby
makes payment of ___________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Signature________________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________________
hereby sells, assigns and transfers unto
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ________________ Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Date:________________
Signature_________________________
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 1
This schedule contains summary financial information extracted from The
Med-Design Corporation and subsidiaries Consolidated Statement of Operations for
the year ended December 31, 1997 and balance sheet as at December 31, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 114,079
<SECURITIES> 6,163,875
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,430,501
<PP&E> 1,588,262
<DEPRECIATION> 406,781
<TOTAL-ASSETS> 8,293,030
<CURRENT-LIABILITIES> 5,248,988
<BONDS> 154,674
0
0
<COMMON> 79,516
<OTHER-SE> 2,809,852
<TOTAL-LIABILITY-AND-EQUITY> 8,293,030
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421,967
<INCOME-PRETAX> (5,219,833)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,219,833)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,219,833)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
