EXHIBIT 99.01
Private Placement Memorandum dated
as of January 8, 1997 relating to the
offering of the Common Stock
NAME OF OFFEREE:_____________________
MEMORANDUM NUMBER:_____________________
THE MED-DESIGN CORPORATION
OFFERING OF $5,000,000 OF COMMON STOCK
January 8, 1997
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
AND SUBSCRIPTION DOCUMENTS
Placement Agent:
FINE EQUITIES, INC.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
THIS PRIVATE PLACEMENT MEMORANDUM IS CONFIDENTIAL AND MAY NOT BE DISCLOSED OR
DISTRIBUTED TO ANY PERSON OTHER THAN THE OFFEREE, NOR MAY THIS MEMORANDUM BE
COPIED, WITHOUT PRIOR WRITTEN CONSENT OF THE MED-DESIGN CORPORATION. UPON
REQUEST ADDITIONAL COPIES WILL BE FURNISHED TO ADVISORS OF EACH
OFFEREE.
INDEX OF DOCUMENTS
Tab
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Confidential Private Placement Memorandum.....................................1
Exhibit A - Form 10-KSB of The Med-Design Corporation
containing its audited consolidated financial
statements for the year ended December 31, 1995.....................2
Exhibit B - Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated financial
statements for the three month period ended March 31, 1996..........3
Exhibit C - Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated financial
statements for the three month period ended June 30, 1996...........4
Exhibit D - Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated financial
statements for the three month period ended September 30, 1996......5
This Confidential Private Placement Memorandum, including the exhibits
hereto ("Memorandum"), is being provided by The Med-Design Corporation, a
Delaware corporation ("Company"), to prospective investors in connection with
the offer and sale by the Company of $5,000,000 of the common stock, $.01 par
value per share, of the Company ("Common Stock") in a private placement to a
limited number of "Accredited Investors," as hereinafter defined.
The Common Stock is being offered on a "best efforts" basis by Fine
Equities, Inc. (the "Placement Agent"). Affiliates of the Company may purchase
certain of the shares of Common Stock. Pending delivery of the Common Stock,
prospective investors' payment accompanying the Subscription Agreement,
Accredited Investor Questionnaire and, if required, purchaser representative
questionnaire, will be deposited in a segregated bank account with Continental
Stock Transfer & Trust Company, as escrow agent (the "Escrow Agent"), for the
benefit of such prospective investor.
The purchase price per share of Common Stock pursuant to this Offering will
be equal to $5.00 per share. The minimum purchase of Common Stock is $50,000,
although purchases of Common Stock less than $50,000 may be offered and sold at
the discretion of the Placement Agent.
Upon receipt of subscriptions and funds from the sale of the Common Stock,
a closing (the "Closing") will take place and the net proceeds from such
subscriptions will be paid to the Company, against delivery of the Common Stock
by the Company. This Offering will terminate on January 22, 1997 unless extended
by mutual agreement of the Company and the Placement Agent for an additional
period of time not to exceed seven days (the "Termination Date"). Pending the
Closing, subscriptions may be revoked, provided that written notice of
revocation is sent by certified or registered mail, return receipt requested,
and is received by the Placement Agent at least two business days prior to the
Closing. Refund shall then be promptly made without interest and without
deduction. The Common Stock will be delivered promptly to subscribers after the
Closing of the Offering.
THE SECURITIES ARE BEING OFFERED WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN RELIANCE UPON THE EXEMPTION
FROM REGISTRATION AFFORDED BY SECTION 4(2) AND/OR 3(B) OF THE SECURITIES ACT AND
REGULATION D PROMULGATED THEREUNDER. THIS MEMORANDUM HAS NOT BEEN REVIEWED,
APPROVED OR DISAPPROVED, NOR HAS THE ACCURACY OR ADEQUACY OF THE INFORMATION SET
FORTH HEREIN BEEN PASSED UPON, BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES ADMINISTRATOR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Memorandum contains summary information about the Company and the
offer and sale of Common Stock being made hereby (the "Offering"), but does not
provide a complete description of the business, management and financial
description of the Company, or the Offering. Investors are advised and expected
to carefully review this Memorandum prior to subscribing for shares of Common
Stock in the Offering.
Placement
Price to Agent Proceeds to
Investors Commission(1) Company (2)
--------- ------------- -----------
Total $5,000,000 $250,000 $4,750,000
(1) The Placement Agent commission is 5% of gross proceeds of the Offering.
(2) Before deducting legal, accounting and miscellaneous expenses payable
by the Company in connection with this Offering on its own behalf, estimated at
an aggregate of $95,000 including the Placement Agent's expenses and legal fees
of the Placement Agent. After such deductions, the estimated net proceeds to the
Company would be $4,655,000.
PROSPECTIVE PURCHASERS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS
LEGAL OR INVESTMENT ADVICE. EACH PURCHASER SHOULD CONSULT HIS, HER OR ITS OWN
LEGAL COUNSEL, ACCOUNTANT AND BUSINESS OR TAX ADVISOR AS TO LEGAL, TAX AND
RELATED MATTERS CONCERNING HIS, HER OR ITS INVESTMENT.
THE SECURITIES OFFERED HEREBY ARE BEING OFFERED AND SOLD ONLY TO CERTAIN
"ACCREDITED INVESTORS" (AS DEFINED HEREIN) IN THE STATES OF NEW YORK, FLORIDA,
UTAH, CONNECTICUT, MISSOURI, GEORGIA AND ILLINOIS. THE COMPANY RESERVES THE
RIGHT TO REJECT ANY SUBSCRIPTION FOR COMMON STOCK IN WHOLE OR IN PART.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK
AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS."
THE COMMON STOCK OFFERED HEREBY HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER
REGULATORY AUTHORITY, NOR HAS ANY SUCH COMMISSION OR AUTHORITY PASSED UPON OR
ENDORSED THE MERITS OF THE OFFERING OR THE ADEQUACY OR ACCURACY OF THIS
MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OFFER AND SALE OF COMMON STOCK MADE PURSUANT HERETO HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF ANY STATE OR OTHER
JURISDICTION IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
SUCH LAWS, NOR HAS THE COMMON STOCK OFFERED HEREBY BEEN GUARANTEED, SPONSORED,
RECOMMENDED OR APPROVED BY THE UNITED STATES OF AMERICA OR ANY STATE OR OTHER
JURISDICTION. THIS MEMORANDUM IS SUBMITTED TO PROSPECTIVE INVESTORS ON A
CONFIDENTIAL BASIS FOR USE SOLELY IN
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CONNECTION WITH A PRIVATE PLACEMENT OF THE SECURITIES. THE DISCLOSURE OF ANY OF
THE DATA CONTAINED HEREIN OR SUPPLIED IN CONNECTION HEREWITH OR THE USE HEREOF
FOR ANY OTHER PURPOSE, EXCEPT WITH THE WRITTEN CONSENT OF THE COMPANY, IS
PROHIBITED. THIS MEMORANDUM MAY NOT BE REPRODUCED, IN WHOLE OR IN PART, WITH THE
UNDERSTANDING THAT IT WILL BE RETURNED ON REQUEST IF THE RECIPIENT DOES NOT
PURCHASE THE SECURITIES OFFERED HEREBY.
THIS OFFERING IS SUBJECT TO WITHDRAWAL, CANCELLATION OR MODIFICATION BY THE
COMPANY WITHOUT NOTICE. THE COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION,
TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART FOR ANY REASON OR TO ALLOT TO ANY
SUBSCRIBER LESS THAN THE NUMBER OF SHARES OF COMMON STOCK SUBSCRIBED FOR.
THIS MEMORANDUM CONTAINS NON-PUBLIC INFORMATION CONCERNING THE COMPANY AND ITS
SUBSIDIARIES. PERSONS RECEIVING SUCH INFORMATION ARE REMINDED OF THE RULES
REGARDING XXXXXXX XXXXXXX LIABILITY AS INTERPRETED BY THE SECURITIES AND
EXCHANGE COMMISSION. THE INFORMATION CONTAINED HEREIN MUST BE MAINTAINED AS
CONFIDENTIAL AND NOT DISCLOSED TO ANY PERSON OR USED FOR ANY PURPOSE OTHER THAN
EVALUATING THE MERITS OF THE INVESTMENT DESCRIBED HEREIN UNLESS AND UNTIL THE
COMPANY HAS CONSENTED OTHERWISE IN WRITING. UNTIL THE INFORMATION CONTAINED
HEREIN HAS BEEN GENERALLY DISCLOSED TO THE PUBLIC, PERSONS RECEIVING SUCH
INFORMATION ARE REMINDED THAT ANY TRADING IN SECURITIES OF THE COMPANY IS
PROHIBITED.
THE SECURITIES OFFERED HEREBY WILL BE "RESTRICTED SECURITIES," WITHIN THE
MEANING ASSIGNED TO SUCH TERM BY THE SECURITIES ACT AND THE RULES PROMULGATED
THEREUNDER. THE SALE, TRANSFER OR OTHER DISPOSITION OF ANY SECURITIES PURCHASED
PURSUANT TO THIS MEMORANDUM IS SUBSTANTIALLY RESTRICTED BY APPLICABLE FEDERAL
AND STATE SECURITIES LAWS.
EACH OFFEREE MAY MAKE INQUIRIES OF APPROPRIATE MEMBERS OF MANAGEMENT OF THE
COMPANY WITH RESPECT TO THE COMPANY'S BUSINESS OR ANY OTHER MATTERS SET FORTH
HEREIN, AND MAY OBTAIN ANY ADDITIONAL INFORMATION WHICH SUCH PERSON DEEMS TO BE
NECESSARY IN ORDER TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED IN THIS
MEMORANDUM (TO THE EXTENT THAT THE COMPANY POSSESSES SUCH INFORMATION OR CAN
ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE). IN CONNECTION WITH SUCH
INQUIRY, ANY DOCUMENTS WHICH ANY OFFEREE WISHES TO REVIEW WILL BE MADE AVAILABLE
FOR INSPECTION AND COPYING OR PROVIDED, UPON REQUEST, SUBJECT TO THE OFFEREE'S
AGREEMENT TO MAINTAIN SUCH INFORMATION IN CONFIDENCE AND TO RETURN THE SAME TO
THE COMPANY IF THE RECIPIENT DOES NOT PURCHASE THE SECURITIES OFFERED XXXXXX.
ANY SUCH INQUIRIES OR REQUESTS FOR ADDITIONAL INFORMATION OR DOCUMENTS SHOULD BE
MADE IN WRITING TO THE COMPANY, ADDRESSED AS FOLLOWS: THE MED-DESIGN
CORPORATION, 000 XXXXX XXXXX XXXXXX, XXXXX 000, XXXXXXXXXXXX, XX 00000,
ATTENTION: XXXXXXX XXXXXX, CHIEF FINANCIAL OFFICER.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM IN CONNECTION WITH
THE OFFER BEING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO.
4
JURISDICTIONAL NOTICES AND REPRESENTATIONS
------------------------------------------
FOR RESIDENTS OF ALL STATES
---------------------------
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN PASSED UPON OR RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Placement Agent:
FINE EQUITIES, INC.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
THE DATE OF THIS PRIVATE PLACEMENT MEMORANDUM IS JANUARY 8, 1997.
5
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
THE MED-DESIGN CORPORATION
COMMON STOCK
----------------------------------------
EXECUTIVE SUMMARY
The following summary should be read in connection with and is
qualified in its entirety by reference to the more detailed information
contained in the Exhibits thereto. For a discussion of certain Risk Factors
affecting the Company and the Common Stock, see "Risk Factors".
THE COMPANY
Overview
The Company designs and develops safety medical devices intended to
reduce the incidence of accidental needlesticks. The Company has three core
products under development: the Retractable Needle Hypodermic Syringe (the
"Safety Syringe"), the Retractable Needle Vacuum Tube Phlebotomy Set (the
"Safety Phlebotomy Set") and the Retractable Needle Intravenous Catheter
Insertion Device (the "Safety Catheter"). These products are similar in
appearance and size to the standard devices in use. Such products incorporate
the Company's novel proprietary retraction technology that enables a health care
professional, with no substantial change in operating technique and using one
hand, to permanently retract the needle into the body of the device that can be
safely discarded.
The Company also has several new products which are in the early
stages of development. These new products under development include the In-Line
Y Port Injectable Access Needle, the Pre-Filled Ampule Injector, the MDC Closed
Injection System Injector, the Self-Contained Pre-Filled Syringe and the
Pre-Filled Vial Injector. These products also incorporate the Company's
proprietary retraction technology and are designed to reduce the incidence of
accidental needlesticks. The Company is developing various models and prototypes
of these products to accommodate the specific requirements of potential
strategic allies for medical and dental applications.
The Company believes that its safety medical devices can assist
employers in meeting standards promulgated by the Occupational Safety and Health
Administration ("OSHA") to help eliminate or minimize occupational exposure to
bloodborne pathogens. The Company has patent rights and patent applications
6
pending with respect to certain of its products in the United States and certain
foreign countries.
The Company's headquarters are located at Xxxxx 000, Xxxxx Xxxxxxxx
Xxxxxxxx, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000. The
Company's telephone number is (000) 000-0000. The Company was incorporated in
Delaware on November 14, 1994.
Products Under Development
The Company is completing the development and design of its three core
products: the Safety Syringe, Safety Phlebotomy Set and Safety Catheter
(collectively , "Core Products"). The Company continues to modify and enhance
the design of such products in order to improve manufacturability and to reduce
manufacturing costs. The Company has developed prototypes for such products, but
the additional modifications to their design will require the development of a
second generation of prototypes.
Safety Syringe. The Safety Syringe consists of a cylindrical syringe
barrel, holding an injection needle which with no substantial change in
operating technique and using one hand can be safely retracted automatically
within a specifically designed syringe plunger. The Safety Syringe is similar in
appearance, size and performance to a standard disposable syringe. The operation
of the Safety Syringe is conventional up to the point where the plunger has
reached its full travel, and all the medication has been delivered. Then, when
the syringe device is actuated to have the plunger move beyond the normal stop,
the needle automatically and fully retracts into the body of the syringe. The
needle is held in place and is rendered harmless and inoperable. The syringe and
needle cannot thereafter be used again. The entire retraction procedure takes
only a fraction of a second to complete. The Safety Syringe then may be safely
handled so that disposal does not pose a health risk. The Safety Syringe is easy
to use and provides visual and audible confirmation that the needle has been
safely retracted after injection. The Safety Syringe can be manufactured with
needles of various gauges and sizes and with barrel sizes one through sixty
cubic centimeters.
Safety Phlebotomy Set. Phlebotomy sets are used to obtain from a
patient a sufficient volume of blood for a variety of diagnostic procedures. The
Company's Safety Phlebotomy Set is similar in appearance, size and performance
to a standard phlebotomy set and works with substantially all standard
phlebotomy set accessories. The Safety Phlebotomy Set consists of a barrel
holding a retractable phlebotomy needle, which can be safely and easily
retracted within a specifically designed holder. The operation of the Safety
Phlebotomy Set is conventional up to the point where sufficient fluids have been
extracted. Then, when the phlebotomy device is actuated for the vacuum tube to
be moved beyond the normal stop, the needle automatically and fully retracts
into the device. The needle is held in place and is rendered harmless and
inoperable. The Safety Phlebotomy Set and needle
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cannot thereafter be used again. The entire retraction procedure takes only a
fraction of a second to complete. The Safety Phlebotomy Set then may be safely
handled so that disposal does not pose a health risk. The Safety Phlebotomy Set
is easy to use and provides visual and audible confirmation that the needle has
been safely retracted after use.
Safety Catheter. An intravenous catheter insertion device includes a
flexible tube that is used to inject or continuously deliver fluids into a
patient. Intravenous catheters are inserted by catheter insertion devices into a
patient by a needle within the flexible catheter tube. The Safety Catheter
device consists of a barrel, holding a retractable insertion needle that can be
safely and easily retracted within a specifically designed plunger. The Safety
Catheter device is similar in appearance, size and performance to a standard
disposable device. The operation of the Safety Catheter device is conventional
until after the insertion needle is removed from the flexible catheter. Then,
when the catheter device is actuated to have the triggering mechanism move in
the device, the needle automatically and fully retracts into the body of the
Safety Catheter mechanism. The needle is held in place and is rendered harmless
and inoperable. The Safety Catheter device and needle cannot thereafter be used
again. The entire retraction procedure takes only a fraction of a second to
complete. The Safety Catheter device then may be safely handled so that disposal
does not pose a health risk. The Safety Catheter device is easy to use and
provides visual and audible confirmation that the needle has been safely
retracted after use. The Company received notification from the FDA during 1996
that it is permitted to market the Safety Catheter.
In addition, the Company has several new products under development,
including the Inline Y-Port Injector Access Needle, the Pre-Filled Ampule
Injector, the MDC Closed Injection System Injector, the Self-Contained
Pre-Filled Syringes and the Pre-Filled Vial Injector System (collectively, the
"New Products"). The New Products are in the initial stages of development,
design and prototyping and will require significant further development and
modification.
Inline Y-Port Injector Access Needle. Y-Ports are devices used in
intravenous therapy as a means to deliver secondary fluids into a primary
intravenous fluid line for delivery into a patient's vein. The retractable
needle Inline Y-Port Injector Access Needle device provides a means for a
healthcare worker to access an intravenous fluid line with a needle, and also
provides a means to protect the healthcare worker from an accidental needle
stick injury when withdrawing the needle from the intravenous line port. The
Company's In Line Y-Port Injector Access Needle consists of a cylindrical
barrel, holding an injection needle which can be safely retracted automatically
within a specially designed plunger. The barrel of the Inline Y-Port Injector
Access Needle is fitted with a barbed tube fitting, which protrudes from the
barrel at an angle for connection of a tubing line for delivery of the secondary
fluid. A needle assembly is fixed to the front end of the barrel,
8
and is inserted into an injection port on the primary intravenous line for
delivery of the secondary fluid. After completion of the delivery of the
secondary fluid, the Y-Port injector device is actuated to have the plunger move
forward and the needle automatically and fully retracts into the plunger. The
needle is held in place and is rendered harmless and inoperable, and the device
cannot be used again. The Inline Y-Port Injector Access Needle then may be
safely handled so that disposal does not pose a health risk. The Inline Y-Port
Injector Access Needle is easy to use and provides visual and audible
confirmation that the needle has been safely retracted after use.
Pre-Filled Ampule Injector. Pre-filled ampules are commonly used in
the dental profession for administering local anesthetics to a patient. The
retractable needle Pre-Filled Ampule Injector device provides a means for a
healthcare worker to inject medicinal fluid into a patient from a pre-filled
ampule using a conventional injector/holder, and also provides a means to
protect the healthcare worker from an accidental needle stick injury when
withdrawing the needle from the patient. The Pre-Filled Ampule Injector consists
of a tubular barrel (glass or plastic) containing a medicinal fluid in an amount
sufficient for a single dose, with a sealing and sliding piston in the rear end
of the barrel for containing and delivering the fluid through a tubular needle
extending from the forward end of the barrel. The sliding piston is moved
forward for delivery of the medication by using a conventional (Tubex type)
injector/holder which is slip-fitted to the rear end of the barrel, with the
plunger rod threaded onto the rear end of the piston. A needle assembly is fixed
to the front end of the barrel, containing a spring to provide retracting force
on the needle when activated. The operation of the Ampule Injector is identical
to the operation of a conventional syringe up the point where the plunger rod
has reached its full travel, and all the medication has been delivered. When the
Ampule Injector device is actuated to have the plunger rod move further forward,
the needle automatically and fully retracts into the body of the ampule. The
needle is held in place and is rendered harmless and inoperable, and the Ampule
Injector cannot be used again. The Ampule Injector then may be safely handled so
that disposal does not pose a health risk. The Ampule Injector is easy to use
and provides visual and audible confirmation that the needle has been safely
retracted after injection. The Ampule Injector can be manufactured with barrels
and needles of various sizes.
MDC Closed Injection System. Pre-filled ampules are commonly used in
the dental profession for administering local anesthetics to a patient. The
retractable needle MDC Closed Injection System device provides a means for a
healthcare worker to inject medicinal fluid into a patient from a pre-filled
ampule using a special injector/holder, and also provides a means to protect the
healthcare worker from an accidental needle stick injury when withdrawing the
needle from the patient. The MDC Closed Injection System is similar to the
Pre-Filled Ampule Injector and consists of a tubular barrel (glass or plastic)
containing a medicinal fluid in an amount sufficient for a single dose, with a
9
sealing and sliding piston in the rear end of the barrel for containing and
delivering the fluid through a tubular needle extending from the forward end of
the barrel. The sliding piston is moved forward for delivery of the medication
by using a specially configured injector/holder which is threaded to the rear
end of the barrel, with the plunger rod slipped onto the rear end of the piston.
A needle assembly is fixed to the front end of the barrel, containing a spring
to provide retracting force on the needle when activated. The operation of the
Injection System is identical to the operation of a conventional syringe up to
the point where the plunger rod has reached its full travel, and all the
medication has been delivered. When the injection system device is actuated to
have the plunger rod move further forward, the needle automatically and fully
retracts into the body of the ampule. The needle is held in place and is
rendered harmless and inoperable, and the Injection System cannot be used again.
The Injection System then may be safely handled so that disposal does not pose a
health risk. The Injection System is easy to use and provides visual and audible
confirmation that the needle has been safely retracted after injection. The
Injection System can be manufactured with barrels and needles of various sizes.
Self-Contained Pre-Filled Syringe. The Self-Contained Pre-Filled
Syringe consists of a tubular barrel (glass or plastic) containing a medicinal
fluid in an amount sufficient for a single dose, with a sealing and sliding
piston in the rear end of the barrel for containing and delivering the fluid
through a tubular needle extending from the forward end of the barrel. The
Self-Contained Pre-Filled Syringe is self-contained because a separate injector
assembly is not required for operation. The function of a plunger rod for
pushing the piston is provided by a special needle cap. The sliding piston is
moved forward for delivery of the medication by using the special needle cap
(plunger rod) threaded onto the rear end of the piston. A needle assembly is
fixed to the front end of the barrel, containing a spring to provide retracting
force on the needle when activated. The operation of the Syringe is similar to
the operation of a conventional syringe up to the point where the plunger rod
has reached its full travel, and all the medication has been delivered. When the
syringe device is actuated to have the plunger rod move further forward, the
needle automatically and fully retracts into the body of the Syringe. The needle
is held in place and is rendered harmless and inoperable, and the Syringe cannot
be used again. The Self-Contained Syringe then may be safely handled so that
disposal does not pose a health risk. The Self-Contained Syringe is easy to use
and provides visual and audible confirmation that the needle has been safely
retracted after injection. The Self-Contained Syringe can be manufactured with
barrels and needles of various sizes.
Pre-Filled Vial Injector System. The Pre-Filled Vial Injector System
consists of a main cylindrical housing with a stationary plunger for holding a
slidable piston in a fixed position as a glass pre-filled vial is pushed into
the main housing. The pre-filled vial is an existing product produced by several
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pharmaceutical manufacturers and contains fluid medication with an elastomeric
piston comprising a slidable fluid seal within the forward end of the vial. The
slidable piston is threaded onto the rear end of the stationary plunger and is
moved rearward into the vial by pushing the vial forward into the main housing
and delivering the fluid through a tubular needle extending from the forward end
of the main housing. A needle assembly is fixed to the front end of the barrel,
containing a spring to provide retracting force on the needle when activated.
The operation of the Vial Injector System is similar to the operation of a
conventional syringe up the point where the vial has reached its full travel,
and all the medication has been delivered. When the injector system device is
actuated to have the vial move further forward, the needle automatically and
fully retracts into the body of the vial. The needle is held in place and is
rendered harmless and inoperable, and the Vial Injector System cannot be used
again. The Vial Injector System may be safely handled so that disposal does not
pose a health risk. The Vial Injector System is easy to use and provides visual
and audible confirmation that the needle has been safely retracted after
injection. The Vial Injector System can be manufactured for vials and needles of
various sizes.
In addition to the Company's three Core Products and the New Products,
the Company has identified several additional product applications where its
proprietary retraction technology can be incorporated and plans to devote
research and development resources during 1997 and beyond in order to research
and develop such products.
In June, 1995, the Company completed an initial public offering of
3,450,000 shares of Common Stock, $.01 par value per share. On December 31,
1996, the closing bid price of the Common Stock was $5.125 per share.
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SUMMARY OF OFFERING
Issuer.................. The Med-Design Corporation, a Delaware corporation
(the "Company")
Securities Offered...... $5,000,000 of the Company's Common Stock, $.01 par
value per share.
Risk Factors............ The shares of Common Stock offered hereby ("Shares")
are highly speculative and involve a high degree of
risk and, therefore, should not be purchased by
investors who cannot afford the loss of their entire
investment. Prospective investors should carefully
review and consider the factors set forth under "Risk
Factors" as well as all other information contained
herein, before subscribing for any of the shares of
the Company's Common Stock pursuant to this Offering.
Purchase Price.......... The purchase price per share ("Purchase Price") shall
be equal to $5.00 per share. The minimum purchase of
Shares hereunder will be $50,000, although a lesser
amount of Shares may be offered and sold at the
discretion of Fine Equities, Inc., which is acting as
the exclusive placement agent for the Company with
respect to the Common Stock. Shares may be sold to
affiliates of the Company in this Offering. Assuming
the sale of $5,000,000 of the Company's Common Stock
hereby, the Company will receive net proceeds of
approximately $4,750,000.(1)
Common Stock Outstanding
Prior to the Offering... 6,899,570 Shares of Common Stock.(2)
----------
(1) Excluding the fees and expenses of the Placement Agent and the Company
related to the Offering which is estimated to be $95,000 in the aggregate.
(2) As of December 31, 1996. Excludes the shares of Common Stock to be sold
in connection with this Offering and warrants to purchase Common Stock to be
issued to the Placement Agent in connection with this Offering, 289,000 shares
of Stock issuable upon the exercise of warrants granted in connection with the
Company's initial public offering (which includes warrants to purchase 109,000
shares of Common Stock held by a principal of the Placement Agent), and 289,000
shares of Common Stock issuable upon the exercise of options to purchase Common
Stock granted to certain directors, executive officers and employees pursuant to
the Company's Non-Qualified Stock Option Plan.
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Terms of the Offering and
Placement Agent
Compensation............ The Company is offering $5,000,000 of Common Stock.
The offering period for the Shares will terminate on
January 22, 1997, unless extended for an additional 7
day period.
In connection with the Offering, the Placement Agent
will receive a commission equal to 5% of the gross
offering proceeds, and reimbursement of its mailing
and other expenses. The Company has agreed to pay all
printing, accounting, legal (including the legal fees
and expenses of counsel to the Placement Agent and
blue sky fees and expenses) and other expenses of the
Offering (estimated to be approximately $95,000). In
addition, the Company has agreed to sell to the
Placement Agent, for nominal consideration, warrants
(the "Warrants") to purchase from the Company such
number of shares of Common Stock as shall equal 10%
of the number of shares of Common Stock sold in the
Offering at an exercise price per share equal to 110%
of the Purchase Price. The Warrants shall have a five
(5) year term and be exercisable at any time during
the four (4) year period commencing at the beginning
of the second year after the Closing. The Common
Stock issuable upon exercise of the Warrants shall be
entitled to one demand registration right for a
period of five (5) years commencing on the date of
issuance of the Warrants and "piggyback" registration
rights (which, in both instances, shall be at the
Company's cost) for a period of seven (7) years
commencing on the date of issuance of the Warrants
(unless the
13
Company files a Form S-8, S-4 or comparable
registration statement). Such registrations shall be
at the expense of the Company (excluding fees and
expenses of the counsel for such holders and any
underwriting or selling commissions).
Provisions of the
Offering................ Pending delivery of the Common Stock, the proceeds of
the Offering will be held in an escrow account
maintained by Continental Stock Transfer & Trust
Company, as escrow agent ("Escrow Agent"). Upon
receipt of subscription documents and the funds from
the sale of the Stock, a closing will take place and
the net proceeds from such subscriptions will be paid
to the Company. The Offering will terminate on
January 22, 1997, unless extended by mutual agreement
of the Company and the Placement Agent for an
additional period of time not to exceed 7 days.
Pending the Closing, subscriptions may be revoked,
provided that written notice of revocation is sent by
certified or registered mail, return receipt
requested, and is received by the Placement Agent at
least two business days prior to the Closing. Refund
shall then be promptly made without interest and
without deduction. The Shares will be delivered
promptly to subscribers after the Closing of the
Offering. In the event that the Closing does not
occur for any reason, all monies received by the
Escrow Agent will be returned, without interest, to
the subscribers by the Escrow Agent.
Registration Rights..... The Company shall file a registration statement under
the Securities Act of 1933, as amended ("Securities
Act"), and any applicable state securities laws for
the resale of the Shares within thirty (30) days
following the Closing.
14
Sales to Accredited
Investors Only.......... The Shares have not been registered under the
Securities Act. They are being offered in reliance
upon the exemption under Section 4(2) and/or 3(b) of
the Securities Act and the provisions of Regulation D
promulgated thereunder. This Offering shall only be
made to, and sales of Securities will only be made
to, purchasers qualifying as "accredited investors"
under Rule 501(a) of Regulation D.
To qualify as an accredited investor under Regulation
D, a purchaser must satisfy at least one of the
following alternative criteria:
ALTERNATIVE ONE: The investor (natural persons only)
has an individual net worth (or joint net worth with
spouse) at the time of the purchase in excess of
$1,000,000;
ALTERNATIVE TWO: The investor (natural persons only)
had an individual income in excess of $200,000 in
each of 1995 and 1996, or joint income with that
person's spouse in excess of $300,000 in each of such
years, and reasonably expects reaching the same
income level in 1997;
ALTERNATIVE THREE: The investor is (i) a bank (as
defined in Section 3(a)(2) of the Securities Act) or
any savings and loan association or other institution
as defined in Section 3(a)(5)(A) of the Securities
Act, whether acting in its individual or fiduciary
capacity; (ii) any broker-dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934,
as amended; (ii) an insurance company (as defined in
Section 2(13) of the Securities Act); (iv) an
investment company registered under the Investment
Company Act of 1940, as amended, or a business
development company as defined in Section 2(a)(48) of
that Act; (v) a Small Business Investment Company
licensed by the U.S. Small Business Administration
under Section 301(c) or (d) of the Small Business
Investment Act
15
of 1958, as amended; (vi) any plan established and
maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its
political subdivisions, for the benefit of its
employees, if such plan has total assets in excess of
$5,000,000; or (vii) an employee benefit plan within
the meaning of the Employee Retirement Income
Security Act of 1974, as amended, if the investment
decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or
registered investment advisor, or if such employee
benefit plan has total assets in excess of
$5,000,000, or if such employee benefit plan is a
self-directed plan with investments made solely by
persons who are accredited investors;
ALTERNATIVE FOUR: The investor is a private business
development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940;
ALTERNATIVE FIVE: The investor is an organization
described in Section 501(c)(3) of the Internal
Revenue Code, as amended, or is a corporation,
Massachusetts or similar business trust, or
partnership not formed for the specific purpose of
acquiring the Shares with total assets in excess of
$5,000,000;
ALTERNATIVE SIX: The investor is an entity in which
all of the equity owners are accredited investors; or
ALTERNATIVE SEVEN: The investor is a trust with
assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares offered
hereby, whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) under the
Securities Act.
16
Restrictions on Resale.. At the Closing, none of the securities offered hereby
will be registered under the Securities Act, and the
certificates representing the securities will contain
a legend restricting the distribution, resale,
transfer, pledge, hypothecation or other disposition
of the securities unless and until such securities
are registered under the Securities Act or an opinion
of counsel for the Company is received that
registration is not required under the
Securities Act.
The terms of the Offering require that the Company file
with the Securities and Exchange Commission ("Commission")
a registration statement to register the Shares within
thirty days following the Closing, although there can be no
assurance that the Company will file such a registration
statement or that if filed, it will be declared effective
by the Commission.
FINANCIAL INFORMATION ABOUT THE COMPANY
The Company's audited consolidated financial statements as of December 31,
1995 on Form 10-KSB is attached hereto as Exhibit A and made a part hereof, and
the unaudited consolidated financial statements of the Company for each of the
three month periods ended March 31, 1996, June 30, 1996 and September 30, 1996
contained in the Form 10-QSB's are attached hereto as Exhibits B, C, and D,
respectively.
17
RISK FACTORS
THE PURCHASE OF SHARES IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED
BELOW. SHARES SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND
CONSIDER THE FOLLOWING RISKS AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
MEMORANDUM.
Development Stage Company/No Revenues/Uncertain Profitability/History of
Losses
Since its inception, the Company has been principally engaged in
developmental and organizational activities. To date, the Company has generated
no revenues from operations. The Company does not anticipate any sign ificant
revenues from product sales during the next twelve months. In addition, under
certain conditions, commercial marketing of any products may prove to be
contingent upon the Company obtaining various governmental approvals, including
clearances from the U.S. Food and Drug Administration ("FDA"). The approval
procedure will be extremely time consuming, expensive and uncertain.
Accordingly, there can be no assurance that the Company will be able to generate
sufficient revenues to operate on a profitable basis in the future.
The Company is in the development stage and its business is subject to
all of the risks inherent in the establishment of a new business enterprise. The
likelihood of the success of the Company must be considered in light of the
problems, expenses, complications and delays frequently encountered in
connection with the formation of a new business, the development of new
products, the competitive and regulatory environment in which the Company may be
operating, and the possibility that its activities will not result in the
development of any commercially viable products. There can be no assurance that
the Company's activities will ultimately result in the development of
commercially saleable or useful products.
The Company has experienced annual operating losses and negative
operating cash flow since inception. At September 30, 1996, the Company had a
deficit accumulated during the development stage of $12,576,029. Unless and
until the Company's product development and marketing activities are successful
and its product(s) are sold directly or under licensing agreements, and through
other forms of joint ventures, none of which is expected to occur, if at all,
before the end of the second quarter of 1997, the Company will not have revenues
to apply to operating expenses and
18
the Company will continue to incur losses. Additionally, as a result of the
start-up nature of its business and the fact that it has not commercially
marketed any products, the Company expects to sustain substantial operating
losses and negative cash flows in the future.
Requirements for Additional Funds
At September 30, 1996, the Company had a $6,000,000 line of credit with
one commercial bank and a $500,000 equipment financing facility with a second
commercial bank. Both credit facilities are 100% secured by cash, cash
equivalents, and marketable securities of the Company, together with equipment
financed with funds from such credit facility. In addition, the equipment
financing facility is also secured by certain leasehold improvements of the
Company. The line of credit facility expires on May 1, 1997. On November 14,
1996, the Company increased its line of credit facility to $6,750,000 and
extended the expiration date thereof until June 30, 1997. The Company had
additional availability against its line of credit and equipment financing
facilities of $186,098 and $142,917 on its line of credit and equipment
financing facility respectively, at December 31, 1996. In addition, in 1995, the
Company issued warrants to purchase 400,000 shares of Common Stock of which
warrants to purchase 111,000 shares have been exercised as of December 20, 1996.
The Company has received an aggregate of $543,900 upon the exercise of said
warrants. If the remainder of the warrants are exercised, the Company would
receive additional funds of approximately $1,606,000, net of the registration
and other costs to be paid by the Company as required under the terms of such
warrants.
The Company believes that its current cash on hand, together with the
net proceeds of this Offering, will be sufficient to support its planned
operations and capital expenditures through January, 1998 (assuming the Company
maintains its operations at its current levels and that the Closing occurs
during January, 1997 for gross proceeds of $5,000,000), but thereafter will need
to raise additional funds through public or private financings to support its
planned operations and capital expenditures. Additional financings may consist
of the sale of debt or equity securities. The sale of additional equity
securities could result in dilution to the purchasers in this offering. The
Company believes that it will require additional capital before it reaches
profitability and positive cash flow, if at all. If other external sources of
funds are not available to the Company to satisfy short-term or long-term
capital requirements, the Company may be required to reduce the compensation of
its officers, office staff and other personnel and substantially reduce, or
eliminate, certain areas of its product development activities, limit its
operations significantly, or otherwise modify its business strategy. The Company
has not made any specific plans or entered into any agreements to reduce the
19
level of its expenditures in the event that such reductions become necessary.
Dependence on Patents and Proprietary Rights
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its products, to preserve its trade secrets and
to operate without infringing the proprietary rights of third parties. The
Company's policy is to attempt to protect its intellectual property and maintain
the proprietary nature of its technology by, among other things, filing patent
applications for technology that it considers important to the development of
its business and requiring certain employees and key consultants to execute
non-disclosure and non-compete agreements.
The Company's patent rights currently consist of three United States
patents, one relating to the Retractable Needle Hypodermic Syringe (the "Safety
Syringe"), another relating to the Retractable Needle Vacuum Tube Phlebotomy Set
(the "Safety Phlebotomy Set") and the third relating to the Retractable Needle
Intravenous Catheter Insertion Device (the "Safety Catheter"). The Company has
been granted a patent relating to the Safety Syringe in Japan, Australia and
Romania. Corresponding regional and national patent applications relating to the
Safety Syringe are pending in the European Patent Office, designating twelve
countries, and in eight other member countries of the Patent Cooperation Treaty.
In 1995, the Company filed an international patent application, and a
corresponding Taiwanese patent application, directed to its Safety Catheter,
which incorporates several modifications and changes from the original design on
which it obtained a U.S. Patent. Also in 1995, the Company filed a U.S. patent
application and a corresponding Taiwanese patent application directed to its
retractable needle In-Line Y-Port Injector Access Needle. In 1996, the Company
filed a U.S. patent application directed to its Pre-Filled Ampule Injector and
its Self-Contained Pre-Filled Syringe and its Closed Injector System. Also, in
1996, the Company filed a U.S. patent application relating to a new and improved
version of its Safety Phlebotomy Set and a U.S. provisional patent application
directed to its Pre-Filled Vial Injector System.
There can be no assurance that the Company's current patent
applications will result in patents being issued.
As the Company proceeds toward final designs for its Safety Syringe,
Safety Phlebotomy Set and Safety Catheter devices, the Company is having
searches conducted in the United States for unexpired patents owned by others
that may conflict with any final product designs. The Company, however, has not
conducted any infringement searches in any foreign country for the purpose of
finding unexpired patents or pending patent applications that might raise a
possibility of infringement or conflict with the Company's
20
planned activities. Furthermore, the Company is considering appropriate
modifications to the product designs to optimize the final products and to avoid
conflicts with patents of others. To the extent that such final product designs
may not be protected by the Company's existing patents and patent applications,
the Company will file new patent applications relative to its final products.
There can be no assurance that all of the potentially relevant patents of others
have been identified or that the Company will be able to obtain patent
protection for the designs for its products.
There can also be no assurance that any patents owned by or issued to
the Company, or that may issue to the Company in the future, will provide a
competitive advantage or will afford protection against competitors with similar
technology, or that competitors of the Company will not circumvent, or challenge
the validity of any patents issued to the Company. There also can be no
assurance that any patents issued to or licensed by the Company will not be
infringed upon or designed around by others, that others do not have or will not
obtain patents that the Company will need to license or design around, that the
Company's products will not inadvertently infringe upon the patents of others,
or that others will not make the Company's patented devices upon expiration of
such patents. There can be no assurance that existing or
21
future patents of the Company will not be invalidated. Moreover, although the
Company utilizes non-disclosure agreements and other safeguards to protect its
proprietary information and trade secrets, there can be no assurance that they
will protect such information or provide adequate remedies for the Company in
the event of unauthorized use or disclosure of such information, or that others
will not be able to independently develop such information. As is the case with
the Company's patent rights, the enforcement by the Company of its
non-disclosure agreements can be lengthy and costly, with no guarantee of
success.
If the Company becomes involved with patent infringement litigation,
either to enforce the Company's patents or defend against patent infringement
suits, such litigation would be lengthy and expensive, and if it occurs, would
divert Company resources from planned uses. Further, any adverse outcome in such
litigation could have a material adverse effect on the Company. If any of the
Company's products are found to infringe upon the patents or proprietary rights
of another party, the Company may be required to obtain licenses under such
patents or proprietary rights. No assurance can be given that any such licenses
would be made available on terms acceptable to the Company, if at all. In
addition, patent applications filed in foreign countries and patents granted in
such countries are subject to laws, rules and procedures which differ from those
in the United States. Patent protection in such countries may be different from
patent protection provided by United States laws and may not be as favorable to
the Company. There can be no assurance that the Company's program of patent
protection and non-disclosure agreements will be sufficient to protect the
Company's proprietary technology from competitors.
Dependence on a Single Technology
As of the date of this Memorandum, all of the Company's products that
have been designed and developed are based upon the Company's proprietary
retraction technology. In addition, several of the products the Company intends
to design and develop will also be based upon such proprietary retraction
technology. While the Company intends to develop additional products that are
not based upon the proprietary retraction technology, the Company's present
narrow focus on a particular technology makes the Company vulnerable to the
development of superior competing products and changes in technology which could
eliminate the need for the Company's products. While the Company believes there
will be no significant change in the foreseeable future in the need for the
Company's products or the desirability of those products, there can be no
assurance that such change will not occur.
Dependence on Continued Research and Development
The Company is exploring other applications for its proprietary
retraction technology beyond the Core Products and the New Products under
development. The development of additional
22
applications and additional products may be important to the longer-term success
of the Company. There can be no assurance that any of such applications or
products will be developed or, if developed, that they will be successful.
Reliance on Single Source Suppliers
The Company may, in the future, obtain certain of the components and
subassemblies required for its products from a single source. The disruption or
termination of any single-source supplier could have a material adverse effect
on the Company's operations. Certain of the components have lead times and
changes in any suppliers could disrupt production schedules, either of which
could materially adversely affect the Company's business and results of
operations.
Lack of Market Acceptance
The use of safety needles is relatively new. Although the market for
syringes, phlebotomy sets and intravenous catheters is large, actual sales of
the Company's products, if and when they are produced, may be much less than the
market's potential. Market acceptance of the Company's products will depend in
large part upon the Company's ability to demonstrate the operational advantages,
safety and cost effectiveness of its products compared to standard syringes,
phlebotomy sets and intravenous catheters and its competitors' safety medical
devices. The higher cost of safety medical devices, including those of the
Company, relative to standard medical devices may be an impediment to their
market acceptance. There can be no assurance that the Company's products will
achieve market acceptance. In addition, there can be no assurance that the
development of the Core Products or the New Products will be completed on
schedule, if at all, or that there will be a significant demand for the products
once development is completed.
No Manufacturing Experience/Limited Manufacturing Facilities/No Agreements to
Manufacture Products
The Company has not yet manufactured any products on a commercial
basis. Certain members of management have had experience in the design and
manufacturing of other products, including medical devices, but there can be no
assurance that such managers will be successful in designing and manufacturing
the Company's products. For the Company to be successful, it must manufacture or
contract with third parties to manufacture its products in sufficient
quantities, to rigorous quality control standards and at a reasonable cost. The
Company's failure to do so would have a material adverse effect on the Company.
The Company has leased approximately 26,000 square feet of space in
Ventura, California where it houses a research and development laboratory, a
machine shop and a 3,130 square foot, class 100,000 clean room for assembly of
prototypes and products.
23
The Company, however, currently has no automated manufacturing facilities. The
Company had originally planned to install in the cleanroom a fully automated
robotic assembly system to pilot manufacture its products. The Company, however,
elected not to install a fully automated robotic assembly system. Instead, it
elected to install a semi-automated assembly system to pilot manufacture its
products. The assembly system will produce only one of the Company's products at
a time, but will have the capability of being converted at a reasonable cost
with minimal delay to manufacture a different product at such time as the
Company may desire. During the fourth quarter of 1996, the Company partially
completed the installation of the semi automated assembly system for the
production of one of the Company's products. The Company intends to have the
system fully operational during the first quarter of 1997. To the extent the
Company cannot or does not manufacture sufficient quantities of the Company's
products to satisfy the demand therefor, the Company will be required to
contract with third parties to manufacture such products. The Company is
currently investigating opportunities with third parties in the United States
and abroad to manufacture the Safety Syringe, the Safety Phlebotomy Set and
Safety Catheter and certain of its other products under development either on a
contract manufacturing basis, under licensing agreements or through other forms
of joint ventures. The Company has entered into several confidentiality
agreements with other companies for the purpose of exploring such opportunities.
The Company has not to date entered into any agreements for the manufacture of
its products and there can be no assurance the Company will be able to enter
into any such agreements on acceptable terms. Delays in engaging third parties
to manufacture its products could have a material adverse effect on the
Company's manufacturing plans and timetable. In addition, there can be no
assurance that the third party manufacturers will meet the Company's
requirements for quality, quantity and timeliness, or comply with requirements
imposed by the FDA or other governmental agencies, or that the Company would be
able to find substitute manufacturers, if necessary.
Limited Marketing Staff
Other than a Senior Vice President, Marketing, the Company has no
other staff dedicated solely to marketing and, if commercial products are
developed, it will have to employ a sales force or retain marketing and
distribution services from other parties. If the Company attempts to employ a
sales force, there can be no assurance that qualified individuals can be hired.
If the marketing and distribution services of other parties are sought, there
can be no assurance that it will be able to enter into such marketing and
distribution agreements on acceptable terms.
Limited Number of Employees
The Company anticipates increasing the number of employees in the
areas of product development, manufacturing, sales and marketing. The number of
employees that the Company will need
24
to hire will vary according to the progress made in the development of the
Company's pilot manufacturing plant and the extent to which the Company
undertakes the manufacture, marketing and distribution of its products. There
can, however, be no assurance that, if the need arises, the Company will have
the resources or ability to engage qualified employees or outside independent
consultants.
Dependence on Key Personnel
The success of the Company depends upon the skills, experience and
efforts of its executive officers and certain marketing and technical people.
The Company is particularly dependent upon the services of Xxxxx X. Xxxxxxx,
its Chairman, Chief Executive Officer and President, Xxxxxxx X. Xxxxxx, its
Senior Vice President, Research and Development and Xxxx X. Xxxxxxx, its
Senior Vice President, Design. The loss of the services of Xx. Xxxxxxx, Xx.
Xxxxxx or Xx. Xxxxxxx or any of the Company's other key personnel could have
a material adverse effect on the Company. Each of Messrs. Xxxxxxx, Xxxxxx and
Xxxxxxx have entered into an employment agreement with the Company which
expires in 2000, 1998 and 1998, respectively. The Company is the sole
beneficiary of a key person life insurance policy on the lives of each of
Messrs. Xxxxxxx, Xxxxxx and Xxxxxxx in the amount of $1,000,000 per policy.
Product Liability
The manufacture and sale of medical devices entails an inherent risk
of liability in the event of product failure or claim of harm caused by product
operation. Although the Company currently maintains product liability insurance
coverage ($5,000,000 per occurrence and in the aggregate), there can be no
assurance that such coverage will remain available at a reasonable cost and in
amounts sufficient to protect the Company against claims or recalls that could
have a material adverse effect on the financial condition and prospects of the
Company.
Government Regulation
As medical devices, the Company's products are subject to regulation
by the FDA under the Federal Food, Drug, and Cosmetic Act ("FD&C Act") and
implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among
other things, the manufacture, labeling, distribution, and promotion of the
Company's products in the United States. The FD&C Act requires that a medical
device must (unless exempted by regulation) be cleared or approved by the FDA
before being commercially distributed in the United States. The FD&C Act also
requires manufacturers of medical devices to, among other things, comply with
labeling and promotion requirements and to manufacture devices in accordance
with Good Manufacturing Practices ("GMPs"), which require that companies
manufacture their products and maintain related documentation in a prescribed
manner with respect to manufacturing, testing and quality control activities.
The FDA inspects medical device manufacturers and
25
distributors, and has broad authority to order recalls of medical devices, to
seize noncomplying medical devices, to enjoin and/or impose civil penalties on
manufacturers and distributors marketing noncomplying medical devices, and to
criminally prosecute violators.
The FD&C Act provides that, unless exempted by regulation, medical
devices may not be commercially distributed in the United States unless they
have been approved or cleared by the FDA. Some products may qualify for
clearance pursuant to Section 510(k) of the FD&C Act, under which the
manufacturer submits to FDA a pre-market notification that it intends to begin
marketing the product, and shows that the product is substantially equivalent to
another legally marketed product (i.e., that it has the same intended use and
that it is as safe and effective as a legally marketed device, and does not
raise different questions of safety and effectiveness than does a legally
marketed device). In some cases, the 510(k) pre-market notification must include
data from human clinical studies. Marketing may commence when the FDA issues a
510(k) clearance finding such substantial equivalence.
On December 28, 1995, the Company submitted a 510(k) pre-market
notification to the FDA for its Safety Catheter. On February 13, 1996, the FDA
issued a 510(k) clearance for the Safety Catheter, permitting the Company to
market the product. The Company believes that the Safety Syringe and the Safety
Phlebotomy Set also will be eligible for clearance through the 501(k) pre-market
notification procedure based upon their substantial equivalence to previously
marketed devices. The Company presently intends to submit to FDA a 510(k)
pre-market notification for the Safety Phlebotomy Set in the first quarter of
1997 and for the Safety Syringe in the second quarter of 1997. However, there
can be no assurance that the Company will meet its target dates for 510(k)
pre-market notification submission, that such products are eligible for a 510(k)
clearance, that the Company will not be required to submit additional data or
meet additional FDA requirements that may substantially delay a 510(k) clearance
and add to the Company's expenses, or that the Company will obtain 510(k)
clearance to market the Safety Phlebotomy Set or Safety Syringe.
If any of the Company's products do not qualify for the 510(k)
clearance procedure, the FDA must approve a pre-market approval application
("PMA application") before marketing can begin. PMA applications must
demonstrate, among other matters, that the medical device is safe and effective.
A PMA application is typically a complex submission usually including the
results of clinical studies, and preparing an application is a detailed and
time-consuming process. Once a PMA application has been submitted, there can be
no assurance that a PMA application will be approved in a timely fashion
or at all.
The process of obtaining FDA clearances or approvals can be
time-consuming and expensive, and there can be no assurance that the Company
26
will be able to obtain required regulatory clearances or approvals. Clearances
or approvals, if obtained, may include significant limitations on the uses
promoted for the product in question. Further, changes to the product may
require additional clearances or approvals. In addition, once a product has been
cleared or approved, the FD&C Act imposes continuing obligations, including,
among others, the requirement that devices be manufactured in accordance with
GMPs and that they be labeled and promoted in compliance with FDA regulations.
Changes in existing regulations or guidelines or the adoption of new regulations
or guidelines could make regulatory compliance by the Company more difficult in
the future. The failure to obtain needed clearances or approvals or the
resolution of enforcement action based on failure to comply with applicable
regulations would be likely to have a material adverse effect on the Company.
Distribution of the Company's products in countries other than the
United States may be subject to regulation in those countries. There can be no
assurance that the Company will be able to obtain the approvals necessary to
market the Safety Syringe, the Safety Phlebotomy Set, the Safety Catheter or
any other product outside of the United States.
Competition
The needle market is highly competitive. The Company will compete in
the United States and abroad with medical product companies, including Becton
Xxxxxxxxx and Company, Sherwood Medical, a division of American Home
Products, Terumo Medical Corporation, Xxxxxxx and Xxxxxxx, U.S. Medical
Laboratories and Bio-Plexus, Inc. Many of the Company's competitors have name
recognition in the market and have longer operating histories and in many cases
are substantially larger and better financed than the Company. Such competitors
may use their economic strength to influence the market to continue to buy their
existing products or new products developed by them. One or more of these
competitors also could use such resources to improve their current products or
develop additional products which may compete more effectively with the
Company's products. New competitors may arise and may develop products which
compete with the Company's products. In addition, new technologies may arise
which could lower or eliminate the demand for the Company's products.
Control by Directors and Officers
As of December 31, 1996, Directors and officers of the Company
beneficially owned or controlled approximately 42% of the outstanding Common
Stock and have the right to acquire 289,000 additional shares of Common Stock
upon exercise of outstanding options, when vested. By virtue of their ownership
of Common Stock and options to purchase Common Stock, such executive officers
and directors may, as a group, have the ability to exert significant control
over the election of the Company's Board of Directors and to determine corporate
actions requiring stockholder approval
27
including mergers, consolidations and the sale of all or substantially all of
the Company's assets, and to prevent or cause a change in control of the
Company.
In addition, 200,000 shares of the Company's Common Stock owned by Xx.
Xxxxx Xxxxxxx has been pledged as collateral for a loan. In the event of a
default by Xx. Xxxxxxx, such lender would then take title to such shares, which
would have the effect of reducing the control over the Company by such directors
and officers.
No Cash Dividends and None Anticipated
No cash dividends have been paid on the Common Stock of the Company.
It is anticipated that income received from operations, if any, will be devoted
to the Company's future operations. Accordingly, no cash dividends are
anticipated in the future.
Barriers to Takeover
The Company has an authorized class of 5,000,000 shares of preferred
stock. The Board has the authority, without shareholder approval, to issue
preferred stock in one or more series and to fix the relative rights and
preferences thereof including their redemption, dividend and conversion rights.
The ability of the Company to issue the authorized but unissued shares of such
preferred stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company.
Future Sales of Common Stock by Existing Security Holders; Potential Adverse
Effect on Market Price
Of the 6,899,570 shares of common stock presently issued and
outstanding as of December 31, 1996, 3,270,662 shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act") and are
"restricted securities" as that term is defined by Rule 144 promulgated under
the Securities Act. In addition, as of December 31, 1996, an additional 207,665
shares of stock which are owned by "affiliates" of the Company have been
registered under the Securities Act, but are considered "restricted securities"
under Rule 144 of the Securities Act. In the future, such restricted securities
may be sold in compliance with the limitations of Rule 144, or otherwise.
Generally, under Rule 144, a person who has held fully-paid-for "restricted
securities" for a period of two years may, every 90 days, sell to a market
maker, or in an ordinary broker's transaction, an amount that does not exceed
the greater of one percent (1%) of the Company's then outstanding stock or the
average weekly trading volume during the four calendar weeks preceding the sale.
Rule 144 also permits a person who is not an affiliate of the Company, and who
has held fully-paid-for "restricted securities" for a period of three years,
28
to sell such securities without compliance with the limitations on quantity and
manner of sale.
Beneficial holders of approximately 2,570,631 shares of Common Stock
in the aggregate have agreed not to directly or indirectly, offer to sell,
contract to sell, transfer, assign, encumber, grant an option to purchase,
pledge or otherwise dispose of any beneficial interest in such securities until
February 13, 1997, without the prior written consent of the Company and the
underwriter of the Company's Initial Public Offering. In addition, pursuant to
this Offering, five individuals who are officers and/or directors of the
Company, have agreed not to offer, sell or otherwise dispose of an aggregate of
1,307,912 of their shares (with certain exceptions) for a period commencing on
the date of this Offering and continuing until the Company has entered into
three material corporate alliances relating to the Company's products, although
any of those five individuals may offer, sell or otherwise dispose of their
shares after the Company has entered into two material corporate alliances
relating to the Company's products if Xx. Xxxxx Xxxxxxx so consents in writing.
Xx. Xxxxxxx has also agreed not to offer, sell or otherwise dispose of 1,230,000
of the shares beneficially owned by him for a period commencing on the date of
this Offering and continuing until the Company has entered into three material
corporate alliances relating to the Company's products, without the prior
written consent of the Placement Agent.
Taking into account the above referenced lock-up agreements and
assuming the underwriter and the Placement Agent do not release any stockholders
from such agreements, of the 6,899,570 shares of Common Stock outstanding as of
December 31, 1996, approximately 306,668 shares are currently eligible under
Rule 144 for sale in the public market and approximately 3,268,327 shares of
Common Stock will be eligible under Rule 144 for sale in the public market after
February 1, 1996 through May 31, 1997. The future sale of any "restricted
securities" by stockholders of the Company or the issuance of Common Stock upon
the exercise of the outstanding options or warrants may have an adverse effect
upon the market price of the Common Stock (which includes the Common Stock sold
in connection with this Offering) and the ability of the Company to raise
capital. Holders of options to purchase 81,000 shares are presently fully vested
and upon exercise of such options are eligible to sell such shares under rule
701. Holders of outstanding warrants (including the Warrants as hereinafter
defined) have the right to purchase 289,000 shares of Common Stock and to
require the Company to register the resale of such shares of Common Stock.
Anti-Takeover Provisions
The Company is governed by the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law enacted in 1988. In
general, the law prohibits a public Delaware corporation from engaging in a
"business combination" with an
29
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and certain other transactions
resulting in a financial benefit to the stockholders. An "interested
stockholder" is defined as a person who, together with affiliates and
associates, owns, (or, within the prior three years, did own) 15% or more of a
corporation's voting stock. As a result of the application of Section 203,
potential acquirors of the Company may be discouraged from attempting to effect
an acquisition transaction with the Company, thereby possibly depriving holders
of the Company's securities of certain opportunities to sell or otherwise
dispose of such securities at above market prices pursuant to such transactions.
Risks of Low-Priced Stocks
The Commission has adopted regulations which define a "xxxxx stock" to
be an equity security that has a market price (as therein defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a xxxxx stock, unless exempt,
the rules require the delivery, prior to any transaction in a xxxxx stock, of a
disclosure schedule prepared by the Commission relating to the xxxxx stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the xxxxx stock held in the account and information
on the limited market in xxxxx stocks. The foregoing xxxxx stock restrictions
will not apply to the Company's securities if such securities continue to be
listed on the NASDAQ Small Cap Market, as to which there can be no assurance,
and have certain price and volume information provided on a current and
continuing basis or meet certain minimum net tangible assets or average revenue
criteria. In any event, even if the Company's securities were exempt from such
restrictions, it would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the Commission the authority to prohibit any person engaged in
unlawful conduct while participating in a distribution of xxxxx stock from
associating with a broker-dealer or participating in a distribution of xxxxx
stock, if the Commission finds that such a restriction would be in the public
interest. If the Company's securities were to be removed from listing on the
NASDAQ Small Cap Market or otherwise become subject to the existing rules on
xxxxx stocks, the market liquidity for the Company's securities could be
severely adversely affected.
30
USE OF PROCEEDS
Upon completion of the Offering, the Company expects to receive net
proceeds of approximately $4,655,000, assuming the sale of $5,000,000 of the
Company's Common Stock offered hereby after deduction of estimated fees and
expenses of the Offering. If and to the extent that the Company's secured
lenders permit it to release cash and marketable securities held as security for
its loans, the Company intends to use the net proceeds of the Offering to reduce
the amount outstanding under the lines of credit and to subsequently withdraw a
corresponding amount from the account securing the lines. These withdrawn funds
will be invested in short-term U.S. government securities pending the uses
described herein.
Of such proceeds, the Company will use approximately $2,000,000 of the
net proceeds of this Offering to complete research and development projects
currently in production and begin production of new research and development
projects, and the balance of the net proceeds for working capital and general
corporate purposes.
Management of the Company estimates, based on currently proposed plans
and assumptions relating to the cash generated by its operations, that the
proceeds of this Offering will be sufficient to enable the Company to satisfy
its contemplated liquidity requirements for at least 12 months (assuming that
the Closing occurs during January, 1997) following the consummation of this
Offering (depending upon the Company's cash requirements for new research and
development projects). The foregoing estimate reflects the Company's present
plans and certain assumptions regarding general economic and industry conditions
and the Company's anticipated revenues and expenditures in the near future.
However, the continuation of the Company's current projects and operations will
require funding substantially in excess of the proceeds of this Offering or any
funds otherwise currently available to the Company. The Company has no current
arrangements with respect to sources of additional financing and there can be no
assurance that any additional future financing will be available to the Company
in the future on commercially reasonable terms, if at all.
PLAN OF DISTRIBUTION
The Company is offering the Shares, on a "best-efforts" basis.
Affiliates of the Company may purchase Shares in this Offering. This offering
will expire on January 22, 1997 or when all of the Shares are sold subject to
the right of the Company and the Placement Agent to extend this Offering for an
additional 7 day period. The Shares will be offered in denominations of $50,000
and integral multiples thereof; however, the Company and the Placement Agent may
accept or reject offers to purchase Shares in any amount in their sole
discretion.
31
The Company is offering the Shares exclusively through Fine Equities,
Inc., (the "Placement Agent"). The Company reserves the right to reject any
subscription from a subscriber who the Company believes, in its sole discretion,
does not meet the suitability standards for this Offering. See "Summary of
Offering-Sales to Accredited Investors Only". In such an event, any funds
received from such subscriber will be immediately returned without interest
thereon or deduction therefrom.
All funds received from subscribers will be held in an escrow account
for the benefit of the subscribers by Continental Stock Transfer and Trust
Company until the Closing or earlier termination.
Persons may subscribe by completing and signing each of the
Subscription Agreement and Investment Representation, the Accredited Investor
Questionnaire and the Purchaser Representative Questionnaire attached hereto,
and delivering them, together with payment of the subscription price, to the
Placement Agent. The subscription price must be paid by check or wire transfer
in United States dollars to the order of "Continental Stock Transfer & Trust
Company - The Med-Design Corporation Escrow Account". For wire instructions,
contact the Placement Agent at 000-000-0000.
Prior to the Closing, subscriptions may be revoked, provided that the
written notice of revocation is sent by certified or registered mail, return
receipt requested, and is received by the Placement Agent at least two business
days prior to the Closing. Refunds shall then be promptly made without interest
thereon and without deduction therefrom.
EXHIBIT A
---------
Form 10-KSB of The Med-Design Corporation
containing its audited consolidated
financial statements
for the year ended December 31, 1995
EXHIBIT B
---------
Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated
financial statements
for the three month period ended March 31, 1996
EXHIBIT C
---------
Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated
financial statements
for the three month period ended June 30, 1996
EXHIBIT D
---------
Form 10-QSB of The Med-Design Corporation
containing its unaudited consolidated
financial statements
for the three month period ended September 30, 1996
