THE
[LOGO] MED-DESIGN
CORPORATION
2810 Bunsen Avenue
Ventura, California 93003
-----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The
Med-Design Corporation (the "Company") will be held at The Union League, Broad
and Sansom Streets, Philadelphia, Pennsylvania, on Monday, August 7, 2000, at
1:00 p.m. local time, for the following purposes:
1. To elect seven directors of the Company to serve for the following
year, or until their successors have been elected and qualified.
2. To act upon a proposal to issue equity to certain officers, directors
and consultants of the Company for compensation for services rendered
and special incentives for future performances.
3. To act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants
for the fiscal year ending December 31, 2000.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
A proxy, if properly executed and received in time for the voting, will be
voted in the manner directed therein. If no direction is made, such proxy will
be voted FOR all proposals therein. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The Board of Directors has fixed June 9, 2000, as the record date for
determining stockholders entitled to notice of the Annual Meeting and to vote at
such adjournments thereof. Only stockholders of record as of the close of
business on June 9, 2000, are entitled to notice of, and to vote at, such
meeting or any adjournments thereof.
You are cordially invited to attend the Annual Meeting. Whether or not you plan
to attend, you are urged to complete, date and sign the enclosed proxy and
return it promptly. If you receive more than one form of proxy, it is an
indication that your shares are registered in more than one account, and each
such proxy must be completed and returned if you wish to vote all your shares
eligible to be voted at the Annual Meeting.
By Order of the Board of Directors
Joseph N. Bongiovanni, III, Secretary
Dated: July 7, 2000
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE.
<PAGE>
THE
[LOGO] MED-DESIGN
CORPORATION
2810 Bunsen Avenue
Ventura, California 93003
----------------------
PROXY STATEMENT
----------------------
GENERAL
The enclosed proxy is solicited pursuant to this Proxy Statement to be mailed on
or about July 7, 2000 by the Board of Directors of The Med-Design Corporation, a
Delaware corporation for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the time and place shown in the attached Notice of
Annual Meeting of Stockholders and at any adjournment or adjournments thereof.
The Company's telephone number is (805) 339-0375.
INFORMATION CONCERNING VOTING AND PROXIES
Proxies
Shares represented by proxies, if properly signed, dated and received in
time for the voting, will be voted at the Annual Meeting as specified, or, if
not otherwise specified, FOR the election as directors of the nominees named
herein and FOR each other proposal described in the attached Notice of Annual
Meeting of Stockholders. Such proxies are revocable at anytime before they are
exercised by written notice to the Secretary of the Company. Attendance at the
Annual Meeting will not, without delivery of the written notice described in the
immediately preceding sentence, constitute revocation of a proxy. Management is
not aware at the date hereof of any matter to be presented at the Annual Meeting
other than the election of directors and the other proposals described in the
attached Notice of Annual Meeting of Stockholders. If any other matter is
properly presented, the persons named in the proxy will vote thereon according
to their best judgment.
The expense of soliciting proxies for the Annual Meeting, including the
cost of preparing, assembling and mailing the notice, proxy and Proxy Statement,
will be paid by the Company. The solicitation will be made by directors,
officers and regular employees of the Company without additional compensation.
In addition, banks, brokers, and other nominees will be reimbursed for their
customary expenses incurred in connection with the forwarding of such materials.
The Company may employ an outside firm to assist in the solicitation of proxies
and the cost, if any, for such services will be paid by the Company. Proxies may
be solicited by personal interview, mail, telephone or facsimile transmission.
1
<PAGE>
Record Date
The record date for determining the holders of the Common Stock, $.01 par
value per share, of the Company ("Common Stock"), the only voting class of
capital stock of the Company that is issued and outstanding, who are entitled to
notice of, and to vote at, the Annual Meeting is June 9, 2000.
Voting Securities
As of the close of business on April 29, 2000, there were 9,905,553 shares
of Common Stock outstanding, each of which will entitle its holder to one vote
at the Annual Meeting. There is no cumulative voting.
ITEM 1 - ELECTION OF DIRECTORS
At December 31, 1999, the Board of Directors consisted of eight persons,
James M. Donegan, John A. Botich, Joseph N. Bongiovanni, III, Gilbert M. White,
John F. Kelley, William A. Jolly, Pasquale L. Vallone and Vincent J. Papa.
Michael W. Simpson was elected to the Board on January 12, 2000. John A. Botich
retired from the Board on February 18, 2000. William A. Jolly, who was
originally nominated to the Board at the request of the underwriter, has given
notice of his intention to leave the Board at the end of his current term. Mr.
Jolly will act as a non-voting observer on the Board which the Company is
contractually obligated to grant the underwriter. The nominating committee,
which has the task of nominating members for the Board, has nominated Messrs.
Donegan, Simpson, Bongiovanni, White, Kelley, Vallone and Papa. The Stockholders
are being asked to elect seven directors, who will comprise the Board of
Directors of the Company, to serve for the ensuing year and until their
successors are duly elected and qualified. All of the nominees are currently
directors of the Company. If elected, each nominee will serve until the next
annual meeting of stockholders of the Company or until his successor is elected
and qualified.
The persons named in the proxy intend to vote, unless otherwise instructed,
FOR the election as director of each nominee. Each nominee has expressed his
willingness to serve as a director if elected and the Company knows of no reason
why any nominee would be unable to serve. The proxy holders may vote for any
other person in their discretion or may refrain from electing or voting to elect
anyone to fill the position. The directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy and entitled
to vote at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 10, 2000, certain information
with respect to the beneficial ownership of Common Stock by each person known to
the Company to own beneficially five percent or more of the outstanding Common
Stock (the only voting class outstanding), by each director, and by all officers
and directors as a group.
2
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of Class
Name and Address(1) Beneficially Owned(2) Beneficially Owned
-------------------- --------------------- ------------------
<S> <C> <C>
James M. Donegan..................................... 1,495,065(3) 16.93%
Thor R. Halseth...................................... 423,346(4) 4.92%
Michael J. Botich.................................... 358, 622(4) 4.16%
Michael W. Simpson................................... -0- *
Joseph N. Bongiovanni, III........................... 135,000(5) 1.55%
Gilbert M. White..................................... 201,650(6) 2.32%
John F. Kelley....................................... 719,750(7) 7.81%
Pasquale L. Vallone.................................. 158,208(8) 1.83%
Vincent J. Papa...................................... 28,000(8) *
Hathaway & Associates, Ltd .......................... 500,000(9) 5.81%
All Directors and Officers as a Group (11 persons)... 3,742,449(10) 37.61%
</TABLE>
--------------------
*Less than one percent (1%)
(1) Unless otherwise indicated, the address of each named holder is c/o The
Med-Design Corporation, 2810 Bunsen Avenue, Ventura, California 93003.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting on
investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within sixty (60) days of April
10, 2000, are deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the person named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
(3) Includes 1,600 shares of Common Stock held by Mr. Donegan as custodian for
Derek Donegan, his son, under Pennsylvania Uniform Gifts to Minor Act, a
warrant to purchase 125,000 shares of Common Stock and an option to
purchase 100,200 shares of Common Stock pursuant to the Company's Option
Plan.
(4) Includes options to purchase 7,600 shares of Common Stock granted pursuant
to the Company's Option Plan.
(5) Includes Options to purchase 125,000 shares of Common Stock granted
pursuant to the Company's Option Plan and warrants granted to purchase
100,000 shares of Common Stock.
(6) Includes 1,400 shares of Common Stock held by Mr. White's spouse, options
to purchase 42,000 shares of Common Stock granted pursuant to the Option
Plan and warrants to purchase 50,000 shares of Common Stock.
3
<PAGE>
(7) Includes options to purchase 64,000 shares of Common Stock pursuant to the
Company's Option Plan, warrants to purchase 550,000 shares of the Company's
Common Stock granted by the Company.
(8) Includes options to purchase 28,000 shares of Common Stock pursuant to the
Company's Option Plan.
(9) Based on a Schedule 13G filed with the Securities and Exchange Commission
on January 19, 2000 by Hathaway & Associates, Ltd., whose address is 119
Rowayton Avenue, Rowayton, CT 06853.
(10) Includes options and warrants to purchase 1,346,208 shares of Common Stock
granted to directors and officers of the Company.
DIRECTORS AND EXECUTIVE OFFICERS
Identification and Business Experience
The following table sets forth the names and certain information about each
of the nominees for election as a director of the Company and the executive
officers of the Company.
<TABLE>
<CAPTION>
Director/
Name Age Position(s) Officer Since
---- --- ----------- -------------
<S> <C> <C> <C>
James M. Donegan(3) 49 Chairman of the Board, Chief Executive 1994
Officer and President
Michael W. Simpson 42 Vice President, Chief Operating Office 1999
Lawrence D. Ellis 49 Vice President, Chief Financial Officer 1996
Joseph N. Bongiovanni, III(3) 55 Vice President, Secretary and Director 1994
Gilbert M. White(1)(2) 62 Director 1994
Michael J. Botich 52 Senior Vice President, Research and 1994
Development
Thor R. Halseth 47 Senior Vice President, Design 1994
John F. Kelley (3) 56 Director 1995
Pasquale L. Vallone(1)(2)(3) 72 Director 1998
Vincent J. Papa(1)(2)(3) 50 Director 1998
</TABLE>
----------
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
(3) Member of the Nominating Committee of the Board of Directors
4
<PAGE>
There are no family relationships among any of the Directors, executive
officers and significant employees of the Company.
Mr. Donegan is the Chairman of the Board of Directors of the Company and is
the Chief Executive Officer and President of the Company. From 1991 to 1995, Mr.
Donegan served as the marketing executive for the Structured Investment Division
of Chase Manhattan Bank and most recently as the Managing Director of Chase
Futures Management, Inc.
Mr. Simpson is a director and Chief Operating Officer of the Company. Prior
to joining the Company, Mr. Simpson spent two years at Becton, Dickinson and
Company most recently as Worldwide Director of Advance Protection Infusion
Therapy Systems. Prior to Becton, Dickinson and Company, Mr. Simpson spent five
years at Johnson & Johnson as International Product Director for Advanced
Research and Development.
Mr. Ellis is the Company's Vice President, and Chief Financial Officer.
From 1991 to 1995 Mr. Ellis served as Controller for Phonotics, Inc., a company
engaged in the research and development and manufacturing of fiber optic test
equipment. In addition to Controller and Treasurer experience, Mr. Ellis has six
years of public accounting experience with Ernst & Young, LLP.
Mr. Bongiovanni is a director and is a Vice President and the Secretary of
the Company. Since 1978, Mr. Bongiovanni has been the senior partner of the law
firm Bongiovanni & Berger.
Mr. White is a director and was an Executive Vice President of the Company.
Prior to joining the Company in 1995, Mr. White had been a Senior Vice President
of Rollins Hudig Hall, a large international insurance firm, where he designed,
marketed and serviced complex insurance programs for large national and
international clients since 1984.
Mr. Botich is the Senior Vice President, Research and Development of the
Company, from 1990 to 1995, Mr. Botich was the Senior Vice President of MDI,
where he assisted in developing, engineering and designing the Company's safety
needle technology.
Mr. Halseth is Senior Vice President, Design. From 1990 to 1995, Mr.
Halseth served as President and Director of Design for MDI, where he assisted in
developing, engineering and designing the Company's safety needle technology. In
addition, Mr. Halseth was a Senior Product Designer for Designworks U.S.A. from
1984 to 1995, where he directed and implemented the design of new and innovative
products from the concept phase through models, prototypes and final product
configuration. In addition, he was the principal designer of various products
for the automotive, electronics, computer, recreational and consumer products
industries.
Mr. Kelley is a director of the Company. Since January, 1996, Mr. Kelley
has been engaged in consulting services as an independent contractor. From 1988
to January, 1996, Mr. Kelley was employed by Chase Manhattan Bank where he
served as the President and a director of Chase Manhattan Futures Corporation,
the President of Chase Futures Management Inc., and the President of Chase
Futures Advisors Inc.
Mr. Vallone is a director of the Company. Mr. Vallone is a consultant for
U.S. Aviation Underwriters, Inc. Mr. Vallone served in the underwriting and
technical areas at U.S. Aviation Underwriters for 50 years until his retirement
as a Senior Vice President in June, 1997.
5
<PAGE>
Mr. Papa is a director of the Company. Mr. Papa is Secretary and General
Counsel of Energy Merchants LLC. Prior to this position he was a Managing
Director and General Counsel for P.M.G. Capital Corp., a wholly owned affiliate
of the Pennsylvania Merchant Group, where he had been since 1995. The Company
has previously retained P.M.G. for investment banking services and may do so in
the future.
The Board of Directors recommends that stockholders vote FOR the election
of Messrs. Donegan, Simpson, Bongiovanni, White, Kelley, Vallone and Papa.
Board Committees and Meetings
The Board of Directors has an Audit Committee, a Compensation Committee and
a Nominating Committee. The Audit Committee has the authority and duty to
recommend to the Board the auditors to be engaged as the Company's independent
public accountants and to review the scope and results of the audit and other
services provided by the Company's independent accountants and to take such
other action as it deems appropriate to insure the appropriate safeguarding of
the Company's assets and appropriate accounting of its assets and liabilities.
The Compensation Committee has all powers of and the authority to exercise all
duties of the Board in matters relating to executive compensation and
administration of all stock option and other employee benefit plans of the
Company, subject to the terms of such plans. The Nominating Committee has the
authority and duty to nominate directors of the Company to fill vacancies and to
nominate directors of the Company's various subsidiaries, with such nomination
to be approved by the Board in each case.
During the fiscal year ended December 31,1999, eight meetings of the Board
of Directors were held, at which all directors were present. The Audit Committee
held four meetings and the Compensation Committee held nineteen meetings during
the fiscal year ended December 31, 1999. The Nominating Committee did not meet
during the fiscal year ended December 31, 1999. It's functions, however, were
performed by the Board as a whole. No Director who was a Director or member of a
committee during 1999 attended fewer than 75% of the Board meetings.
ITEM 2 - ISSUE EQUITY TO CERTAIN OFFICERS, DIRECTORS AND CONSULTANTS
The Company, through its Compensation Committee comprised of outside
disinterested Directors, and/or the majority of the Board with any Director
receiving equity not voting, approved the grant of equity described below, to
officers, directors and consultants for services performed or to be performed
which were deemed by said Committee to be fair and reasonable compensation for
said services
John A. Botich on February 18, 2000, was awarded, subject to shareholders'
approval, a warrant for 40,000 shares of Common Stock at the closing price on
that day of $16.375. The warrants vest on February 18, 2001 and will expire on
February 18, 2005. This warrant was awarded to Mr. Botich as part of an exit
package upon his resignation that day as a director of the Company and
termination of his consulting contract. Mr. Botich was a co-founder of the
Corporation and former Executive Vice President and Chief Operating Officer and
gave many years of dedicated service to the Company.
6
<PAGE>
On April 25, 2000 Lawrence D. Ellis, Chief Financial Officer, was awarded
by the Board, subject to shareholders' approval, a warrant to purchase 66,000
shares of Common Stock of the Company at that day's closing price of $11.875.
Mr. Ellis has been with the Company since August, 1995. The warrant was awarded
to Mr. Ellis as part of his employment contract, his past employment contract
having expired. The warrant will vest 33,000 immediately and the remaining will
vest 1 year from the award date. The warrant expires on April 25, 2005.
Michael J. Botich, Senior Vice President, Research and Development and
co-inventor of the Company's retraction technology, on April 25, 2000, was
awarded, subject to the approval of the shareholders, a warrant for 50,000
shares at that day's closing price of $11.875, which will vest at the earlier of
the date when the price of the Company's Common Stock trades at $22.00 or higher
for thirty (30) consecutive trading days as quoted by Nasdaq National Exchange
listing or Nasdaq Exchange Small Cap listing closing price or April 25, 2005
provided he is employed by the Company. The warrant expires on April 25, 2008.
This warrant was recommended by the Board as an incentive to promote Mr.
Botich's continued productive contribution as well as his dedicated and tireless
service to the Corporation.
Thor R. Halseth, Senior Vice President, Design and co-inventor of the
Company's retraction technology, on April 25, 2000, was awarded, subject to the
approval of the shareholders, a warrant for 50,000 shares at that day's closing
price of $11.875, which will vest at the earlier of the date when the price of
the Company's Common Stock trades at $22.00 or higher for thirty (30)
consecutive trading days as quoted by Nasdaq National Exchange listing or Nasdaq
Exchange Small Cap listing closing price or April 25, 2005 provided he is
employed by the Company. The warrant expires on April 25,2008. This warrant was
recommended by the Board as an incentive to promote Mr. Halseth's continued
productive contribution as well as his dedicated and tireless service to the
Corporation.
Michael W. Simpson, Executive Vice President and Chief Operating Officer as
part of his employment contract was awarded by the Compensation Committee as a
signing bonus a warrant for 50,000 shares of Common Stock on November 11, 1999
at $7.88, the closing price on that date. The warrant vests on the date of
issuance and expires on November 11, 2004. In addition, Mr. Simpson was awarded
200,000 shares of Common Stock which vest on the earlier of the date when the
Company's stock trades at $22.00 or higher for thirty (30) consecutive trading
days as quoted by Nasdaq National Exchange listing or the Nasdaq Exchange Small
Cap Listing closing price or November 11, 2004 provided he has not resigned or
been discharged for cause. When Mr. Simpson was hired, the stock was trading at
$7.88. These shares of stock would vest 1/3 each year after the stock trades at
$22.00 for thirty (30) consecutive trading days. The warrant expires on November
11, 2007. On April 25, 2000, the board awarded Mr. Simpson a warrant for 66,000
shares of Common Stock at $11.875, the day's closing price. These shares will
vest 33,000 on November, 2000 and the remaining in November 2001, subject to Mr.
Simpson's continued employment with the Company. The warrant expires on April
25,2005. This warrant was awarded to Mr. Simpson in consideration of his
outstanding services to the corporation and in consideration for his agreement
to amend his employment contract to provide for deferral of his incentive
compensation. In the event the shareholders do not approve Mr. Simpson equity
awards the Company is obligated to pay him the cash equivalent. The failure of
the shareholders to approve this issuance might result in the delisting of the
Company's stock by Nasdaq or a potential financial claim against the Company.
The Compensation Committee after consultation with PricewaterhouseCoopers,
LLP has determined that James M. Donegan has been under-compensated since the
inception of the Company.
7
<PAGE>
The Compensation Committee recommended, and the majority of the Board voted,
subject to shareholder approval, to award Mr. Donegan compensation for past
service in the form of equity in the amount of approximately 59,700 shares of
Common Stock per year for the next four years, totaling 238,806 shares,
beginning April 1, 2000 provided Mr. Donegan remains an officer, director or
consultant of the Company.
On October 19, 1999, John F. Kelley Consulting, Inc.(a corporation wholly
owned and /or controlled by John F. Kelley), or its designees, was granted by
the Compensation Committee a warrant for 50,000 shares of Common Stock at $6.25
for services rendered as part of his consultant contract with the Company, to be
issued to John F. Kelley Consulting, Inc. over a period not to exceed three
years. John F. Kelley Consulting, Inc. will purchase the warrant for $2,420.00
and will pay the Company $312,500.00 when the warrant is exercised. If the
shareholders do not approve this warrant, the Company is obligated to pay John
Kelley the cash equivalent. The cash equivalent is determined using the
Black-Scholes option-pricing model to determine the value of the warrants at an
average option price ten trading days prior and five trading days subsequent to
August 7, 2000, the date of the shareholders meeting. On April 25, 2000 the
Compensation Committee recommended, and the majority of the Board approved, the
issuance to John F. Kelley of 125,000 shares of stock as payment for the
successful negotiation and completion of the syringe contract with Becton,
Dickinson and Company. The failure of the shareholders to approve this issuance
might result in the delisting of the Company's stock by Nasdaq or a potential
financial claim against the Company.
The Board of Directors recommends that stockholders vote FOR the issuance
of Warrants to certain Officers and Directors. Mr. Jolly abstained from the
voting for James M. Donegan's compensation and voted against the compensation
for John F. Kelley.
ITEM 3 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected, subject to the stockholders' approval,
PricewaterhouseCoopers LLP, as independent accountants, to audit the financial
statements of the Company for the fiscal year ending December 31, 2000.
PricewaterhouseCoopers LLP, was the Company's independent accountants for the
fiscal year ended December 31, 1999. A representative of PricewaterhouseCoopers
LLP is expected to be present at the Annual Meeting and will have an opportunity
to make a statement if he or she desires to do so and to answer appropriate
questions with respect to that firm's examination of the Company's financial
statements and records for the fiscal year ended December 31, 1999.
Vote Required for Approval of Independent Accountant
Under Delaware law, the affirmative vote of a majority of the votes cast by
the holders of the Company's shares present in person or represented by proxy
and entitled to vote at the Annual Meeting is required to approve the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants. Under Delaware law abstentions are counted in determining the
number of votes cast and, thus, will have the effect of a vote against the
proposal. Under Delaware law, a broker non-vote will not be counted in
determining the number of votes cast and, thus, will have no effect on the
outcome of the vote.
The Board of Directors recommends that stockholders vote FOR the approval
of the appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants.
8
<PAGE>
EXECUTIVE COMPENSATION
Compensation Table
The following table sets forth information on the annual compensation of
the officers whose salary exceeded $100,000 for the fiscal year ended December
31, 1999 for service rendered in all capacities during the fiscal year ended
December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------- ----------------------
Securities Underlying
Name and Principal Position Year Salary ($) Bonus($) Options/SARSs
--------------------------- ---- ---------- -------- ----------------------
<S> <C> <C> <C> <C>
James M. Donegan 1999 225,000 20,000 100,000
Chairman, Chief Executive 1998 185,000
Officer, President 1997 185,000 10,000 25,000
Michael J. Botich 1999 107,800 6,000
Senior Vice President, 1998 98,000 16,000
Research and Development 1997 94,000 12,000
Thor R. Halseth 1999 103,400 6,000
Senior Vice President, Design 1998 94,000 16,000
1997 84,000 12,000
Lawrence D. Ellis 1999 110,400 15,000
Chief Financial Officer 1998 92,000 20,000
1997 85,000 8,000
</TABLE>
Compensation of Directors
The Independent Directors receive $500 per meeting attended and annually
receive options to purchase 16,000 shares of Common Stock, priced to market on
the date of issue, pursuant to the Plan as compensation for services on the
Board of Directors and any committees thereof. No other directors receive cash
or other compensation for services on the Board of Directors or any committee
thereof. All directors are entitled to reimbursement for reasonable expenses
incurred in the performance of their duties as Board members.
Employment Agreements
Effective April 1, 2000, the Company entered into an employment agreement
with James M. Donegan, as Chief Executive Officer and President for one year.
The agreement provides for base compensation of $300,000, a bonus of $25,000 and
stock options for 100,000 shares of Common Stock at $8.375. The stock vests on
the date of issuance and expires on April 19, 2005. In connection with the
employment contract, the Compensation Committee, after consultation with
PricewaterhouseCoopers, determined that James M. Donegan had been
under-compensated since the inception of the Company and awarded him
approximately 59,700 shares of Common Stock per year
9
<PAGE>
for the next four years, totaling to 238,806 shares, subject to shareholder
approval and included in Item 2 here, as compensation for past service beginning
April 1, 2000 provided Mr. Donegan remains an officer, director or consultant of
the Company.
On November 11, 1999 the Company entered into an employment contract with
Michael W. Simpson as Chief Operating Officer for an initial term of three
years. The agreement provides for base salary of $165,000 and a warrant to
purchase 50,000 shares of Common Stock at $7.88 per share as signing bonus and a
warrant to purchase 66,000 shares of Common Stock at $11.875 as compensation.
The warrants expire on November 11, 2004 and April 25, 2005 respectively. The
warrants are included in Item 2 to be approved by shareholders vote. Mr. Simpson
is eligible for additional compensation as may be determined by the Board of
Directors in its sole discretion. The Board of Directors may, in its sole
discretion, increase base compensation award bonuses and additional compensation
each year. The agreement may be terminated for cause. The agreement also
provides for a special incentive payment of 200,000 shares of Common Stock in
the event the Company is merged into or acquired by another entity successfully
or the Company's Common Stock trades over $22.00 per share for thirty (30)
consecutive trading days as quoted by Nasdaq Exchange Small Cap listing closing
price.
On March 1, 2000 the Company entered into an employment agreement with
Lawrence D. Ellis as Chief Financial Officer. The agreement provides for a base
salary of $140,000, bonus of $20,000 and a warrant to purchase 66,000 shares of
Common Stock at $11.875, the closing price of the day of the award. The warrant
vests 33,000 upon issuance and 33,000 one year from issuance. The warrants
expire on April 25, 2005. The warrant is included in Item 2 to be approved by
shareholder vote.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities ("ten-percent holders") to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors, and ten-percent holders are required by
regulation to furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on review of the copies of such forms furnished to the
Company, the Company believes that, during the fiscal year ended December 31,
1999, all Section 16(a) filing requirements applicable to its officers,
directors, and ten-percent holders were satisfied.
CERTAIN TRANSACTIONS WITH MANAGEMENT,
BOARD MEMBERS AND PROMOTERS
James M. Donegan, Chairman of the Board, Chief Executive Officer, pursuant
to action by the Board of Directors, was granted a warrant to purchase 100,000
shares of the Company's Common Stock at $3.94 on March 5, 1999 as compensation.
On April 18, 2000, pursuant to action by the Board of Directors, James M.
Donegan was granted a Stock Option of 100,000 shares of Common Stock at $8.375,
the closing price on that day, as compensation. The Stock Option vests upon
issuance. The warrant has been previously approved by shareholder vote.
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<PAGE>
The Compensation Committee after consultation with PricewaterhouseCoopers
has determined that James M. Donegan has been under-compensated since the
inception of the Company. The Compensation Committee recommended, and the
majority of the Board voted, subject to shareholder approval, to award Mr.
Donegan compensation for past service in the form of equity in the amount of
approximately 59,700 shares of Common Stock per year for the next four years,
totaling 238,806 shares, beginning April 1, 2000 provided Mr. Donegan remains an
officer, director or consultant of the Company. The stock is included in Item 2
to be approved by the shareholder vote.
Joseph N. Bongiovanni, III, the senior partner of the law firm Bongiovanni
& Berger, is a director, Vice President and Secretary of the company. During the
fiscal year ended December 31, 1999 and 1998, Bongiovanni & Berger received
$57,719 and $81,737, respectively, for legal services billed to the Company in
1999.
On March 5, 1999, pursuant to action by the Board of Directors, Joseph N.
Bongiovanni, III was granted a warrant to purchase 100,000 shares of the
Company's Common Stock at $3.94. On April 25, 2000, pursuant to action by the
Board of Directors, Joseph N. Bongiovanni, III was granted a stock option to
purchase 100,000 shares of the Company's Common Stock at $11.875, the closing
price on that day. The stock option vests upon issuance. The warrant has been
previously approved by shareholder vote.
John F. Kelley, a director of the Company, has performed a significant
level of consulting services to the Company from 1996 through the present by
evaluating and negotiating strategic alliances on behalf of the Company as well
as providing substantial ongoing administrative support functions. As
compensation for these services in 1996, 1997 and 1998, the Company issued to
Mr. Kelley 100,000 warrants for each year. The warrants for 1996 were issued on
March 19, 1997 to purchase 100,000 shares of Common Stock at an exercise price
of $7.50. On March 19, 1997, the closing price of the Common Stock was $8.50.
The warrants for 1997 were issued on October 10, 1997 to purchase 100,000 shares
of Common Stock at an exercise price of $5.44, and the warrants for 1998 were
issued on January 14, 1998 to purchase 100,000 shares of Common Stock at an
exercise price of $2.88. Further, on January 14, 1998, based upon Mr. Kelley's
performance and consistent with his compensation agreement, the exercise price
of the warrants issued on March 19, 1997 and October 10, 1997 were reset to
$2.88 per share, pursuant to the action of the Board of Directors. Each of these
warrants has been previously approved by shareholder vote.
On August 25, 1998, pursuant to action by the Board of Directors, Mr.
Kelley was appointed Chief Negotiator for the Company and on September 9, 1998
entered into an agreement in which the Company granted a warrant for 200,000
shares of Common Stock at $1.25 conditional upon the signing of an agreement
with a potential strategic partner. This condition was met with the signing of
an agreement where Med-Design received $4.5 million in licensing fees, $1.5
million in equity capital and ongoing royalty payments, and the warrant became
effective. This warrant has been previously approved by shareholder vote.
In June, 1998, Mr. Kelley participated in the private placement of
$1,550,000 of the Company's convertible debentures. Mr. Kelley purchased
$100,000 of convertible debentures which bear an interest rate of 4% and are
convertible into the Company's Common Stock at a price of $1.25. The terms and
conditions of Mr. Kelley's participation were identical to those of all other
investors.
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On January 21, 1999, pursuant to action by the Board of Directors, the
Company approved a consulting agreement with Mr. Kelley. Under the consulting
agreement Mr. Kelley is paid $220,000, of which $100,000 is an up-front retainer
plus $10,000 per month, and a warrant to purchase 50,000 shares of the Company's
Common Stock at $3.25. The warrant has been previously approved by shareholder
vote. While the Company has agreed orally to the terms of the agreement, the
parties are proceeding to the completion of a signed written agreement.
On October 19, 1999, John F. Kelley Consulting, Inc.(a corporation wholly
owned and /or controlled by John F. Kelley), or its designees, was granted by
the Compensation Committee a warrant for 50,000 shares of Common Stock at $6.25
for services rendered as part of his consulting contract with the Company for
the year 2000, to be issued to John F. Kelley Consulting, Inc. over a period not
to exceed three years. John F. Kelley Consulting , Inc. will purchase the
warrant for $2,420.00 and will pay the Company $312,500.00 when the warrant is
exercised. The warrant vests upon issuance and expires on October 19, 2004. If
the shareholders do not approve this warrant the Company is obligated to pay
John Kelley the cash equivalent. The cash equivalent is determined using the
Black-Scholes option-pricing model to determine the value of the warrants at an
average option price ten trading days prior and five trading subsequent to
August 7, 2000, the date of the shareholders meeting. On April 25, 2000 the
Compensation Committee recommended, and the majority of the Board approved, the
issuance to John F. Kelley of 125,000 shares of stock as payment for the
successful negotiation and completion of the syringe contract with Becton,
Dickinson and Company. Med-Design will receive $4.0 million in licensing fees
and ongoing royalties under the terms of this agreement. The warrant and the
stock are included in Item 2 to be approved by shareholder vote. The failure of
the shareholder to approve this issuance might result in the delisting of the
Company's stock by Nasdaq or a potential claim against the Company.
William A. Jolly, a director of the Company, is a partner of Fine Equities,
Inc. ("Fine"). Fine was engaged by the Company to serve as the placement agent
for a private placement of $5,000,000 of the Company's Common Stock (which was
consummated on January 23, 1997), for which it received fees and a reimbursement
of expenses approximating $345,000, together with warrants ("Warrants") to
purchase 100,000 shares of Common Stock at an exercise price of $5.50 per share.
Fine assigned Warrants to Mr. Jolly to purchase 5,000 shares of Common Stock.
Gilbert M. White, a director of the Company, as a result of the closing of
the Philadelphia office and consolidation into California, resigned as an
officer of the Company on January 30, 1998. In connection with Mr. White's
resignation, on January 14, 1998, the Company granted to Mr. White warrants to
purchase 50,000 shares of the Company's stock at an exercise price of $2.88 per
share as well as executed a consulting agreement with Mr. White whereby Mr.
White shall provide insurance-related consulting services to the Company for a
one year period at an hourly rate of $125.00 and a maximum payment to Mr. White
of $65,000. The warrants and agreement were granted to Mr. White in lieu of
paying on the balance of his contract.
Pasquale L. Vallone, a director of the Company, entered into an agreement
to lend the Company $250,000 on May 29, 1998 for a period of one year. The loan
is unsecured with interest at prime rate. The loan is callable upon change of
control of the Company, the signing of any significant licensing or joint
venture agreement or any refinancing of the Company in excess of $500,000. As a
further condition of the loan, the Company also agreed to issue 33,000 shares of
Common Stock which is
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earned ratably over the period of 1 year that the full amount of the loan
remains outstanding. The loan was renewed on May 29, 1999 for an indefinite
period at prime plus 810 shares of Common Stock per month. The loan principal
and accrued interest was paid on February 29, 2000.
Vincent J. Papa, a director of the Company, is Secretary and General
Counsel of Energy Merchants LLC. Prior to this position Mr. Papa was Managing
Director and General Counsel for P.M.G. Capital Corp., a wholly owned affiliate
of the Pennsylvania Merchant Group. Pennsylvania Merchant Group was engaged by
the Company to serve as placement agent of $1,550,000 of the Company's
convertible debentures (which was consummated on June 29th and July 22nd of
1998), for which it received fees and a reimbursement of expense approximating
$76,000.
On April 25, 2000 Lawrence D. Ellis, Chief Financial Officer, was awarded
by the Board, subject to shareholders' approval, a warrant to purchase 66,000
shares of Common Stock of the Company at that day's closing price of $11.875.
Mr. Ellis has been with the Company since August, 1995. The warrant expires
April 25, 2000. The warrant was awarded to Mr. Ellis as part of his employment
contract, his past employment contract having expired. The shares will vest
33,000 immediately and the remaining will vest 1 year from the award date. The
warrant is included in Item 2 to be approved by shareholder vote.
Michael J. Botich, Senior Vice President, Research and Development and
co-inventor of the Company's retraction technology, on April 25, 2000, was
awarded, subject to the approval of the shareholders, a warrant for 50,000
shares at the day's closing price of $11.875, which will vest at the earlier of
the date when the price of the Company's Common Stock trades at $22.00 or higher
for thirty (30) consecutive trading days as quoted by Nasdaq National Exchange
listing or Nasdaq Exchange Small Cap listing closing price or April 25, 2005
provided he is employed by the Company. The warrant expires April 25, 2008. This
warrant was recommended by the Board as an incentive to promote Mr. Botich with
continued productive contribution as well as his dedicated and tireless service
to the Corporation.
Thor R. Halseth, Senior Vice President, Design and co-inventor of the
Company's retraction technology, on April 25, 2005, was awarded, subject to the
approval of the shareholders, a warrant for 50,000 shares at the day's closing
price of $11.875, which will vest at he earlier of the date when the price of
the Company's Common Stock trades at $22.00 or higher for thirty (30)
consecutive trading days as quoted by Nasdaq National Exchange listing or Nasdaq
Exchange Small Cap listing closing price or April 25, 2005 provided he is
employed by the Company. The warrant expires April 25, 2000. This warrant was
recommended by the Board as an incentive to promote Mr. Halseth with continued
productive contribution as well as his dedicated and tireless service to the
Corporation.
Michael W. Simpson, Executive Vice President and Chief Operating Officer as
part of his employment contract was awarded by the Compensation Committee as a
signing bonus a warrant for 50,000 shares on November 11, 1999 at $7.88, the
closing price on that date. The warrant vests on the date of issuance and
expires on November 11, 2004. In addition, Mr. Simpson was awarded 200,000
shares of stock which will vest at the earlier of the date when the Company's
stock trades at $22.00 or higher for thirty (30) consecutive trading days as
quoted by the Nasdaq National Exchange listing or Nasdaq Exchange Small Cap
Listing closing price or November 11, 2004 provided he has not resigned or been
discharged for cause. When Mr. Simpson was hired, the stock was trading at
$7.88. These shares of stock would vest 1/3 each year after the stock trades for
$22.00 for thirty (30) consecutive trading days as quoted by Nasdaq
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Exchange Small Cap listing closing price. The warrant expires on November 11,
2007. On April 25, 2000, the board awarded Mr. Simpson a warrant for 66,000
shares of stock at $11.875, the day's closing price. These shares will vest
33,000 on November, 2000 and the remaining in November 2001, subject to Mr.
Simpson's continued employment with the Company. The warrant expires April 25,
2000. This warrant was awarded to Mr. Simpson in consideration of his
outstanding services to the corporation and in consideration for his agreement
to amend his employment contract to provide for deferral of his incentive
compensation. In the event the shareholders do not approve Mr. Simpson's equity
awards the Company is obligated to pay him the cash equivalent. The failure of
the shareholders to approve this issuance might result in the delisting of the
Company's stock by Nasdaq or a potential financial claim against the Company.
John A. Botich, an affiliate of the Company and former director, on
February 18, 2000 was awarded a warrant for 40,000 shares of Common Stock at the
closing price on that day of $16.375. This warrant was awarded to Mr. Botich as
part of an exit package upon his resignation that day as a director of the
Company and termination of his consultant contract. Mr. Botich was a co-founder
of the Corporation and former Executive Vice President and Chief Operating
Officer and gave many years of dedicated service to the Company. The warrant is
included in Item 2 to be approved by shareholder vote.
STOCKHOLDER PROPOSALS
Any stockholder proposal to be presented at the Annual Meeting of the
Stockholders to be held in 2001 must be received by the Company on or before
December 31, 2000 in order to be included in the Proxy Statement relating to the
meeting. If a stockholder does not seek to have a proposal included in the Proxy
Statement, but nevertheless wishes to present a proper proposal at the Annual
Meeting of the Stockholders, and the proposal is received by the Company on or
before March 15, 2000, the Company will provide information in the Proxy
Statement relating to that meeting as to the nature of the proposal and how
persons named in the proxy solicited by the Board of Directors intend to
exercise their discretion to vote on the matter.
By Order of the Board of Directors
Dated: July 7, 2000 Joseph N. Bongiovanni, III, Secretary
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