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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ____ to ____
Commission file number 0-25852
THE MED-DESIGN CORPORATION
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(Name of small business issuer in its charter)
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<S> <C>
Delaware 23-2771475
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2810 Bunsen Avenue, Ventura, CA. 93003
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(Address of principal executive offices) (Zip Code)
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Issuer's telephone number: (805) 339-0375
Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None NASDAQ Small Cap Market
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 the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes X
No
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 the fiscal year ended December 31, 1999: 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 6, 2000) was $158,046,000. The number of common shares outstanding
as of March 6, 2000 was 9,114,637.
Documents incorporated by reference:
Certain portions of the registrant's definitive Proxy Statement for the 2000
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)
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are incorporated by reference into Part III of this Form 10-KSB.
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. Words such as "may," "should," "anticipate," "believe," "plan,"
"estimate," "expect, and "intend" and other similar expressions are intended to
identify forward-looking statements. 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
("Med-Design") 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. Med-Design 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 Med-Design files from time to
time with the Securities and Exchange Commission and in public communications
made by Med-Design.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Developments of Med-Design
Med-Design 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 Med-Design.
Med-Design 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 Blood Collection Needle and the Safety Catheter (as hereinafter defined).
On March 14, 1995, Med-Design organized a wholly-owned subsidiary, MDC
Investment Holdings, Inc. ("MDC Holdings"), under the laws of the State of
Delaware. Med-Design entered into an Agreement of Merger on April 5, 1995 with
MDC Holdings and MDI, pursuant to which MDI merged with and into MDC Holdings,
the surviving corporation, and Med-Design 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, Med-Design issued a non-interest bearing promissory
note in the principal amount of $1,000,000 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, Med-Design issued and delivered 3,572 shares of
Common Stock to a former noteholder of MDI to satisfy an obligation of MDI.
Med-Design paid the promissory note in full from the net proceeds of
Med-Design's initial public offering (as defined below).
In June 1995, Med-Design completed an initial public offering of 3,450,000
shares of Common Stock, par value $0.01 per share. The net proceeds to
Med-Design from the initial public offering were approximately $9,526,000.
On January 23, 1997, Med-Design completed a private 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). Med-Design received proceeds of approximately $4,617,000,
net of expenses incurred in connection with the private placement.
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On July 22, 1998 Med-Design completed a $1,550,000 private placement of
convertible debentures collateralized by Med-Design's intellectual properties
pursuant to the Registration Act of 1933, as amended. The net proceeds to
Med-Design were $1,474,000.
On December 11, 1998, The Med-Design Corporation signed a multi-product
licensing agreement, an option licensing agreement and an equity agreement with
Becton, Dickinson and Company, ("Becton Dickinson or BD"), a New Jersey based
global medical technology company. Med-Design granted Becton Dickinson the
exclusive worldwide rights to manufacture and sell Med-Design's Safety Blood
Collection Needle, Safety Winged Set Blood Collection Needle, Safety I.V.
Catheter, Safety Wing Needle Set/Catheter and Safety PICC Introducer Catheter
Insertion Device and a one year option, with terms and conditions to be
negotiated, to license the Safety Hypodermic Syringe for a period of one year
(fixed or stake needle type), the Safety Hypodermic Syringe (luer type), the
Safety Arterial Blood Gas Syringe (add-on type), the Safety Pre-Filled Glass
Syringe (luer type), and the Safety Pre-Filled Glass Syringe (fixed or stake
needle type). Under the terms of the agreements, Med-Design received an initial,
non-refundable payment of $4.5 million, an equity investment of $1.5 million and
continuing royalty payments for the life of the patents payable on Becton
Dickinson's net sales of licensed products. Becton Dickinson invested $1.5
million in Med-Design through the purchase of 300,000 shares of Series A
Convertible Preferred Stock, convertible into Med-Design's common shares at
$5.00 per share. Becton Dickinson is entitled to designate one member on
Med-Design's Board of Directors. Med-Design previously signed a development and
licensing agreement for its proprietary Safety I.V. Catheter with Graphic
Controls Corporation, which was canceled by mutual agreement with no obligation
to either party.
On December 13, 1999, The Med-Design Corporation signed an option agreement
with Becton Dickinson. Under the terms of the agreement Med-Design agreed to
extend the initial option agreement covering five products until January 25,
2000 allowing BD to acquire worldwide licenses to manufacture and sell these
five safety devices in return for $1.5 million, up-front licensing payments and
ongoing royalties, to be negotiated. Med-Design also agreed to expand the number
of products under licensing consideration to include an additional nine safety
needle devices. On January 25 the option was extended to grant BD the right,
until March 24, 2000, to acquire worldwide licenses to manufacture and sell
these devices in return for up-front licensing payments and ongoing royalties to
be negotiated.
Description of the Business of Med-Design
Med-Design designs and develops safety medical devices intended to reduce
the incidence of accidental needlesticks. Med-Design has three core products:
the Retractable Needle Hypodermic Syringe (the "Safety Syringe"), the
Retractable Blood Collection Needle (the "Safety Blood Collection Needle") and
the Retractable Needle Intravenous Catheter Insertion Device (the "Safety
Catheter"). These products are similar in appearance and size to the standard
non safety devices in use. Med-Design 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 pathogen. Each of these products incorporate Med-
Design'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. Med-Design has several U.S. and foreign patents and
many patent applications pending.
Med-Design has designed several additional products which are in various
stages of development which also incorporate Med-Design's proprietary retraction
technology and are designed to reduce the incidence of accidental needlesticks.
As part of the Company's strategy of maximizing its investments in device design
and development, Med-Design has developed various sizes and designs of these
products to accommodate the specific requirements of both current and potential
strategic partners for a wide range of medical and dental applications. These
additional product developments include the Safety PICC Introducer Catheter
Insertion Device, Safety Guidewire Introducer, Safety Winged Set Blood
Collection Needle, Safety Arterial Blood Gas Syringe, Safety Pre- Filled Vial
Injector, Safety Pre-Filled Glass Syringe, Safety Wing Needle Set/Catheter,
Safety Blood Donor Needle, Safety Y-Port Infusion Needle, and Safety Winged
Fistula Needle, and a number of additional products in early stages of
development.
In December 1998, Med-Design entered into licensing agreements with Becton
Dickinson that included several of the Company's products. With these
agreements, Becton Dickinson will become the worldwide exclusive
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manufacturer and seller of five of Med-Design's safety needle products. These
include the Safety Blood Collection Needle, Safety IV Catheter, Safety PICC
Introducer Catheter, Safety Winged Set Blood Collection Needle and Safety Wing
Needle Set/Catheter. Certain versions of the Safety Syringe are also the subject
of an option agreement with Becton Dickinson, giving Becton Dickinson the right
to negotiate for the licensing of these additional products. These optioned
products include the Safety Hypodermic Syringe, Safety Pre-Filled Glass Syringe,
and Safety Arterial Blood Gas Syringe.
Med-Design's headquarters are located at 2810 Bunsen Ave., Ventura,
California 93003. Med-Design's telephone number is (805) 339-0375.
Industry
Accidental Needlesticks
Needles for hypodermic syringes, blood collection 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 (blood collection
needles), and the infusion of drugs and nutrients (catheters). There is an
increasing awareness of the potential danger of infections and illness that can
result from accidental needlesticks as well as the need for safer needle devices
that 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, but also
to reduce the risk of accidental needlesticks and the potential danger of
infections and illnesses resulting therefrom.
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 the International Health Care
Worker Safety Center, an estimated 1 million occupational needlesticks occur
nationwide each year. This estimate is based on data from 70 hospitals around
the nation. Higher rates have been reported by the Center for Disease Control
and medical journals.
Estimates of the number of medical workers annually infected by the
Hepatitis B virus from needle sticks, which range from a high of 12,000 in the
1980's to the current figure of 1,000, have been reported by the Center for
Disease Control, the Occupational Safety and Health Administration and medical
researchers. Death estimates of 200 to 300 a year are also reported from the CDC
and OSHA. The number of workers contracting HIV from needle sticks - 50 to 60 a
year - is an estimate by the International Health Care Worker Safety Center. The
Hepatitis C needle sticks cases have been poorly tracked, but most experts
estimate the numbers to be in the thousands each year.
The possibility of healthcare workers becoming infected from contaminated
needles has caused, and continues to cause concern in the healthcare field and
among 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. OSHA guidelines do
not require employers to institute the most sophisticated engineering controls,
but 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 these processes are 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
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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. Unlike some
safety needle products currently on the market, Med-Design's safety needle
products meet all 5 of the FDA requirements.
In November 1999, The Centers for Disease Control (CDC) issued a safety
alert advocating that all hospitals and other health care facilities use safety
needles to protect health care workers from deadly infections resulting from
accidental injuries with contaminated needles. This safety alert follows the
release issued earlier this month regarding the new Compliance Directives from
OSHA, mandating that health care employers in all 50 states use safety
engineered needles.
Recent Legislation
In September 1998, the State of California passed legislation that requires
the Division of Occupational Safety and Health ("CALOSHA") to revise the
Bloodborne Pathogens standard by July 1, 1999. The revised standard will require
California healthcare providers to use needles with engineered sharps injury
protection and needleless systems to reduce the risk of sharps injury and
resultant transmission of bloodborne diseases.
Since the passing of the California legislation, four additional states,
New Jersey, Maryland, Tennessee and Texas, have passed legislation similar to
California's. Similar legislation has been passed by one of the legislative
chambers of five states, including Illinois, New York, Ohio, Pennsylvania, and
Washington. Twenty-three other states have introduced and are considering safety
legislation. These additional states include Alaska, Arkansas, Connecticut,
Florida, Georgia, Indiana, Iowa, Maine, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Montana, Nebraska, New Hampshire, Oklahoma, Oregon, Rhode
Island, Utah, West Virginia, Wisconsin, and the District of Columbia.
Recently the Service Employees International Union launched an effort in
most of these state legislatures and the District of Columbia to enact laws to
require that hospitals use needles designed to shield workers from sticks during
use and disposal. This effort has now been joined by the California Healthcare
Association and is encouraged by the American Hospital Association.
As a result of the above mentioned regulations and guidelines, healthcare
institutions utilize or will be utilizing equipment, including safety needles,
and work practices that offer greater protection for healthcare workers than
previously provided
Med-Design strongly believes that with the state legislation and Federal
regulations, purchases of safety engineered sharps will increase substantially
within the next 12 months.
Market for Needles and Safety Needles
Safety Needle Syringes. Several versions of the Safety Syringe are
currently under a three-month option agreement with BD that expires in March
2000. On January 25, 2000 this option was extended from a 12-month option
agreement that originally expired in December 1999. The extension was granted in
consideration of a $1.5 million up front licensing payment. During this option
period, Med-Design will be working with BD with the intention of negotiating a
licensing agreement for the contracted versions of the Safety Syringe.
Med-Design's marketing strategy for those versions of the Safety Syringe not
currently subject to the option agreement will be directed at markets in the
United States, Western Europe, Japan, and elsewhere. Theta Corporation's August
1998 Report #850 on disposable medical supplies estimates that there were 6.6
billion syringes sold in the U.S. in 1997. Other industry estimates suggest
another 6.0 billion syringes were sold outside the U.S.. Theta forecasts a
growth rate for the U.S. market of between 6.80% and 7.27% annually for the 4
years following 1997, with total syringe unit sales reaching 8.7 billion in
2001. The reports indicate that there was a 6% conversion to safety in the U.S.
in 1997. The report further forecasts that safety will represent 10% of the
market in 1998; 30% in 1999; 50% in 2000 and 75% in year 2001. The report
indicates that the standard/safety prices were $0.11/$0.30, in 1997. Theta
forecasts that this price differential will be $0.10/$0.22 in 1998; $0.10/$0.18
in 1999; $0.10/$0.16 in 2000 and $0.09/$0.15 in 2001. This would imply that in
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2001, while having a 75% market share, safety syringes would command more than a
66% selling price premium over non-safety syringes. Theta further reports that
BD is currently the dominant market leader with a 71% share of the U.S. syringe
market in 1997.
Safety Blood Collection Needle. Med-Design's Safety Blood Collection
Devices were licensed to BD in December of 1998. In Theta's August 1998 report,
BD represents 73% of the U.S. blood collection market. Theta predicts a 15%
annually U.S. growth rate in safety blood collection devices. It is our belief
that unit sales for blood collection devices are in excess of one billion
devices per year in the U.S. and that the worldwide unit sales number is in
excess of two billion devices. Theta concludes that growth in the blood
collection market will be fueled by increased sales of safety product systems,
in response to the demand for safety-engineered needle devices.
Safety IV Catheters and PICC Introducers. The Theta Corporation, in its
latest report on the Catheter market (report No. 722), indicated that sales for
IV catheters in 1997 was 233 million units in the U.S. amounting to $232 million
and 420 million units internationally or $378.3 million. Of total international
sales Theta estimates 189 million units (45%) or $170 million was from the
European Economic Community, 147 million units (35%) or $132 million from Japan
and 84 million units (20%) or $76 million from the rest of the world. Theta
indicated that in 1997 safety catheters represented 21.5% of the total IV
catheter market in U.S. and 14% internationally. In its analysis of competition
in this market, Theta reports that BD is the market leader with a 45% market
share.
In its forecast for the five-year period following 1997, Theta is
estimating total worldwide unit sales growth for IV Catheters to reach 699.5
million in 1998, 754.1 million in 1999, 825.2 million in 2000, 907.6 million in
2001 and 992.8 million in 2002.
Med-Design believes that its totally passive safety IV Catheter Insertion
device, recently licensed by BD, significantly addresses the safety and
functional needs of the user.
Theta reports that in 1997 sales for peripheral insertion catheters
("PICC"), another market that would appear to benefit from safety, was 974,000
units or $36.7 million in the U.S. and 225,000 or $8.2 million internationally.
Theta makes no reference to any safety products in this market. Med-Design
believes that its safety PICC Introducer, recently licensed by BD, will address
this product deficiency.
Theta forecasts growth in the worldwide sales of PICC to grow between 13
and 20% over the next five years for unit sales of 1.3 million units/$47.9
million in 1998, 1.5 million units/$55.7 million in 1999, 1.8 million
units/$63.9 million in 2000, 2.0 million units/$72.3 million in 2001 and 2.3
million units/$80.1 million in 2002.
Products Under Development
Med-Design continues to modify and improve its product design where
necessary in order to optimize ergonomic performance, improve manufacturability,
and reduce manufacturing costs. Med-Design has developed prototypes for such
products, and continues to develop additional generations of prototypes to
represent any additional modification to their design. These products are in
various stages of development ranging from early concept to those products that
have been licensed and are in the technology transfer stage.
Safety Syringe. The Safety Syringe is similar in appearance, size and
performance to a standard non-safety disposable syringe and requires similar
operation technique. The operation of the Safety Syringe and standard disposable
syringe is the same to the point where the plunger has reached its full travel,
and the medication has been delivered. At this point, when operating the
Med-Design Safety Syringe, the needle automatically and fully retracts into the
body of the syringe as the user simply applies slight additional pressure to
move the plunger slightly beyond the normal stop. The needle is sealed in place,
having been made harmless and inoperable. The syringe and needle cannot
thereafter be used again. The Safety Syringe may then be safely disposed of,
posing no additional 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 barrels with various sizes.
Safety Blood Collection Needle. Blood Collection Needles are used to obtain
a sufficient volume of blood for a variety of diagnostic procedures.
Med-Design's Safety Blood Collection Needle works with substantially all
standard blood collection needle accessories, and is similar in appearance,
size, and performance to a standard
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needle retraction disposable device, except that it can be rendered safe by
activating the proprietary needle retraction mechanism. The operation of the
Safety Blood Collection Needle is conventional up to the point where sufficient
fluids have been extracted. Then, by depressing a conveniently located 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
Blood Collection Needle cannot thereafter be used again. The entire retraction
procedure takes only a fraction of a second to complete. The Safety Blood
Collection Needle may then be safely disposed of, posing no additional health
risk. The Safety Blood Collection Needle is easy to use and provides visual and
audible confirmation that the needle has been safely retracted after use.
Safety IV Catheter. An intravenous catheter includes a flexible tube that
is used to inject or continuously deliver fluids into a patient. Intravenous
catheters are inserted into a patient by catheter insertion devices using a
needle within the flexible catheter tube. The Med-Design Safety IV Catheter is
similar in appearance, size, and performance, to a standard non-safety
disposable device, except that it can be rendered safe by activating the
proprietary needle retraction 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 second to complete.
The Safety IV Catheter may then be safely disposed of, posing no additional
health risk. The Safety IV Catheter is easy to use and provides visual and
tactile confirmation that the needle has been safely retracted after use.
In addition, Med-Design has focused on a number of new products for
development. Most of these products have been designated for priority
development and were optioned, in December 1998 or December 1999, to BD. These
products include the Safety PICC Introducer, Safety Guidewire Introducer, the
Safety Blood Collection Set, the Safety Arterial Blood Gas Syringe, Safety
Pre-Filled Vial Injector, Safety Pre-Filled Syringe, Safety Wing Needle
Set/Catheter, Safety Blood Donor Needle Set, Safety Y-Port Infusion Needle,
Safety A/V Fistula Needle Set and Safety Dental Syringe Cartridge.
Safety PICC Introducer. The Safety PICC 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 into patients by
using an insertion device with 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 needle
retraction 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 disposed of, posing no additional 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, which is
used to place the guidewire in the patient's vein. Once the guidewire is placed,
a mid-line or other long-term type of 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, by the simple action of
removing the guidewire from the needle, 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 disposed of, posing no
additional 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.
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Safety Winged Blood Collection Set. The Safety Winged Blood Collection Set
is used to obtain a sufficient volume of blood for a variety of diagnostic
procedures. Med-Design's Safety Winged Blood Collection Set 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 needle retraction
mechanism. The device works with substantially all standard blood collection
needle accessories. The operation of the Safety Winged Blood Collection Set is
conventional up to the point where sufficient fluids have been extracted. Then,
by depressing a conveniently located 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 Blood
Collection Set cannot thereafter be used again. The entire retraction procedure
takes only a fraction of a second to complete. The Safety Winged Blood
Collection Set may then be safely disposed of, posing no additional health risk.
The Safety Winged Blood Collection Set is easy to use and provides visual and
audible confirmation that the needle has been safely retracted after use.
Safety Arterial Blood Gas Syringe. The Safety Arterial Blood Gas Syringe is
used to 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 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 is used
in the same way as a standard non-safety device needle, except that it can be
rendered safe by activating the proprietary needle retraction 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 conveniently located 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, which is 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 containing fluid medication
is an existing component used by many pharmaceutical manufacturers. 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 becomes integrated as a functional part of the plunger. Upon
initiating injection, is moved rearward into the vial as the vial moves forward
into the main housing and delivers 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 as the vial has reached its
full forward travel, causing the needle to automatically and fully retract into
the body of the device. Upon retraction, the Safety Pre-Filled Vial Injector
cannot be used again, as the needle is held in place and rendered harmless and
inoperable. The Safety Pre-Filled Vial Injector may then be safely disposed of,
posing no additional 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.
Safety Pre-Filled Glass Syringe. The Safety Pre-Filled Glass Syringe is
similar in appearance, size, and performance to a standard non-safety pre-filled
disposable syringe, and can be rendered safe, using one hand, with no
substantial change in operation technique. 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 removing the thumb from the
rear of the plunger, 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 disposed of, posing no additional health risk. The
Safety Syringe is easy to use and provides visual and audible confirmation that
the needle has been safely retracted after injection.
Safety Wing Needle Set/Catheter. The Safety Wing Needle Set/Catheter is
used to continuously deliver fluids into a patient's vein, and is similar to a
Winged Infusion Set with the exception of the flexible catheter over
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the needle for long-term therapy. The flexible catheter is inserted into the
patient's vein by a steel needle within the flexible catheter, in the same
manner as a standard non-safety Winged Infusion Set. Med-Design's Safety Wing
Needle Set/Catheter works with substantially all standard blood collection
needle accessories, and is similar in appearance, size and performance to a
standard non-safety disposable device, except that it can be rendered safe by
activating the proprietary needle retraction mechanism. When the venous access
has been successfully completed and verified by the visibility of blood within
the flashback area, the conveniently located button on the side of the device is
pushed and the needle retracts into the body of the device. The sharp end of the
insertion needle is completely shielded within the hub portion of the wings, and
the catheter wings can be taped to the patient in a conventional manner. The
intravenous fluid from a gravity bag or infusion pump flows through the
retracted steel needle because of a slidable sealing feature within the flexible
wings. Upon completion of the infusion therapy procedure, the Safety Wing Needle
Set/Catheter is removed from the patient, and since the needle is fully
retracted there is no possibility of an accidental needle stick injury. The
Safety Wing Needle Set/Catheter may then be safely disposed of, posing no
additional health risk.
Safety Blood Donor Needle. The Safety Blood Donor Needle is used to access
a blood donor's vein to draw blood in an amount equivalent to the volume of a
donor blood bag. The Safety Blood Donor Needle is similar in appearance, to a
standard non-safety blood donor needle, and is used in an identical fashion,
except that it can be rendered safe by activating the proprietary needle
retraction mechanism. The Needle is compatible with substantially all standard
blood bag-tubing sets. The operation of the Safety Blood Donor Needle is
conventional up to the point where sufficient blood has been extracted into the
donor bag. Then, after withdrawing the needle from the patient, needle
retraction is actuated by depressing a convenient 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
Blood Donor Needle cannot thereafter be used again. The entire retraction
procedure takes only a fraction of a second to complete. The Needle may then be
safely disposed of, posing no additional health risk. The Safety Blood Donor
Needle is easy to use and provides visual and audible confirmation that the
needle has been safely retracted after use.
Safety Y-Port Infusion Needle. Y-Ports are devices used in intravenous
therapy as a means to deliver secondary fluids into a primary intravenous fluid
line for delivery into a patient's vein. The Safety Y-Port Infusion Needle
consists of a cylindrical barrel, holding an injection needle that can be
automatically and safely retracted within a specially designed barrel. The
barrel of the Safety Y-Port Infusion Needle is fitted with a tube fitting, which
protrudes from the barrel at an angle allowing connection of a tubing line for
delivery of the secondary fluid. A needle assembly is fixed to the front-end of
the barrel, and is inserted into an injection port on the primary intravenous
line for delivery of the secondary fluid. After completion of the delivery of
the secondary fluid, safety needle retraction of the Safety Y-Port Infusion
Needle is actuated to cause the needle to automatically and fully retract into
the barrel. The needle is held in place and is rendered harmless and inoperable,
and the device cannot be used again. The Safety Y-Port Infusion Needle is easy
to use and provides visual and audible confirmation that the needle has been
safely retracted after use. The Safety Y-Port Infusion Needle may then be safely
disposed of, posing no additional health risk.
Safety Winged Fistula Needle Set. Safety A/V Fistula Needle Sets are used
to access a vein and an artery to perform a hemodialysis procedure. Hemodialysis
is performed to remove toxic wastes from the blood of patients in renal failure.
Two Safety Winged Fistula Needles are used to access the vein and the artery at
the arteriovenous fistula sites. The Safety Winged Fistula Needle is similar to
the Safety Winged Set Blood Collection Needle in that a larger gauge needle is
used and the flexible extension tube terminates with a simple female Luer
fitting. The Safety Winged Fistula 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 needle retraction mechanism. The operation of the Safety Winged
Fistula Needles is conventional up to the point where the hemodialysis procedure
is complete. Then, after withdrawing the needles from the arteriovenous fistula
sites, needle retraction is activated by depressing a conveniently located
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 Fistula Needles cannot thereafter be used again.
The entire retraction procedure takes only a fraction of a second to complete,
and the needles may then be safely disposed of, posing no additional health
risk. The Safety Winged Fistula Needles are easy to use and provide visual and
audible confirmation that the needles have been safely retracted after use.
Safety Dental Cartridge Syringe. The Safety Dental Cartridge Syringe is
used to administer anesthetics in dental procedures. This device features
automatic needle retraction during and after serial injections that are used
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during typical dental procedures. To minimize operator training issues, the
Safety Dental Cartridge Syringe has similar user techniques to the standard
Dental Cartridge Syringe. The needle retracts with a one-handed passive
technique and locks the retracted needle inside the device housing. In addition,
the product utilizes standard dental needles and anesthetic cartridges and
allows for aspiration. The Safety Dental Cartridge Syringe is easy to use,
provides visual and audible confirmation that the needle has been retracted ,
and meets the needs of the Dental Health Care practitioner.
In addition to Med-Design's three core products and the early stage
products described above, Med-Design has identified several additional product
applications for its proprietary retraction technology and Med-Design plans to
devote available resources in 2000 to research and develop such products.
Research and Development
Med-Design has devoted substantially all of its research and development
efforts since its formation to safety needles and equipment necessary to
assemble the safety needle devices. Research and development expenses amounted
to $1,228,101 in 1999 and $1,106,501 in 1998.
In 1995, Med-Design completed the construction of a research and
development laboratory at its facility in Ventura, California that is equipped
with assembly and test equipment for product development and feasibility
testing. In addition, Med-Design completed a machine shop equipped with machine
tools for fabrication of new product parts for concept modeling and assembly and
test fixtures. Med-Design also installed a Class 100,000 clean room at the
Ventura facility which is currently used for the hand assembly of prototypes of
Med-Design's products and will ultimately be used in connection with the pilot
manufacturing of various Med-Design products on a semi- automated assembly
system or a fully automated robotic assembly system, if Med-Design installs such
a system.
Med-Design intends to continue to modify and improve the design of its
products driven by additional market research and in response to needs developed
in discussions with potential strategic partners. In addition, Med-Design
intends to devote resources to the research and development of additional safety
needle devices and products that incorporate Med-Design's proprietary retraction
technology for use in the healthcare industry.
Marketing and Sales
Med-Design's core strategy continues to be the commercialization of its
products through strategic alliances and licenses with third parties to market
and sell its products in the United States, Western Europe, Japan and elsewhere.
In addition to the products which are the subject of the licensing and
option agreement with BD, Med- Design is currently investigating additional
licensing agreements or other forms of joint venture with third parties,
including BD, in the United States and abroad to manufacture, market and
distribute its other products. Med-Design has entered into several
confidentiality agreements with other companies for the purpose of exploring
such opportunities. Med-Design anticipates that entering into alliances and
licensing arrangements with third parties such as those agreements recently
entered into with BD, will enable Med-Design to increase the market penetration
of its products more quickly than Med-Design could achieve on its own.
Med-Design, its licensees and strategic partners are not permitted to sell
any of Med-Design's 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. While Med-Design has applied for and received 510(k)
pre-market notification from the FDA for early versions of its Safety Catheter,
and Safety Blood Collection Needle, Med-Design has no current plans to file for
any additional 510(k) pre-market notification on its own behalf. Instead,
Med-Design intends to assist its licensors or other strategic partners in such
filings, if requested.
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,
Med-Design, its licensors, or strategic partners must comply with the laws and
regulations of the various foreign countries in which Med-Design or its
licensors, or strategic partners plans to sell or license the Safety Catheter,
Safety Blood Collection Needle, Safety Syringe and other products prior to
selling such products in such foreign countries. Certain foreign countries may
only require Med-Design or its licensors, or strategic partners to submit
evidence of the FDA's pre-market clearance of Med-Design's products,
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prior to selling in such countries. However, some foreign countries may have
more stringent requirements and require additional testing and approvals.
Med-Design signed an agreement on February 23, 1998 with Graphic Controls
Corporation for the development and licensing of its proprietary Safety
Intravenous Catheter Insertion Device. In December 1998, Med-Design and Graphic
Controls Corporation amicably canceled the agreement for the development and
licensing of its Safety Intravenous Catheter Insertion Device. This device was
ultimately included in the licensing agreement with BD.
Med-Design has provided a limited quantity of its Safety Syringes, Safety
Catheters, Safety Blood Collection Needles, 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, Med-Design 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 product parts for concept
modeling and assembly, and the fabrication of prototype molds and test fixtures.
Med-Design 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. Med-Design installed a semi-automated assembly system to pilot
manufacture its products and which is capable of being used for the assembly of
both prototypes and products intended for sale.
The semi-automated assembly system, which consists of a series of manual
and semi-automatic stations, with additions and modifications, is capable of
producing up to 6,000,000 units per year. The assembly system can produce one or
more of Med-Design's products at a time, and has the capability of being
converted to pilot manufacture a different product at such time as Med-Design
may decide. Med-Design completed installation of the system during the third
quarter of 1997. Med-Design is currently utilizing these manufacturing
facilities to produce limited quantities of one or more of its products to
demonstrate the economic feasibility of the commercial production of
Med-Design's products to potential third party manufacturers.
Med-Design is currently in negotiations with third parties for the Company
to provide the manufacturing of certain of its licensed products in furtherance
of the commercialization of these products. Med-Design has sufficient facilities
to perform these tasks, and if successful in these negotiations, intends to
perform certain product manufacturing for both prototype and product intended
for sale.
Although Med-Design continues to envision the use of these facilities to
perform "product-for-sale" manufacturing of one or more of its currently
non-licensed products, Med-Design may ultimately contract with third parties for
all or a portion of the needed production of such products through contract
manufacturing licensing agreements or other form of joint venture.
Patents and Proprietary Rights
Med-Design'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. Med-
Design'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. Furthermore, on occasion, Med-Design
enters into discussions with third parties, such as potential customers or
licensees, and when proprietary information of Med-Design will be disclosed,
Med-Design enters into confidential disclosure agreements with such parties.
Med-Design's U.S. patent rights currently consist of eleven United States
patents, covering various aspects of the Safety Syringe, the Safety Blood
Collection Needle, the Safety Catheter, the Y-Port Intravenous access device,
and the pre-filled vial injector. Med-Design has been granted patents relating
to the Safety Syringe in Europe, Japan, Australia, Bulgaria, Hungary, and in
Romania. The issued European patent has been validated in
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Austria, Switzerland, Germany, Denmark, France, Spain, the United Kingdom,
Greece, Italy, the Netherlands, and Sweden. Corresponding regional and national
patent applications relating to the Safety Syringe are pending in six other
member countries of the Patent Cooperation Treaty. A further European patent
application was allowed in 1998, and will cover additional aspects of the device
covered in the previously issued European patent.
Med-Design has also been granted three patents in Taiwan relating
respectively to the Safety Catheter, the pre-filled vial injector, and the
Y-Port Intravenous access device.
Foreign patent applications relating to the Safety Catheter are now pending
in Canada, China, Europe, Japan, Mexico, and Singapore. Applications for the
Pre-Filled Vial Injector System are pending in Indonesia, Canada, Europe, Japan,
Mexico, and Singapore.
A total of fourteen U.S. applications, eight international applications,
and twenty-one foreign national/regional patent applications are pending to
cover Med-Design's retractable needle technology and specific products based on
Med-Design's technology.
There can be no assurance that Med-Design's current patent applications and
provisional patent applications will result in patents being issued.
On December 11, 1998, Med-Design entered into a licensing agreement, an
option licensing agreement and equity agreement with BD. Under the terms of the
agreement, Med-Design granted BD exclusive worldwide rights under Med-Design's
patent rights to make, sell, or sublicense certain other products. The licensed
products include the Safe Step Safety Blood Collection Needle, the Safe Step
Safety Winged Set Blood Collection Needle, the Safe Step Safety Wing Needle
Set/Catheter, the Safe Step Safety PICC Catheter System, and the Safe Step
Safety I.V. Catheter Systems. Med-Design also granted BD an option to the
exclusive worldwide rights under Med- Design's patent rights to make, use, sell,
or sublicense certain other products, including the Safety Hypodermic Syringe
(fixed or stake needle-type), the Safety Hypodermic Syringe (luer-type), the
Safety Arterial Blood Gas Syringe (add-on type), the Safety Pre-Filled Glass
Syringe (fixed or stake needle-type) and the Safety Pre-Filled Glass Syringe
(luer- type). Additionally, Med-Design assigned U.S. Patent No. 4,900,307 for
the Safety Retracting Needle For Use With Syringe to BD. Pursuant to the
Agreement, BD granted back to Med-Design a license under U.S. Patent No.
4,900,307 to make, use, sell or sublicense certain products.
On December 13, 1999, in order to facilitate ongoing discussions,
Med-Design agreed to extend the initial option agreement covering five products
until January 25, 2000, allowing BD to acquire worldwide licenses to manufacture
and sell these five safety devices, in return for up-front licensing payments
and ongoing royalties, to be negotiated. BD and Med-Design have also agreed to
expand the number of products under licensing consideration to include an
additional nine of Med-Design's proprietary safety needle devices. The
additional agreement grants BD the right, until March 24, 2000, to acquire
worldwide licenses to manufacture and sell these nine safety devices, in return
for up-front licensing payments, of which $1.5 million is already received, and
ongoing royalties, to be negotiated. In addition to the safety hypodermic
syringe, the products cover a broad range of other safety sharp devices
including pre-filled syringes and injectors for medical and dental applications,
specialty syringes, venous and arterial needles, introducer needles, and
anesthesiology needles.
On January 25, 2000, BD and Med-Design agreed to add its Safety AV Fistula
Needle for use in hemodialysis to the list of safety needle products currently
under evaluation and negotiation with BD. This brings the total number of
products currently under option to BD to 15. Med-Design also agreed to extend
the option scheduled to expire on January 25, 2000 for an additional 45 days in
order to coordinate the evaluation and negotiation of all products currently
under option to BD. BD has agreed to an additional undisclosed financial
consideration for this option extension and additional Option Product. In
addition to the five products already under license by BD, this brings the total
number of products under agreement with BD to 20.
As Med-Design proceeds toward final designs for its Safety Syringe, Safety
Blood Collection Needle and Safety Catheter devices, Med-Design is having
searches conducted in the United States for unexpired patents owned by others
that may conflict with such final product designs. Med-Design, however, has not
conducted 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 Med-Design's planned activities.
Furthermore, Med-Design is considering appropriate modifications to the product
designs to optimize the final products and to avoid potential
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conflicts with the patents of others. To the extent that such final product
designs may not be protected by Med- Design's existing patents and patent
applications, Med-Design 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 Med-Design will be able to obtain patent
protection for its products.
There can also be no assurance that any patents owned by or issued to
Med-Design, or that may be issued to Med-Design in the future, will provide a
competitive advantage or will afford protection against competitors with similar
technology, or that competitors of Med-Design will not circumvent, or challenge
the validity of any patents issued to Med-Design. There also can be no assurance
that any patents issued to or licensed by Med-Design will not be infringed upon
or designed around by others, that others do not have or will not obtain patents
that Med-Design will need to license or design around, that Med-Design's
products will not inadvertently infringe upon the patents of others, or that
others will not make Med-Design's patented devices upon expiration of such
patents. Moreover, although Med-Design 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 Med-Design 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 Med-Design's patent rights, the enforcement by
Med- Design of its non-disclosure agreements can be lengthy and costly, with no
guarantee of success.
If Med-Design becomes involved with patent infringement litigation, either
to enforce Med-Design's patents or defend against patent infringement suits,
such litigation would be lengthy and expensive, and if it occurs, would divert
Company resources from planned uses. Further, any adverse outcome in such
litigation could have a material adverse effect on Med-Design. If any of
Med-Design's products are found to infringe upon the patents or proprietary
rights of another party, Med-Design 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 Med- Design, if at all.
In addition, patent applications filed in foreign countries and patents granted
in such countries are subject to laws, rules and procedures that differ from
those in the United States. Patent protection in such countries may be different
from patent protection provided by United States laws and may not be as
favorable to Med-Design. There can be no assurance that Med-Design's program of
patent protection and non-disclosure agreements will be sufficient to protect
Med-Design's proprietary technology from competitors. With respect to
trademarks, Med-Design has obtained a U.S. registration for the mark "SafeStep".
Med- Design may apply for other trademarks in the future.
Competition
The safety medical device market is highly competitive. Med-Design will
compete in the United States and abroad with medical product companies,
including Tyco, Kendall, Sherwood Davis and Geck, Terumo Medical, B. Braun,
Johnson & Johnson, and Bio-Plexus, Inc. Several of these companies also
manufacture safety needles. Med-Design's products would compete with the
standard and safety products manufactured by these and other companies in the
United States and in certain foreign countries. Many of Med-Design's competitors
have better name recognition in the market, longer operating histories, and are
substantially larger and better financed than Med-Design. 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 Med-Design's
products. New competitors may arise and may develop products which compete with
Med- Design's products. In addition, new technologies may arise which could
lower or eliminate the demand for Med- Design's products. Med-Design 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, and in 1998 the
State of California enacted safety needle legislation mandating full compliance
of all health care facilities within the state by July 1, 1999. Since the
passing of the California legislation, 18 additional states plus the District of
Columbia are either considering or drafting similar legislation as of the
writing of this filing.
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
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treating persons who contract an illness or infection from an accidental
needlestick, the time lost from work and death. Although Med-Design 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, Med-Design believes
that, based upon estimated costs associated with accidental needlesticks, its
products should be considered cost effective by the marketplace.
Med-Design believes that unlike its products, 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). The methods of use and disposal of the Safety Syringe,
Safety Blood Collection Needle and Safety Catheter are virtually identical to
the present methods of use and disposal for standard syringes, blood collection
needle and intravenous catheter insertion devices.
Government Regulation
Med-Design'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 Med-Design'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 ("GMP"), 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 noncompliant 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 Med-Design'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.
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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 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 the FDA will approve a PMA application.
Although the 510(k) pre-market clearance process is ordinarily simpler and
faster than the PMA application process, there can be no assurance that
Med-Design, its licensee, or strategic partners 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, Med-Design will not be required to submit additional data or meet
additional FDA requirements that may substantially delay the 510(k) process and
add to Med-Design'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 Med-Design'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.
Med-Design 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, Med-Design 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 Med-Design's products in countries other than the United
States may be subject to regulation in those countries. There can be no
assurance that Med-Design, its licensors or strategic partners will be able to
obtain the approvals necessary to market its needle devices or any other product
outside the United States.
Employees
As of February 28, 2000, Med-Design employed 18 people on a full-time basis
and one person on a part-time basis. Med-Design believes its employee relations
are satisfactory. Med-Design anticipates increasing employees in certain
strategic areas pending the outcome of continued discussions and negotiations
with third parties regarding the licensing or joint venture of its early
development stage products.
15
<PAGE>
Environmental Matters
Med-Design believes its operations are currently in compliance in all
material respects with applicable Federal, state, and local laws, rules,
regulations, and ordinances regarding the discharge of material into the
environment. Such compliance has no material impact upon Med-Design's capital
expenditures, earnings or competitive position, and no capital expenditures for
environmental control facilities are planned.
Subsequent Events
On January 25, 2000 Med-Design agreed to extend the option scheduled to
expire on January 25, 2000 for an additional 45 days to evaluate and negotiate
all products under option with BD for an undisclosed consideration.
On February 9, 2000 Med-Design purchased a safety syringe patent issued to
Dr. Edward Allard in June 1989. This patent acquisition significantly increased
the design and manufacturing flexibility for the Company's safety syringe
product and has measurably enhanced its compressive portfolio of intellectual
property to protect against any infringement of the Company's safety syringe
patents. Med-Design, for consideration of the patent, issued Dr. Edward Allard
and Daniel Longmire, the co-inventor, 14,416 shares of Common Stock and cash of
$220,000.
Med-Design issued a warrant for 100,000 shares of common stock to an
outside consultant in 1995. In January 2000, the warrant was extended through
August of 2000. The Company will recognize expense of $823,270 in the first
quarter of 2000 with respect to this warrant.
ITEM 2. DESCRIPTION OF PROPERTIES
Med-Design leases approximately 26,000 square feet of space in Ventura,
California for Med-Design's corporate headquarters, pilot manufacturing plant,
research and development facilities and offices for a base rent of $12,476 per
month. Currently, approximately 8,700 square feet of the space is being used by
Med-Design 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 Med-Design's products and ultimately will be
used to pilot manufacture its products. The remaining space is being used for
shipping and handling, quality control inspection, parts storage, finished
products and equipment. Med-Design 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 Med-Design has the option to extend the
term for two additional 36 month periods as well as the option to purchase this
facility.
Med-Design leased approximately 3,236 square feet of office space in
Philadelphia, PA., which at one time, was the corporate headquarters for
Med-Design. In March 1998, Med-Design 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 Med-Design in
Philadelphia was subleased.
Med-Design believes that its facilities are adequate for its current needs
and that suitable additional or substitute space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending or, to the knowledge of management,
threatened against Med- Design.
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, 1999 through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
16
<PAGE>
Med-Design's common stock has been approved for trading on the NASDAQ
SmallCap Market under the symbol ("MEDC") since Med-Design'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 Med-Design's Common Stock in the NASDAQ SmallCap Market:
Market Information
<TABLE>
<CAPTION>
Fiscal year ended December 31, 1998 High Low
----------------------------------- --------- ------
<S> <C> <C>
First Quarter ............................................................. $ 5 1/2 2 7/16
Second Quarter ............................................................ 3 19/32 3/4
Third Quarter ............................................................. 2 1
Fourth Quarter ............................................................ 6 3/4 1 1/2
Fiscal year ended December 31, 1999 High Low
------------------------------------ --------- -------
First Quarter ............................................................. $ 4 9/16 2 15/16
Second Quarter ............................................................ 8 1/4 3 3/16
Third Quarter ............................................................. 7 3/8 3 1/2
Fourth Quarter ............................................................ 16 1/4 3 3/4
</TABLE>
Holders
As of February 28, 2000, Med-Design had 142 holders of record of the Common
Stock. Since a portion of Med-Design's Common Stock is held in "street" or
nominee name, Med-Design is unable to determine the exact number of beneficial
holders.
Dividends
Med-Design has never declared or paid a cash dividend on its Common Stock.
Med-Design 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 on common stock is at the discretion of Med-Design's
Board of Directors and will depend upon Med- Design's financial conditions,
results of operations, capital requirements, limitations contained in loan
agreements and such other factors as the Board of Directors deems relevant.
On December 11, 1998, Becton Dickinson made an equity investment in Series
A Preferred Stock of Med- Design. Dividends are payable at a rate of 8% per
annum, on a cumulation basis, in cash or in additional preferred stock at the
discretion of Med-Design.
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 Med-Design which
appear elsewhere herein.
To date, Med-Design has earned no revenues from product sales, however,
Med-Design earned revenues in 1998 from licensing activities and anticipates
that revenues will be recorded during the next twelve months from licensing of
additional products to Beckon, Dickinson and Company and/or other strategic
partners.
17
<PAGE>
Plan of Operation
Med-Design plans to focus on the following four areas of activity in 2000:
technology transfer of the recently licensed products; the licensing and final
development of those products currently under option to Becton Dickinson; the
further development and licensing of additional products; the development of
incremental revenues related to design and development and manufacturing
agreements with licensing partners.
Technology Transfer
The transfer technology of the Safety Blood Collection Needle, Safety
Winged Set Blood Collection Needle, Safety Catheter, Safety Wing Needle
Set/Catheter and Safety PICC Introducer Catheter Insertion Device to Becton
Dickinson under the terms of a license agreement is currently underway.
Optional Products
Med-Design also plans to complete concept development of the Safety
Hypodermic Syringe (fixed or stake needle type), the Safety Hypodermic Syringe
(luer type), the Safety Arterial Blood Gas Syringe (add-on and fixed types), the
Safety Pre-Filled Glass Syringe (luer type), and the Safety Pre-Filled Glass
Syringe (fixed or stake needle type), Safety PICC Introducer, Safety Guidewire
Introducer, the Safety Blood Collection Set, Safety Pre-Filled Vial Injector,
Safety Pre-Filled Syringe, Safety Wing Needle Set/Catheter, Safety Blood Donor
Needle Set, Safety Y- Port Infusion Needle, and Safety A/V Fistula Needle Set
each of which is subject to BD's option to license. Med- Design is obligated, at
BD's request, to negotiate for the licensing of such products during the term of
the option agreement which expires on March 24, 2000.
Additional Products
Med-Design also plans to advance concept development and modeling of
certain other products that are not currently under licensing or option
agreements. Med-Design also plans to continue discussions and negotiations with
third parties regarding the licensing or joint venture of these products.
Med-Design plans to support such product development programs, discussions, and
negotiations, including the building of necessary prototypes with currently
available funds.
Med-Design is also investigating opportunities with third parties,
including BD, to manufacture, market and distribute Med-Design's products.
Med-Design anticipates that entering into alliances and licensing arrangements
with third parties would enable Med-Design to increase market penetration of its
products more quickly than Med-Design could achieve on its own. Med-Design has
entered into such arrangements with Beckon Dickinson as mentioned.
Other Business
Med-Design is currently in negotiating with third parties to provide
additional design, development and manufacturing in furtherance of the
commercialization of the products. Med-Design has sufficient facilities to
perform these tasks. Med-Design's facility in Ventura, California 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 fabrication of prototype molds and test fixtures. Med-Design also
installed a 3,120 square foot Class 100,000 clean room at the facility, which is
capable of being used for the semi-automated assembly of both prototypes and
products intended for sale.
As a result of discussions with third parties, Med-Design has installed a
semi-automated assembly system at the facility to pilot manufacture its
products. The objective of Med-Design 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, with additions
and modifications, is capable of producing up to 6,000,000 units of commercial
products per year.
The assembly system will produce one or more of Med-Design'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 Med- Design may
decide. Med-Design completed the system during the third quarter of 1997.
18
<PAGE>
Med-Design anticipates earning revenues in 2000 from one or more of the
following: licensing or optioning of additional products; third party
development agreements and royalty payments in association with licensed
products.
As of February 28, 2000, Med-Design employed 18 people on a full-time basis
and one person on a part-time basis. Med-Design anticipates increasing employees
in certain strategic areas pending the outcome of continued discussions and
negotiations with third parties regarding the licensing or joint venture of its
early stage development products.
Liquidity and Capital Resources
At December 31, 1999, Med-Design had an accumulated deficit of $22,331,825,
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
Med-Design. Med-Design has financed its activities through December 31, 1999
principally through debt, the private placement of equity securities, its
initial public offering, licensing fee and an equity investment from Becton
Dickinson.
As of December 31, 1999, Med-Design's working capital was $2,804,131
including cash and cash equivalents of $682,120, and available-for-sale
securities of $4,180,262, as compared to working capital of $5,664,894, at
December 31, 1998, including cash and cash equivalents of $32,883, and
available-for-sale securities of $6,111,620, a decrease of $2,860,763.
The current ratio of current assets to current liabilities was 2.26 to 1 at
December 31, 1999, as compared to 9.68 to 1 at December 31, 1998. Med-Design's
primary source of cash in 1999 consisted of: (1) proceeds from the option
agreement with Becton Dickinson, $1,500,000; (2) proceeds from the exercise of
stock options and warrants, $986,344. Med-Design's primary uses of cash in 1999
consisted of (1) cash used in operations, $3,472,997; (2) purchase of fixed
assets of $46,988 ; (3) payments to acquire and develop patents, $255,644.
At December 31, 1999, Med-Design was party to a revolving line of credit
totaling $3,000,000 with its principal lending institution. This facility can be
used to fund working capital needs and finance capital equipment purchases;
provided, however, that advances for capital equipment financing cannot exceed
$600,000. Borrowings to meet working capital needs bear interest at LIBOR plus
2.25 basis points, while borrowings to finance capital equipment purchases bear
interest at prime plus 2.5%. Pursuant to the terms of the facility, all
borrowings must be fully collateralized by available-for-sale securities, cash,
cash equivalents, equipment financed, and general intangibles of Med-Design.
There were no obligations outstanding under the agreement at December 31, 1999.
The facility expires on May 30, 2001 and there is no assurance that Med-Design
will be successful in negotiating a continuation of the availability of the Loan
Agreement and what terms will be made available to Med-Design.
Med-Design's debt to equity ratio was .27:1 and .29:1 at December 31, 1999
and 1998 respectively.
There were no capital expenditures for the year ended December 31, 1998 and
$46,988 for the year ended December 31, 1999. Med-Design does not anticipate any
significant capital expenditures in 2000.
Management believes that Med-Design has sufficient funds to support its
planned operations and capital expenditures for the next twelve months.
Thereafter Med-Design will rely on negotiating licensing and royalty agreements
with its current and future strategic partners. Becton Dickinson, as part of the
option licensing agreement, was granted an option to license several products.
No assurance, however, can be given that Med- Design will be able to conclude
final negotiations on these option products. If Med-Design is unsuccessful in
negotiating future agreements, Med-Design 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.
Med-Design'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.
New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Adventures".
SFAS No. 133 is effective for all fiscal quarters of all fiscal
19
<PAGE>
years beginning after June 15, 1999. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earning or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. Management anticipates
that the adoption of SFAS No. 133 will not have a significant effect on the
Company's results of operations or its financial position since the company
currently does not use derivative instruments.
ITEM 7. FINANCIAL STATEMENTS
Incorporated by reference from the consolidated financial statements and
notes thereto of Med-Design 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 Med-Design'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.
20
<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 Med-Design 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, 1999 and 1998 F-3
Consolidated Statements of Operations for years ended December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999 F-5
and 1998
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 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.
Exhibit
Number Description
-------- --------------------------------------------------------------
2.1 (1) Agreement of Merger dated as of April 5, 1995 by and among
Med-Design, 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 Med-Design to
Anker & Hymes, a Law Corporation ("Anker & Hymes"), Client
Trust Account for the benefit of all of the 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 Med-Design.
3.2 (1) Amendment to Certificate of Incorporation of Med-Design.
3.3 (1) Bylaws of Med-Design.
4.1 (1) Specimen of Common Stock Certificate of Med-Design.
21
<PAGE>
Exhibit
Number Description
-------- --------------------------------------------------------------
10.1 (1) Employment Agreement dated as of April 5, 1995 between
Med-Design and James M. Donegan.
10.2 (1) Employment Agreement dated as of April 5, 1995 between
Med-Design and John A. Botich.
10.3 (1) Employment Agreement dated as of April 5, 1995 between
Med-Design and Michael J. Botich.
10.4 (1) Employment Agreement dated as of April 5, 1995 between
Med-Design and Thor R. Halseth.
10.5 (2) Non-Qualified Stock Option Plan.
10.5 (3) Amended and Restated Non-Qualified Stock Option Plan.
10.6 (2) Warrant dated August 15, 1995 from Med-Design and J.E.
Sheehan & Company.
10.7 (2) Warrant dated August 15, 1995 from Med-Design to
Dominque A. Bodevin.
10.8 (2) Warrant dated August 15, 1995 from Med-Design to Roger Favale.
10.9 (1) Underwriters Warrant Agreement dated June 6, 1995 between
Med-Design and Gilford Securities Incorporated.
10.10 (3) Placement Agent Agreement dated as of January 8, 1997 by and
between Med-Design and Fine Equities, Inc. ("Fine").
10.11 (3) Form of Subscription Agreement between Med-Design 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 Med-Design for
N. Scott Fine.
10.14 (6) Warrant dated January 23, 1997 from Med-Design for
M. Troy Duncan.
10.15 (6) Warrant dated January 23, 1997 from Med-Design to
Sharon Bronte.
10.16 (6) Warrant dated January 23, 1997 from Med-Design 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.
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 Med-Design and
Meridian Bank
10.21 (2) Security Agreement dated July 26, 1995 between Med-Design and
Meridian Bank.
22
<PAGE>
Exhibit
Number Description
-------- --------------------------------------------------------------
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 Med-Design 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 Med-Design
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 Med-Design in favor
of MDC Holdings.
10.36 (4) Amendment to Security Agreement dated April 4, 1996 between
Med-Design and Meridian Bank.
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.
23
<PAGE>
Exhibit
Number Description
-------- --------------------------------------------------------------
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 Med-Design 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
Med-Design and Eagle National Bank ("Eagle Bank").
10.45 (2) Form of Promissory Note dated July 12, 1995 from Med-Design
in favor of Eagle Bank.
10.46 (2) Form of Security Agreement dated July 12, 1995 between
Med-Design and Eagle Bank.
10.47 (2) Form of Assignment of Deposit Account dated July 12, 1995
from Med-Design to Eagle Bank.
10.48 (2) Lease Agreement dated June 15, 1995 between Moen Development
and MDC Research Ltd. And guaranteed by Med-Design.
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.
10.50 (9) Warrant dated September 9, 1998 from Med-Design to
John F. Kelley.
10.50 (2) Employment Agreement dated as of August 1, 1995 between
Med-Design and Donald Shea.
10.51 (2) Employment Agreement June 1995 between Med-Design and
Patrick E. Rodgers.
10.52 (2) Employment Agreement June 1995 between Med-Design and
John Osborne.
10.53 (2) Employment Agreement between Med-Design and Gilbert White.
10.54 (9) Warrant dated March 19, 1997 from Med-Design to
John F. Kelley.
10.55 (9) Warrant dated October 10, 1997 from Med-Design to
John F. Kelley.
10.56 (9) Warrant dated January 14, 1998 from Med-Design to
John F. Kelley.
10.57 (9) Warrant dated January 14, 1998 from Med-Design to Gilbert
White.
10.58 (9) Repriced option agreement October 10, 1997 from Med-Design to
John Kelley.
10.59 (9) Repriced option agreement October 10, 1997 from Med-Design to
John Marr.
24
<PAGE>
Exhibit
Number Description
-------- --------------------------------------------------------------
10.60 (9 Consulting agreement between Med-Design and John Botich.
10.61 (9) Revised warrant agreement between Med-Design and John Kelley.
10.62 (9) Revised warrant agreement January 14, 1998 between Med-Design
and John Kelley.
10.63 (9) Licensing and Option Agreement December 11, 1998 with Becton,
Dickinson and Company.
10.64 (9) Equity agreement December 11, 1998 with Becton, Dickinson and
Company.
10.65 (9) Registration Rights Agreement with the Pennsylvania
Merchant Group.
10.66 (9) Debenture Purchase Agreement with the Pennsylvania
Merchant Group.
10.67 (9) Form of Debentures with the Pennsylvania Merchant Group
10.68 Option Agreement December 11, 1999 with Becton Dickinson
and Company
10.69 Warrant dated March 5, 1999 between Med-Design and Jim Donegan
10.70 Warrant dated March 5, 1999 between Med-Design and
Joseph Bongiovanni
10.71 Warrant dated November 11, 1999, between Med-Design and
Michael Simpson
10.72 Second Amendment to Option Agreement January 25, 2000 with
Becton, Dickinson and Company
21 (1) List of Subsidiaries of Med-Design.
27 (7) Financial Data Schedule.
(b) No Reports on Form 8-K were filed in the quarter ended December 31, 1999.
- -----------------------
(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-QSB filed on March 31, 1997.
(3) Incorporated by reference to Form 10-QSB filed on May 15, 1998.
(4) Incorporated by reference to Form 10-QSB filed on August 14, 1998.
(5) Incorporated by reference to Form 10-QSB filed on November 9, 1998.
(6) Incorporated by reference to Form 8-K filed January 8, 1999.
(7) Electronic filing only.
(9) Incorporated by reference to Form 10-KSB December 31, 1998.
25
<PAGE>
Index to Consolidated Financial Statements
Page
----
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1999
and 1998 . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .F-3
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-7 to F-19
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders of
The Med-Design Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of The
Med-Design Corporation and subsidiaries (the "Company") at December 31, 1999 and
1998, and the results of their operations and their cash flows for the years
ended December 31, 1999 and 1998 in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, PA
February 25, 2000
F-2
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 682,120 $ 32,883
Available-for-sale securities 4,180,262 6,111,620
Prepaid expenses and other current assets 172,680 173,006
------------ ------------
Total current assets 5,035,062 6,317,509
Property, plant, and equipment, net 698,571 865,267
Patents, net of accumulated amortization of $132,276 and $80,766
at December 31, 1999 and December 31, 1998, respectively 1,110,013 788,629
Debt issue costs, net of accumulated amortization of $151,560 and $53,720
at December 31, 1999 and December 31, 1998, respectively 413,640 511,480
------------ ------------
Total Assets 7,257,286 8,482,885
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $250,000 $250,000
Current maturities of long-term debt and capital lease obligations 12,251 10,492
Accounts payable 277,031 215,426
Accrued expenses 191,650 176,697
Licensing Fee Advance 1,500,000
------------ ------------
Total current liabilities 2,230,932 652,615
Long-term debt and capital lease obligations, less current maturities 1,073,797 1,579,824
------------ ------------
Total liabilities 3,304,729 2,232,439
Commitments and Contingencies
Stockholders' equity
Preferred stock, $.01 par value, 5,000,000 shares authorized;
300,000 shares issued and outstanding 3,000 3,000
Common stock, $.01 par value, 20,000,000 shares authorized;
8,604,637 and 7,951,570 shares issued and outstanding at
December 31, 1999 and 1998, respectively 86,045 79,516
Additional paid-in capital 26,165,377 24,244,554
Accumulated deficit (22,331,825) (18,084,352)
Accumulated other comprehensive income 29,960 7,728
------------ ------------
Total stockholders' equity 3,952,557 6,250,446
------------ ------------
Total Liabilities and Stockholders Equity $ 7,257,286 $ 8,482,885
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
------------ ----------
<S> <C> <C>
Licensing revenue -- $4,500,000
------------ ----------
Operating expense:
Marketing -- 82,335
General and administrative $ 2,962,413 2,447,866
Research and development 1,228,101 1,106,501
----------- -----------
Total operating expenses 4,190,514 3,636,702
-----------
Loss from operations (4,190,514) 863,298
Interest expense (256,182) (242,521)
Investment income 199,223 262,112
-----------
Net Loss ($4,247,473) $882,889
===========
Basic and diluted earnings per common share $(0.53) $0.11
Weighted average common shares outstanding 7,978,963 7,951,570
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In
Shares Amount Shares Amount Capital
--------------- ------ ------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 -- -- 7,951,570 79,516 21,764,194
Debt issue costs in connection
with private placement 489,200
Debt issue costs in connection
with private investor loan 28,158
Issuance of warrants for services 380,802
Equity investment in preferred stock 300,000 $3,000 1,497,000
Repricing of warrants issued 85,200
Change in unrealized gains on
available-for-sale securities
Net Income
-------------------------------------------------------------------------------
Balance, December 31, 1998 300,000 $3,000 7,951,570 $79,516 $24,244,554
Debt issue costs and interest in connection
with private investor loan 59,758
Issuance of common stock in connection with 118,867 1,189 310,556
exercise of stock options
Issuance of common stock in connection with 134,000 1,340 673,260
the exercise of warrants
Issuance of stock options/warrants or
modification of terms 263,999
Issuance of common stock in connection with 400,000 4,000 496,000
conversion of convertible debentures
Issuance of warrants in connection
with the purchase of patent 117,250
Change in unrealized gains on
available-for-sale-securities
Net loss
-------------------------------------------------------------------------------
Balance December 31, 1999 300,000 3,000 8,604,437 86,045 26,165,377
===============================================================================
<CAPTION>
Other
Comprehensive
Accumulated Income Stockholders'
Deficit (Loss)* Equity
----------- ------------- -------------
<S> <C> <C> <C>
Balance, January 1, 1998 (18,967,241) 12,899 2,889,368
Debt issue costs in connection
with private placement 489,200
Debt issue costs in connection
with private investor loan 28,158
Issuance of warrants for services 380,802
Equity investment in preferred stock 1,500,000
Repricing of warrants issued 85,200
Change in unrealized gains on
available-for-sale securities (5,171) (5,171)
Net Income 882,889 882,889
-------------------------------------------------
Balance, December 31, 1998 $(18,084,352) $7,728 $6,250,446
Debt issue costs in connection
with private investor loan 59,758
Issuance of common stock in connection with 311,745
exercise of stock options
Issuance of common stock in connection with 674,600
the exercise of warrants
Issuance of stock options for services 263,999
Issuance of common stock in connection with 500,000
conversion of convertible debentures
Issuance of warrants in partial payment of 117,250
patent
Change in unrealized gains on
available-for-sale-securities 22,232 22,232
Net loss (4,247,473) (4,247,473)
-------------------------------------------------
Balance December 31, 1999 (22,331,825) 29,960 $3,952,557
=================================================
</TABLE>
*Total comprehensive income (loss) for the years ended December 31, 1998 and
1999 was $877.718 and ($4,225,241) respectively.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($4,247,473) $ 882,889
Adjustments to reconcile net loss to operating
cash flows:
Depreciation and amortization 275,994 289,022
Issuance of warrants for services 380,802
Issuance of stock options for services 263,999
Repricing of stock options 85,200
Amortization of debt issue costs 97,840 53,720
Debt issue cost and interest in connection with
private investor loan 59,758 28,158
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 327 6,545
Accounts payable 61,606 9,801
Accrued expenses 14,952 (36,346)
------------ ------------
Net cash (used in) provided by operating
activities (3,472,997) 1,699,791
------------ ------------
Cash flows from investing activities:
Sale (purchases) of property and equipment (46,988) 36,791
Additions to patents (255,644) (144,183)
Investments in available-for-sale securities (1,500,000) --
Sale of available-for-sale securities 3,453,590 (499,507)
Sale of short-term investments 546,591
------------ ------------
Net cash provided by investing activities 1,650,958 (60,308)
------------ ------------
Cash flows from financing activities:
Capital lease payments (15,068) (17,633)
Warrants and stock options exercised 986,344 --
Repayment of long-term borrowings (296,546)
Repayment of short-term borrowing (4,630,500)
Proceeds from short-term borrowing 250,000
Proceeds of private investment, debenture
bonds 1,550,000
Proceeds from issuance of Series A
preferred stock 1,500,000
Debt issue costs (76,000)
Licensing fee advance 1,500,000
------------ ------------
Net cash provided by (used in)
financing activities 2,471,276 (1,720,679)
------------ ------------
Increase (decrease) in cash 649,237 (81,196)
Cash and cash equivalents, beginning of period 32,883 114,079
------------ ------------
Cash and cash equivalents, end of period $682,120 $32,883
------------ ------------
Supplemental cash flow information with
regard to certain cash payments and non-cash
investing and financing activities:
Interest $ 77,274 $ 219,176
Issuance of warrants in connection with
purchase of patents 117,250 --
Capital lease obligation incurred 10,800 --
Change in unrealized gain (loss) on
available-for-sale securities $ 22,232 $ (5,171)
Debt issue costs -- $ 489,200
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
The Med-Design Corporation ("Med-Design") designs and develops safety
medical devices intended to reduce the incidence of accidental needlesticks.
Accordingly, Med-Design and its products are subject to various regulatory
processes and approvals. Med- Design has three core products under development
and several new products which are in the beginning stages of development. On
December 11, 1998, Med-Design signed a licensing agreement, an option agreement
and an equity agreement with Becton, Dickinson and Company ("Becton Dickinson").
Under the terms of the agreement, Med-Design received an initial, non-refundable
payment of $4.5 million and an equity investment of $1.5 million in Series A
preferred stock.
On December 13, 1999, The Med-Design Corporation signed an option agreement
with Becton Dickinson. Under the terms of the agreement Med-Design agreed to
extend the initial option agreement covering five products until January 25,
2000, which was further extended until March 24, 2000. Med-Design received a
payment of $1.5 million, which is presented as License Fee Advance in the
Balance Sheet, to be applied to future licensing, transfer of technology or
other agreements.
2. Significant Accounting Policies
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
The Med-Design Corporation and its wholly-owned subsidiaries, MDC Investment
Holdings, Inc. and MDC Research Ltd. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents:
Med-Design considers all bank depository cash accounts to be cash
equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject Med-Design to concentration
of credit risk consist principally of cash and available- for-sale-securities.
At December 31, 1999, none of Med-Design's cash balances exceeded FDIC insurance
limits.
Med-Design invests in high credit quality financial instruments and through
diversification, attempts to limit the extent of credit exposure on
available-for-sale-securities.
Available-for-sale-securities:
Med-Design'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 Med-Design's
investment guidelines as developed by management and approved by the Board of
Directors.
Property, plant and equipment:
Property, plant and equipment are carried at cost. Assets held under
capital lease 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.
(Continued)
F-7
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. Significant Accounting Policies, continued
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:
Med-Design's assets are reviewed for impairment whenever events or
circumstances provide evidence that suggest that the carrying amount may not be
recoverable. When necessary, Med-Design 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. Amortization expense from the years ended December
31, 1999 and 1998 was $51,509 and $36,602, respectively.
Debt Issue Cost:
Debt issue costs consist of fees and other costs incurred in obtaining debt
and are being amortized on a straight line basis over the life of the debt.
Revenue Recognition:
License fee revenues from proprietary products are recognized upon the
signing of a contract when Med-Design has no further obligation under the
contract and when collectibility of the license fee is probable.
Income taxes:
Med-Design 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.
Basic and Dilutive Earnings Per Share:
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed by dividing net income by the weighted average number of
shares outstanding during the period adjusted for the number of shares that
would have been outstanding if the dilutive potential common shares had been
issued.
(Continued)
F-8
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. Significant Account Policies, continued
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.
Comprehensive Income:
Med-Design adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income" effective January 1, 1998. The new rules
establish standards for the reporting of comprehensive income and its components
in the financial statements. Comprehensive income consists of net income and
other gains and losses affecting shareholders' equity that, under generally
accepted accounting principles, are excluded from net income. Such items consist
primarily of unrealized gains and losses on marketable equity investments for
Med-Design.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards ("SFAS") No. 133
"Accounting for Derivatives Instruments and Hedging Activities ("SFAS 133")
which is effective for quarters of fiscal years beginning after June 15, 1999.
Managements has reviewed the provisions of SFAS No. 133 and the implementation
of these standards is not expected to have any significant impact on its
consolidated financial statements
3. Available-for-Sale Securities
Gross unrealized gains for the years ended December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
Gross
Unrealized
Cost Gains Fair Value
---- ---------- ----------
<S> <C> <C> <C>
At December 31, 1998:
Corporate Debt Securities $6,103,892 $ 7,728 $6,111,620
----------- ------- ----------
At December 31, 1999:
Corporate Debt Securities $4,150,302 $29,960 $4,180,262
----------- ------- ----------
</TABLE>
(Continued)
F-9
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. Available-for-Sale Securities, continued
Investment income for the years ended December 31, 1999 and 1998 consisted
of the following:
1999 1998
-------- --------
Realized gain on sale of
available-for-sale securities -- $ 62
Realized loss on sale of
available-for-sale securities (1,009) --
Interest income 200,232 262,050
-------- --------
Total $199,223 $262,112
======== ========
4. Property, Plant And Equipment
Balances of major classes of assets and accumulated depreciation at
December 31, 1999 and 1998 are as follows:
1999 1998
---------- ----------
Leasehold improvements $ 176,878 $ 160,127
Machinery and equipment 668,171 657,371
Office furniture & fixtures 329,114 329,114
Computer equipment & software 368,006 337,768
---------- ----------
$1,542,169 $1,484,380
Accumulated depreciation and
amortization 843,598 619,113
---------- ----------
$ 698,571 $ 865,267
========== ==========
Depreciation and amortization expense was $224,485 and $252,420 for the
years ended December 31, 1999 and 1998, respectively.
(Continued)
F-10
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. Short-Term Borrowings
In May 1999, Med-Design renewed its revolving line of credit ("Loan
Agreement") with its principal lending institution (the "Bank") for a $3,000,000
facility. The Loan Agreement provides that advances under Equipment Loans will
not exceed $600,000 of the $3,000,000. Borrowings to meet working capital needs
bear interest at LIBOR plus 2.25 basis points. 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
Med-Design. Med-Design had no amounts outstanding under the line of credit at
December 31, 1999 and 1998.
On May 29, 1998, Med-Design obtained a loan from a private investor, who is
a director of the Company, in the amount of $250,000 The loan is callable at the
option of the holder upon change of control of Med-Design, upon any significant
licensing or joint venture agreement or any refinancing in excess of $500,000.
The loan bears interest at prime and includes an agreement to issue the holder
33,000 shares of common stock. The loan was renewed on May 29, 1999 for an
indefinite period at prime plus 810 shares of common stock per month. In
addition to the prime rate, interest expense is determined based upon the fair
value of the common stock at the beginning of each month.
6. Debt
Debt at December 31, 1999 and 1998 consisted of the following:
1999 1998
---------- ----------
Convertible debenture bonds $1,050,000 $1,550,000
Bank term note, under equipment
financing facility, interest at prime plus
.25%; fully collateralized.
Capital lease obligations, at interest rates 36,048 40,316
ranging from 4.4% to 9.3%, with monthly payments
ranging from $182 to $987; lease obligations
are due through 2002.
---------- ----------
1,086,048 1,590,316
Less: current maturities 12,251 10,492
---------- ----------
$1,073,797 $1,579,824
========== ==========
(Continued)
F-11
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. Debt, continued
The aggregated amount of debt and capital lease obligations maturing in
each of the next five years, is as follows:
Debt Capital Lease
---------- -------------
2000 $ 12,251
2001 17,172
2002 1,733
2003 1,733
2004 1,050,000 1,733
Thereafter 1,426
---------- --------
$1,050,000 $ 36,048
========== ========
Med-Design issued convertible debentures on June 29, 1998 and July 22, 1998
in the amount of $1,000,000 and $550,000 respectively. The debentures bear
interest at 4% per annum payable quarterly in cash or stock at Med-Design's
option, mature in five years, are convertible into 840,000 shares of common
stock and are collateralized by a first lien on all patents pending and issued.
In December 1999, Convertible debentures in the amount of $500,000 were
converted into 400,000 shares of common stock.
7. Commitments and Contingencies
Med-Design 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 under the same terms with and increase to
market value for rental payments at the end of each option period.
In April 1998, Med-Design moved its Corporate Headquarters to its Ventura
Ca. facility. The properties formerly located in Philadelphia Pa. were sublet
but remain the obligation of Med-Design until the expiration of the lease on
December 1, 2000.
Total rent expense under all operating leases for year ended December 31,
1999 and 1998 was $160,395 and $178,318 respectively.
Med-Design 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 2002 and 2000,
respectively. At December 31, 1999, the payments remaining under employment
contracts total approximately $575,000.
(Continued)
F-12
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. Basic and Diluted Earnings Per Share
The following table sets forth the computation of basic and diluted net income
(loss) per share:
<TABLE>
<CAPTION>
1999
Numerator Denominator EPS
------------ ----------- ------
<S> <C> <C> <C>
Basic and diluted EPS
Net loss available to common shareholders $ (4,247,473) 7,978,963 $(0.53)
============ ========== =======
1998
Basic Earnings Per Share
Net Income $ 882,889
Less preferred dividends earned (2,581)
------------ ---------- -------
Net income available to common shareholders $ 880,308 7,951,570 $ 0.11
------------ ---------- -------
Diluted Earnings Per Share
Preferred dividends earned 2,581
Interest on 4% convertible debenture 29,990
Stock issued in connection with
loan agreement 19,250
Convertible debentures 431,290
Stock options and warrants 133,290
------------ ---------- -------
Diluted Earnings Per Share 912,879 8,535,400 $ 0.11
============ ========== =======
</TABLE>
Options and warrants to purchase 1,639,200 shares of common stock as of December
31, 1999 and 1,580,000 as of December 31, 1998, together with Med-Design's
Series A Convertible Preferred Stock of 300,000 shares, were not included in
computing diluted earnings per share as the effect is antidilutive.
9. Stockholders' Equity
Preferred Stock
In December 1998, as part of the licensing agreement Med-Design issued
300,000 shares of Series A Convertible Preferred Stock for $1.5 million to
Becton Dickinson. Dividends are payable semi-annually at the rate of 8% per
annum on the Preferred Stock in cash or in additional shares of Preferred Stock
(at the option of Med-Design). The Preferred Stock is convertible at the holders
option, at the conversion price of $5.00 per share. At its option, Med-Design
may convert the Preferred Stock into Common Stock at a conversion price ranging
from $3.25 to $5.00 per share depending on the price of Med-Design's Common
Stock during the 20 trading days prior to the date Med-Design gives notice of
the conversion.
(Continued)
F-13
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. Stockholders' Equity, continued
Common Stock
Stock Option Plan
In 1995, Med-Design 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 Med-Design. 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.
The stock option agreement was amended in July 1999 to provide for the
granting of an additional 500,000 shares.
Options granted to employees expire in five years and vest at a rate of 20%
per year. Options granted to directors expire in five years and vest one year
from date of grant.
Activity under the Stock Option Plan during the years ended December 31,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 481,000 $4.59 442,000 $5.53
Granted 174,667 $2.91 121,000 $1.56
Exercised (118,867) -- -- --
Canceled (25,600) -- (82,000) $6.69
---------------------------------------------------------------------------------
Outstanding at end of year 511,200 -- 481,000 $4.59
=================================================================================
Options exercisable at
year-end 264,900 191,400
============= ==============
Option price range at end
of year $.81 to $5.75 $1.56 to $8.00
============= ==============
Weighted-average fair
value of options granted
during year $2.78 $1.56
============= ==============
</TABLE>
(Continued)
F-14
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Stock Option Plan, continued
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<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 December 31, 1999 Life Price at December 31, 1999 Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.81 to $1.56 176,100 3.7 $1.29 183,700 $ 1.06
$3.25 to $5.75 335,100 3.5 $3.73 181,200 $ 3.25
--------------------------------------------------------------------------------------------------------
$0.81 to $5.75 511,200 3.6 $2.89 364,900 $ 1.75
========================================================================================================
</TABLE>
Med-Design has adopted the disclosure only provisions of FAS No. 123,
"Accounting for Stock-based Compensation." Accordingly, no compensation cost has
been recognized for Med-Design's Stock Option Plan. Had compensation cost for
Med- Design's Stock Option Plan been determined based on the fair value at the
grant date for awards in 1999 and 1998 consistent with the provisions of FAS No.
123, Med-Design's net loss and net income (loss) per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------ --------
<S> <C> <C>
Net income (loss) - as reported ($4,247,473) $882,889
Net income (loss) - pro forma ($4,675,874) $479,735
Basic net income (loss) per share - as reported ($0.53) $0.11
Fully diluted income (loss) per share - as reported -- $0.11
Basic net income (loss) per share - pro forma ($0.59) $0.06
Fully diluted income (loss) per share - pro forma -- $0.06
</TABLE>
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 1999: dividend yield of 0.00%; expected volatility
of 82,64% range of risk free interest rate of 5.69%; and in 1998: dividend yield
of 0.00%; expected volatility of 84.45% to 92.88%; risk free interest rate of
5.13% to 5.5%. Expected lives are based on actual terms of options granted.
On January 21, 1999 Med-Design repriced options held by directors,
officers and employees to $3.25 which represents the market price on that date.
The cumulative valuation of the repricing of the options was calculated using
Black-Scholes option- pricing model in accordance with FASB 123. If compensation
cost for the repricing of options had been recognized in accordance with FASB
123, Med-Design would have recorded compensation cost of $230,155 for the year
ended December 31, 1999.
In connection with the resignation of a director and termination of certain
employees, in July 1999, the Company extended the date of expiration of certain
options. As a result of these modifications the options were valued using a
Block Scholes valuation model and accordingly, the company recognized a charge
of $263,999 in general administration costs in 1999.
Warrants
In connection with the initial public offering, Med-Design issued warrants
to the Underwriter to purchase 300,000 shares of Common Stock, of which warrants
to purchase 111,000 were exercised in 1996, 52,000 were exercised in 1997 and
134,000 were exercised in 1999.
The remaining warrants expire on January 23, 2002. On August 15, 1995
Med-Design issued warrants to purchase shares of Common Stock at $7.50 per
share, in consideration for the execution of an agreement for consulting
services. The warrants were exercisable upon issuance and expired on August 15,
1998, however in January 2000 the expiration date of these warrants was extended
to August 15, 2000 for which the Company will recognize a chage of $823,270 in
the first quarter of 2000.
(Continued)
F-15
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Warrants, continued
On January 23, 1997, Med-Design completed the sale of 1,000,000 shares of
Common Stock. In connection with the sale, Med-Design also sold to the
placement agent, 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 February 14, 1997, Med-Design issued warrants to purchase 25,000 shares
of Common Stock at $3.25 per share to the Chief Executive Officer. The warrants
vest one year and expire on February 14, 2002.
On March 19, 1997, Med-Design issued warrants to purchase 100,000 shares of
Common Stock at an exercise price of $7.50 per share to a director of
Med-Design, who was engaged to perform certain consulting services on behalf of
Med-Design. The warrants are exercisable upon issuance and expire on March 19,
2000. In connection with the issuance of these warrants, Med-Design 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,
Med-Design 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, Med-Design issued warrants to purchase 100,000 share
of Common Stock at an exercise price of $5.44 to a director of Med-Design who
was engaged to perform certain consulting services on behalf of Med-Design.
These warrants are exercisable upon issuance and expire on October 10, 2000. In
connection with the issuance of these warrants, Med-Design recorded consulting
expense in the amount of $385,000 for the year ended December 31, 1997.
On January 14, 1998, Med-Design issued warrants to purchase 50,000 shares
of Common Stock at an exercise price of $2.88 per share to a director. The
warrants are exercisable upon issuance and expire January 14, 2001.
On January 14, 1998, Med-Design issued warrants to purchase 100,000 shares
of Common Stock at an exercise price of $2.88 per share to a director of
Med-Design who was engaged to perform certain consulting services. The warrants
are exercisable upon issuance and expire on January 14, 2003. Med-Design
recorded consulting expense of $194,000 in relation to these warrants.
Med-Design also repriced 200,000 previously issued warrants to a director
on January 14, 1998. The warrants were issued on March 19, 1997 and October 10,
1997 at an exercise price of $7.50 per share and $5.44 per share respectively
and were repriced to $2.88. In connection with the repricing of these warrants
Med-Design recorded consulting expense of $85,200.
On September 9, 1998, Med-Design issued warrants to purchase 200,000 shares
of Common Stock at a price of $1.25 per share to a director of Med-Design who
was engaged to perform certain consulting services. The warrants vest upon
completion of performance which was completed on December 23, 1998. The warrants
expire on September 9, 2003. Med-Design recorded consulting expense of $186,802.
On March 5, 1999 Med-Design issued warrants to purchase 100,000 shares of
Common Stock at $3.94 per share to both the Chief Executive Officer and
Corporate Secretary. The warrants vest one year from date of grant and expire on
March 5, 2004. The cumulative valuation of the warrants issued was calculated
using Black-Scholes option-pricing model in accordance with FASB 123. If
compensation cost for the warrants had been recognized in accordance with FASB
123, Med-Design would have recorded compensation cost of $405,733 for the year
ended December 31, 1999.
On November 5, 1999, in connection with the acquisition of a patent,
Med-Design issued warrants to purchase 25,000 shares of Common Stock at an
exercise price of $8.00 per share. The fair value of the warrants was calculated
using a Black-Scholes valuation model and Med-Design recorded an intangible
asset of $117,250. The warrants are exercisable on or before November 5, 2004.
On November 11, 1999 Med-Design issued warrants to purchase 50,000 shares
of Common Stock at $7.68 to the Chief Operating Officer. The warrants vest one
year from the date of grant and expire on November 11, 2004. The cumulative
valuation of the warrants issued was calculated using Black-Scholes
option-pricing model in accordance with FASB 123. If compensation cost for the
warrants had been recognized in accordance with FASB 123, Med-Design would have
recorded compensation cost of $35,100 for the year ended December 31, 1999.
(Continued)
F-16
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. Defined Contribution Benefit Plan
Med-Design sponsors a 401K defined contribution benefit plan. Participation
in the plan is available to substantially all employees. There have been no
Company contributions to this plan to date.
11. Income Taxes
The following is a summary of the components of income taxes from operations:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
Current Provision
- -----------------
<S> <C> <C>
Federal -- --
State -- --
----------------------------------
-- --
Deferred Tax Benefit
- --------------------
Federal 1,856,958 309,012
State 517,778 83,875
----------------------------------
Total provision for income taxes 2,374,736 392,887
Less: Increase in valuation allowance (2,374,736) (392,887)
----------------------------------
-- --
==================================
</TABLE>
The deferred income tax assets and liablilites recorded in the consolidated
balance sheets at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
Assets
- ------
<S> <C> <C>
Loss carryforwards 5,798,729 2,672,376
Research and developement tax credit 268,631 225,549
Amortization 1,274,251 2,000,856
Deferred compensation expense 133,792 207,370
Other 5,485
----------------------------------
Total deferred tax assets 7,480,888 5,106,151
Valuation allowance (7,480,888) (5,106,151)
----------------------------------
Net deferred tax assets (liabilities) -- --
----------------------------------
</TABLE>
F-17
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. Income Taxes, continued
At December 31, 1999, the Company has federal net operating loss
carryforwards of approximately $12.9 million and for state tax purposes of
approximately $13.2 million respectively. These NOL's start to expire in 2010
for federal tax purposes. A valuation allowance has been provided for the
deferred tax asset. Other temporary differences are insignificant. The
utilization of federal net operating loss may be limited by Section 382 of the
Internal Revenue Code.
A reconciliation of the Federal statutory rate to the effective tax rate is as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
U.S. statutory federal income tax (1,386,243) 309,011
State tax (376,266) 83,854
Research and Development expenses 47,085 492,392
Deferred compensation (438,924) 207,391
Utilization of net operating losses (220,388) (1,092,648)
----------- ------------
Less: Valuation Allowance 2,374,736 --
----------- ------------
-- --
=========== ============
</TABLE>
F-18
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. Related Party Transactions
During 1999 and 1998, Med-Design paid $57,719 and $81,737 respectively, for
legal services to a firm, of which a partner is a director, officer and
stockholder of Med-Design
13. Fair Value of Financial Statements
The following methods and assumptions were considered by Med-Design 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: Med-Design's debt is primarily a convertible debenture bond at 4% interest
with a common stock conversion feature of $1.25 per share. The fair value of the
convertible debenture at December 31, 1999 is approximately $12,180,100, based
on the bid price of similar securities.
Convertible Preferred Stock: Convertible preferred stock at 8% interest with a
common stock conversion feature of $5.00 per share. The fair value of
convertible preferred stock at December 31, 1999 is approximately $4,350,000
based on the bid price of similar securities.
14. Subsequent Events
On January 25, 2000 Med-Design agreed to extend the option scheduled to
expire on January 25, 2000 for an additional 45 days to evaluate and negotiate
all products under option with BD for an undisclosed consideration.
On February 9, 2000 Med-Design purchased a safety syringe patent issued to
Dr. Edward Allard in June 1989. This patent acquisition significantly increased
the design and manufacturing flexibility for the Company's safety syringe
product and has measurably enhanced its compressive portfolio of intellectual
property to protect against any infringement of the Company's safety syringe
patents. Med-Design, for consideration of the patents issued Dr. Edward Allard
and Daniel Longmire, the co-inventor, 14,416 shares of Common Stock and cash of
$220,000.
<PAGE>
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 1, 2000 By: /s/ James M. Donegan
-------------------------------------
James M. Donegan
President and Chief Executive Officer
Each person whose signature appears below hereby authorizes and constitutes
James M. Donegan and Lawrence D. Ellis and each of them singly, his true and
lawful attorneys-in-fact with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities to sign and file
any and all amendments to this report with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and he hereby ratifies and confirms all that said attorneys-in-fact or any of
them, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
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 1, 2000
- ----------------------------------- Executive Officer (Principal Executive Officer)
James M. Donegan
/s/ Lawrence D. Ellis Vice President, Finance and Chief Financial March 1, 2000
- ----------------------------------- Officer (Principal Financial Officer and
Lawrence D. Ellis Principal Accounting Officer)
/s/ Joseph N. Bongiovanni, III Director March 1, 2000
- -----------------------------------
Joseph N. Bongiovanni, III
/s/ John F. Kelley Director March 1, 2000
- -----------------------------------
John F. Kelley
/s/ Pasquale L. Vallone Director March 1, 2000
- -----------------------------------
Pasquale L. Vallone
/s/ Gilbert M. White Director March 1, 2000
- -----------------------------------
Gilbert M. White
/s/ William A. Jolly Director March 1, 2000
- -----------------------------------
William A. Jolly
/s/ Vincent J. Papa Director March 1, 2000
- -----------------------------------
Vincent J. Papa
/s/ Michael Simpson Director March 1, 2000
- -----------------------------------
Michael Simpson
</TABLE>
ADDENDUM TO LICENSE AGREEMENT
This Addendum to License Agreement (hereinafter "ADDENDUM"), entered into
as of this __ day of December, 1999, supplements the License Agreement
(hereinafter referred to as "AGREEMENT"), dated December 11, 1998, by and
between Med-Design Corporation (hereinafter referred to as "LICENSOR") and
Becton, Dickinson and Company (hereinafter referred to as "BECTON").
WHEREAS, the parties desire to extend the term of the OPTION under the
AGREEMENT, and the parties desire to include further products under the
AGREEMENT in the OPTION;
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises, contained herein, and other good and valuable consideration, the
receipt and sufficiency is hereby acknowledged, it is agreed by and between the
parties hereto, as follows:
1. In addition to the OPTION PRODUCTS set forth in the AGREEMENT, "OPTION
PRODUCTS" as defined in the Agreement shall include further products
(hereinafter "ADDITIONAL OPTION PRODUCTS"), as follows:
(a) Safety Dental Injector for injecting medication from a pre-filled
dental cartridge, using retractable needle technology, such as the devices
in Appendix A;
(b) Safety Blood Donor Needle using retractable needle technology and
designed to operate with an expandable reservoir, such as the device in
Appendix B;
(c) Safety Arterial Blood Gas Syringe, fixed or staked needle,
including ABG II Add-on using retractable needle technology, such as the
device in Appendix C;
(d) Safety Guidewire Introducer using retractable needle technology
such as the device in Appendix D;
<PAGE>
ADDENDUM
PAGE 2
(e) Safety Vial Injector for injecting medication from a pre-filled
vial, using retractable needle technology, such as the device in Appendix
E;
(f) Safety Tuberculine Syringe for injecting up to 1.0 cc of fluid,
using retractable needle technology;
(g) Safety Insulin Syringe for injecting insulin, using retractable
needle technology.
(h) Safety Spinal Needle for use in delivering or withdrawing fluid
from the cerebrospinal fluid of the spinal column, using retractable needle
technology; and
(i) Safety Epidural Needle for use with a through-the-needle catheter
to be used in delivering anesthetics to the epidural space, using
retractable needle technology.
2. The term of the OPTION under Article IX, Section 1, of the AGREEMENT,
shall be extended for 45 days to January 26, 1999, for the five (5) OPTION
PRODUCTS identified in Article 1, Section 13, of the AGREEMENT. The parties will
negotiate in good faith and in a timely fashion for a license to such OPTION
PRODUCTS that BECTON notifies LICENSOR it desires to license.
3. At BECTON's option, LICENSOR agrees to grant to BECTON an exclusive
worldwide license, to make, use, sell and sublicense any one or more of the
ADDITIONAL OPTION PRODUCTS whether patented or not, at terms and conditions to
be negotiated. BECTON's option under this Section will expire on March 10, 2000
unless BECTON notifies LICENSOR on or before that date that it is interested in
acquiring a license on specific of the ADDITIONAL OPTION PRODUCTS. The parties
upon BECTON sending such notice will negotiate in good faith and in a timely
fashion during the subsequent fourteen (14) days the terms and conditions of
such license with respect to the ADDITIONAL OPTION PRODUCTS set forth in such
notice. During such fourteen (14) day period the provisions of Section 6 of this
Addendum will apply to
<PAGE>
ADDENDUM
PAGE 3
the ADDITIONAL OPTION PRODUCTS set forth in the notice. LICENSOR will have no
further obligation to BECTON with respect to ADDITIONAL OPTION PRODUCTS after
March 10, 2000 other than as provided in the previous two sentences with respect
to ADDITIONAL OPTION PRODUCTS set forth in such notice. If no agreement is
reached during such 14 day period BECTON's option under this Addendum for the
ADDITIONAL OPTION PRODUCTS in the notice will expire. In the event BECTON
acquires a license in one or more of the ADDITIONAL OPTION PRODUCTS, the parties
will take such steps necessary, if any, to vest within BECTON ownership to
rights under U.S. Patent 4,900,307 with respect to such ADDITIONAL OPTION
PRODUCT. In the event BECTON does not acquire a license with respect to any one
or more of the ADDITIONAL OPTION PRODUCTS, the parties will take such steps
necessary, if any, to vest within LICENSOR a limited non-exclusive, paid-up
royalty free license to make, use and sell and license the non-elected
ADDITIONAL OPTION PRODUCTS under U.S. Patent 4,900,307. The parties may extend
the option granted hereunder by mutual agreement.
4.LICENSOR agrees to disclose in writing to BECTON, before December 31,
1999, subject to the confidentiality conditions of Article XII, paragraph 7, of
the AGREEMENT, all material information, including, but not limited to patent
applications, specifications, designs and prototypes for the ADDITIONAL OPTION
PRODUCTS, not previously disclosed to BECTON for BECTON's consideration and to
promptly disclose to BECTON material information developed hereafter on the
ADDITIONAL OPTION PRODUCTS as the products are further developed by LICENSOR.
5. BECTON shall pay LICENSOR a payment of One Million Five Hundred Thousand
Dollars ($1,500,000) (hereinafter the "Addendum Payment") within five (5) days
from the date of execution of this ADDENDUM. The Addendum Payment will be
applied to any non-refundable, up-front license fee under any license agreement
entered into between the parties relative to one or more of the OPTION PRODUCTS
or ADDITIONAL OPTION PRODUCTS. In the event the non-refundable licensing fees
under such licenses, if any, are less than the
<PAGE>
ADDENDUM
PAGE 4
Addendum Payment or no license agreement is entered into, BECTON will have the
right until December 31, 2002 to elect with respect to the balance, i.e. the
difference between the Addendum Payment and the licensing fees paid under any
license agreement entered into between the parties relative to one or more of
the OPTION PRODUCTS or ADDITIONAL OPTION PRODUCTS (hereinafter the "Balance
Amount"), the following:
(a) to apply the Balance Amount toward any other up-front,
non-refundable payment for a license agreement that BECTON and LICENSOR may
enter into after the execution of this Addendum and prior to December 31,
2002. or
(b) to have it applied to any money owed to LICENSOR under any future
manufacturing or development agreement between BECTON and LICENSOR at a
rate of 50% of the amount owing to LICENSOR, provided however that,
LICENSOR shall not be required to work under such manufacturing or
development agreement below its costs and expenses, and provided still
further that, if the one half (50%) ratio set forth above is not acceptable
to LICENSOR during the negotiations for such manufacturing and development
agreement, then the parties will seek to agree to another ratio based on
reasonable commercial practices.
Becton may at any time after the expiration of the options described herein and
prior to December 31, 2002, elect either:
(c) to receive a payment from LICENSOR of one-half of the then
remaining Balance Amount, or
(d) to apply one half of the then remaining Balance Amount toward the purchase
of stock in LICENSOR at the then current market price or, alternatively, that
the Balance Amount be applied toward the purchase of stock in LICENSOR at a 100%
premium to the then current market price (that is, twice the then current market
price), provided however that, in no event will the purchase price of the stock
under this subparagraph be less than 30% below the closing price
<PAGE>
ADDENDUM
PAGE 5
of the stock on 12/10/99,
the remainder of the Addendum Payment will be retained by LICENSOR.
6. LICENSOR agrees that for the 45 day extension period under paragraph 2
relative to the OPTION PRODUCTS under Article IX, LICENSOR will not negotiate to
license or sell the OPTION PRODUCTS to any third party, and for the 90 day
period relative to the ADDITIONAL OPTION PRODUCTS under paragraph 1 hereof,
LICENSOR will not negotiate to license or sell the ADDITIONAL OPTION PRODUCTS to
any third party.
7. (a) LICENSOR represents and warrants that it has the right to grant
the rights set forth in this Addendum and is able to enter into this Addendum
and become bound by the terms hereof.
(b) LICENSOR represents and warrants that it knows of no patent and
patent applications owned by a third party that would be infringed by
making, using, offering for sale, sale or importing of one of the OPTION
PRODUCTS.
(c) LICENSOR represents and warrants that is has not received any
notice whether written or oral, that the OPTION PRODUCTS infringe any
patents or patent applications of a third party.
(d) LICENSOR represents and warrants that it is under no obligation to
any third party that would interfere with its representatives or
obligations under this Addendum.
(e) LICENSOR represents and warrants that it has complied in all
material respects with its obligations under the first sentence of Article
IX, Section 1.
8. Other than as set forth above, the terms and conditions of the AGREEMENT
shall govern
<PAGE>
ADDENDUM
PAGE 6
the rights and duties of the parties.
The parties, intending to be legally bound, indicate their agreement to the
foregoing at the places provided below.
The Med-Design Corporation Becton, Dickinson and Company
By: _______________________ By: _________________________
James M. Donegan Name:
President Its:
Date: _____________________ Date: _______________________
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 COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, JAMES M. DONEGAN (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 $3.94 per
share (the "Exercise Price").
(1) GRANT AND VESTING. The Warrant was granted on March 5, 1999, vesting in
full as of that date.
1
<PAGE>
(2) 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 5, 2004 (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
(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.
(3) 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.
(4) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(5) 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
2
<PAGE>
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.
(6) 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.
3
<PAGE>
(7) 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.
(8) 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.
(9) 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,
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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 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.
(10) REGISTRATION PROCEDURES. In the case of each registration of
securities covered by Section (8) 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;
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(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;
(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.
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(11) 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.
(12) 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
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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 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
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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.
(13) 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.
(14) 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.
(15) 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
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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.
(16) 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.
(17) 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:
James M. Donegan
2316 W. Deerfield Drive
Media, PA 19063
Telecopier No.: (610) 891-6358
Telephone No.: (610) 891-6359
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
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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 carrier except that notices
of a change of address, telex, telecopier or telephone number, shall not be
deemed furnished, until received.
(18) 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.
(19) DATE AND EFFECTIVENESS. 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 (8) 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:
------------------------------ -------------------------------
James M. Donegan
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
------------------------
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 COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, JOSEPH N. BONGIOVANNI, III
(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 $3.94 per
share (the "Exercise Price").
(1) GRANT AND VESTING. The Warrant was granted on March 5, 1999, vesting in
full as of that date.
<PAGE>
(2) 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 5, 2004 (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
(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.
(3) 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.
(4) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(5) 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
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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.
(6) 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.
(7) 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
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herein.
(8) 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.
(9) 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)
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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.
(10) REGISTRATION PROCEDURES. In the case of each registration of
securities covered by Section (8) 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;
(C) furnish to Warrantholder at least one (1) copy of the registration
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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.
(11) 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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(12) 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 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
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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 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.
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<PAGE>
(13) 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.
(14) 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.
(15) 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.
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(16) 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.
(17) 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:
Joseph N. Bongiovanni III
121 South Broad Street
Seventeenth Floor
Philadelphia, Pennsylvania 19107
Telecopier No.: (215) 790-0032
Telephone No.: (215) 790-0060
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 carrier except that notices of a change of
address, telex, telecopier or
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telephone number, shall not be deemed furnished, until received.
(18) 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.
(19) DATE AND EFFECTIVENESS. 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 (8) 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:
------------------------------ -------------------------------
Joseph N. Bongiovanni III
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. _____
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 COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, MICHAEL SIMPSON (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 $7.88 per share (the
"Exercise Price").
(1) GRANT AND VESTING. The Warrant was granted on November 11, 1999 , with
vesting in full on November 11, 2000. THE GRANT OF THIS WARRANT IS SUBJECT TO
SHAREHOLDER APPROVAL.
<PAGE>
(2) 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 November 11, 2004
(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
(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.
(3) 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.
(4) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(5) 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
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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.
(6) 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.
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(7) 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.
(8) 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.
(9) 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
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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 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.
(10) 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;
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<PAGE>
(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;
(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.
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(11) 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.
(12) 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
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<PAGE>
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 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
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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.
(13) 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.
(14) 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.
(15) 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
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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.
(16) 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.
(17) 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:
Michael Simpson
747 Calle De Los Amigos
Santa Barbara, CA 93105
Telecopier No.:
Telephone No.:
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
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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 carrier except that notices
of a change of address, telex, telecopier or telephone number, shall not be
deemed furnished, until received.
(18) 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.
(19) DATE AND EFFECTIVENESS. 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:
------------------------------ -------------------------------
Michael Simpson
DATED:
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STOCK 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
Second Addendum to License Agreement
This Second Addendum to License Agreement (hereinafter "Second Addendum")
entered into as of this 25th day of January, 2000 supplements the License
Agreement (hereinafter referred to as the "Agreement") dated December 11, 1998
by and between Med-Design Corporation (hereinafter referred to as "Licensor")
and Becton Dickinson and Company (hereinafter referred to as "Becton") as
amended by an Addendum between Licensor and Becton dated December 11, 1999
(hereinafter referred to as the "Addendum").
Whereas the parties wish to modify the terms of the Addendum;
Now, therefore, for and in consideration of the premises and the mutual promises
contained herein, and other and good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is agreed by and between the
parties hereto, as follows:
1. Paragraph 1 of the Addendum is amended to include as an Additional Option
Product AV Fistula Needles for use in hemodialysis, using retractable
needle technology.
2. Paragraph 2 of the Addendum is amended to further extend the Option under
Article IX, Section 1 of the Agreement for 45 days to March 10, 2000.
3. The second sentence of Paragraph 2 is amended to read "The parties will
negotiate in good faith for a license to such Option Products that Becton
notifies Licensor it desires to license during the subsequent fourteen (14)
days following the notice."
4. Paragraph 5(c) of the Addendum is amended to change "one-half" to
"one-sixth"
5. Becton agrees to work diligently to evaluate the Additional Option
Products. The parties will review the status of Becton's progress on or
about February 22, 2000 and if it appears that despite working diligently
additional time is needed for an adequate evaluation to be completed of the
technology disclosed and the market opportunity, they will in good faith
negotiate a brief extension of limited duration to enable the evaluation to
be completed. Such extension will be for no further consideration.
6. Licensor agrees that for the duration of the extension under Paragraph 2
hereof relative to the Option Products under Article IX, Licensor will not
negotiate to license or sell the Option Products to any third party.
<PAGE>
7. Other than as set forth above, the terms and conditions of the Agreement as
modified by the Addendum shall govern the rights and duties of the parties.
The parties, intending to be legally bound, indicate their agreement to the
foregoing at the places provided below.
Med-Design Corporation Becton Dickinson and Company
By: /s/ James M. Donegan By:
-------------------- ------------------------
James M. Donegan Roy Webber
CEO-President Associate General Counsel
Date: 1/25/2000 Dated:
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 COMMON STOCK
OF
THE MED-DESIGN CORPORATION
This is to certify that, FOR VALUE RECEIVED, JAMES M. DONEGAN (the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant, from The Med-Design Corporation, a Delaware Corporation (the
"Company"), twenty-five thousand (25,000) 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 $3.25 per
share (the "Exercise Price").
(1) GRANT AND VESTING. The Warrant was granted on February 14, 1997,
vesting in full as of that date.
<PAGE>
(2) 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 February 14, 2002
(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
(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.
(3) 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.
(4) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
(5) 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
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<PAGE>
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.
(6) 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.
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<PAGE>
(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.
(7) 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.
(8) 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.
(9) 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
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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 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.
(10) REGISTRATION PROCEDURES. In the case of each registration of
securities covered by Section (8) 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:
5
<PAGE>
(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;
(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.
6
<PAGE>
(11) 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.
(12) 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
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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 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
8
<PAGE>
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.
(13) 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.
(14) 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.
(15) 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
9
<PAGE>
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.
(16) 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.
(17) 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:
James M. Donegan
2316 W. Deerfield Drive
Media, PA 19063
Telecopier No.: (610) 891-6358
Telephone No.: (610) 891-6359
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
10
<PAGE>
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 carrier except
that notices of a change of address, telex, telecopier or telephone number,
shall not be deemed furnished, until received.
(18) 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.
(19) DATE AND EFFECTIVENESS. 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 (8) 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:
------------------------------ -------------------------------
James M. Donegan
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>
This schedule contains summary financial information extracted from
The Med-Design Corporation and subsidiaries Consolidated Statement
of Operations for the year ended December 31, 1999 and balance sheet
as at December 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 682,120
<SECURITIES> 4,180,262
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,035,062
<PP&E> 1,542,169
<DEPRECIATION> (843,598)
<TOTAL-ASSETS> 7,257,286
<CURRENT-LIABILITIES> 2,230,931
<BONDS> 3,304,728
0
3,000
<COMMON> 86,045
<OTHER-SE> 3,952,557
<TOTAL-LIABILITY-AND-EQUITY> 7,257,286
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256,182
<INCOME-PRETAX> (4,247,473)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,247,473)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,247,473)
<EPS-BASIC> (0.53)
<EPS-DILUTED> 0
</TABLE>
