<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1997
REGISTRATION NO. 333-23413
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INVISION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3844 94-3123544
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
3420 E. THIRD AVENUE
FOSTER CITY, CALIFORNIA 94404
(415) 578-1930
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
CURTIS P. DISIBIO
CHIEF FINANCIAL OFFICER
INVISION TECHNOLOGIES, INC.
3420 E. THIRD AVENUE
FOSTER CITY, CALIFORNIA 94404
(415) 578-1930
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT L. JONES, ESQ. THOMAS A. BEVILACQUA, ESQ.
BRETT D. WHITE, ESQ. TOMAS C. TOVAR, ESQ.
Cooley Godward LLP Brobeck, Phleger & Harrison LLP
Five Palo Alto Square Two Embarcadero Place
3000 El Camino Real 2200 Geng Road
Palo Alto, California 94306 Palo Alto, California 94303
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1993, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 18, 1997
[INVISION LOGO]
3,125,000 SHARES
COMMON STOCK
Of the 3,125,000 shares of Common Stock offered hereby, 1,875,000 shares are
being issued and sold by InVision Technologies, Inc. ("InVision" or the
"Company") and 1,250,000 shares are being sold by the Selling Stockholders. See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders. On April 17, 1997,
the last sale price of the Common Stock as reported on the Nasdaq SmallCap
Market was $14.875 per share. See "Price Range of Common Stock." The Common
Stock is traded on the Nasdaq SmallCap Market under the symbol "INVN." The
Common Stock has been approved for quotation on the Nasdaq National Market under
the symbol "INVN."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------
Total (3)..................... $ $ $ $
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated offering expenses of $675,000 payable by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 468,750 shares of Common Stock solely to cover
over-allotments, if any. If such over-allotment option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), in San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
PRUDENTIAL SECURITIES INCORPORATED
SCHRODER WERTHEIM & CO.
DONALD & CO. SECURITIES INC.
The date of this Prospectus is , 1997
<PAGE>
INVISION Technologies
DETECTION TECHNOLOGIES FOR A SAFER WORLD
WORLDWIDE OPERATION OF CTX 5000
INVISION TECHNOLOGIES, INC. IS THE WORLDWIDE LEADER IN EXPLOSIVE DETECTION
TECHNOLOGY. TO DATE, THE COMPANY'S CTX 5000 IS THE ONLY EDS TO BE CERTIFIED BY
THE FAA FOR USE IN THE INSPECTION OF CHECKED LUGGAGE ON COMMERCIAL FLIGHTS. THE
COMPANY BELIEVES THAT THE CTX 5000 IS THE ONLY EDS CAPABLE OF RELIABLY DETECTING
ALL TYPES OF EXPLOSIVES DESIGNATED BY THE FAA TO BE A THREAT TO COMMERCIAL
AVIATION, AND THAT THE CTX 5000 IS SUPERIOR TO COMPETING SYSTEMS BY VIRTUE OF
ITS ADVANCED DETECTION TECHNOLOGY.
[Image of CTX 5000 behind baggage line]
CTX 5000 IN OPERATION BEHIND UNITED AIRLINES' INTERNATIONAL CHECK-IN COUNTER AT
SAN FRANCISCO INTERNATIONAL AIRPORT, U.S.A.
[Image of CTX 5000 operator console room]
CTX 5000 OPERATOR CONSOLE ROOM AT MANCHESTER INTERNATIONAL AIRPORT, UNITED
KINGDOM.
[Image of CTX 5000 incorporated into baggage line]
CTX 5000 INCORPORATED INTO BAGGAGE LINE AT MANCHESTER INTERNATIONAL AIRPORT,
UNITED KINGDOM.
[Image of CTX 5000 incorporated into baggage line]
CTX 5000 INCORPORATED INTO BAGGAGE LINE AT HARTSFIELD INTERNATIONAL AIRPORT,
ATLANTA, U.S.A.
<PAGE>
INVISION TECHNOLOGIES
DETECTION TECHNOLOGIES FOR A SAFER WORLD
Advanced Detection Capability
INVISION'S CTX 5000 EMPLOYS CT TECHNOLOGY WHICH WAS PIONEERED IN THE MEDICAL
FIELD IN THE 1970'S AND ENHANCED FOR USE IN EXPLOSIVE DETECTION BY THE COMPANY'S
ENGINEERS IN THE 1990'S.
THE FOLLOWING SCHEMATICS ILLUSTRATE THE COMPREHENSIVE DETECTION CAPABILITIES OF
THE CTX 5000:
ACTUAL OBJECT X-RAY IMAGE CT IMAGE
[Image of three sticks of dynamite and x-ray image thereof]
AN ENHANCED X-RAY DEVICE PRODUCES AN IMAGE WHERE THE CONTENTS OF A BAG ARE
SUPERIMPOSED, ONE ON TOP OF THE OTHER. AN X-RAY IMAGE ALONE HAS LIMITED
CAPABILITY FOR FINDING EXPLOSIVES.
[Images of the three sticks of dynamite in the CT plane and resulting x-ray and
CT Image]
CTX 5000 PRODUCES BOTH X-RAY AND THIN CROSS-SECTIONAL IMAGES. THESE CT IMAGE
SLICES DO NOT SUFFER FROM SUPERIMPOSITION OF BAG CONTENTS. THIS UNIQUE VIEW OF
LUGGAGE ALLOWS AN OPERATOR TO QUICKLY AND CONFIDENTLY RESOLVE ALARMS.
[Images of the three sticks of dynamite in two CT planes and resulting x-ray and
CT Image]
CTX 5000 AUTOMATICALLY ACQUIRES MULTIPLE CT IMAGES AND RAPIDLY ANALYZES ITEMS IN
THE BAG, ACQUIRING DATA ABOUT A THREAT'S MASS, LOCATION AND DENSITY. IF A THREAT
IS DETECTED, THE X-RAY AND CT IMAGES COMBINE TO CLEARLY INDICATE SUSPICIOUS
ITEMS FOR THE OPERATOR.
THREAT RESOLUTION
[Image of suitcase on the CTX 5000 x-ray image monitor next to an image of the
same suitcase on the CTX 5000 CT image monitor]
CTX 5000 X-RAY IMAGE MONITOR
CTX 5000 CT IMAGE MONITOR
ONCE A THREAT IS DETECTED, THE CTX 5000 PRESENTS IMAGES ON TWO MONITORS:
- THREATS ARE OUTLINED IN RED FOR CLEAR IDENTIFICATION.
- CT SLICE POSITIONS ARE SHOWN USING VERTICAL LINES ON THE X-RAY IMAGE.
- THREAT POSITION VERTICAL LINES ARE COLORED RED.
- THREATS ARE AUTOMATICALLY OUTLINED BY A RED BOX AND HIGHLIGHTED IN RED.
- METALS, INCLUDING ELECTRONICS, ARE COLORED BLUE.
- DETONATORS ARE COLORED GREEN.
<PAGE>
AUTOMATIC THREAT DETECTION
AUTOMATIC THREAT DETECTION MEANS CTX 5000 CLEARS MOST LUGGAGE WITHOUT OPERATOR
INTERVENTION AND FATIGUE. THE THREAT IS CLEARLY HIGHLIGHTED IN RED, AND BOXED,
TO PRECISELY FOCUS THE OPERATOR'S ATTENTION. MULTIPLE CROSS-SECTIONAL CT IMAGES
COMPLETELY REVEAL THE THREAT AND ITS CONFIGURATION.
[Picture of an open radio with semtex explosives and detonator electronics in it
in an open suitcase and next to it the CTX 5000 x-ray and CT monitor images of
the same suitcase]
MILITARY EXPLOSIVE: SEMTEX CONCEALED IN RADIO
CTX 5000 DETECTS THE RADIO BOMB'S EXPLOSIVE AND HIGHLIGHTS ITS DETONATOR AND
ELECTRONICS. THE CTX 5000 AUTOMATICALLY ALARMS AND IDENTIFIES THE THREAT
CONCEALED BEHIND A CIRCUIT BOARD.
[Picture of a sheet explosive in the lining of an open suitcase and next to it
the CTX 5000 x-ray and CT monitor images of the same suitcase]
SHEET EXPLOSIVE: DETASHEET IN SUITCASE LINING
CTX 5000 REVEALS THE SHEET EXPLOSIVE HIDDEN IN THE SUITCASE'S LINING. THE CTX
5000 AUTOMATICALLY ALARMS AND HIGHLIGHTS THIS EXPLOSIVE.
[Picture of three sticks of dynamite and detonator in an open bag containing
various items, including a champagne bottle, and next to it the CTX 5000 x-ray
and CT monitor images of the 3 sticks of dynamite of the same bag]
COMMERCIAL EXPLOSIVE: POWERPRIMER DYNAMITE
CTX 5000 AUTOMATICALLY DETECTS AND HIGHLIGHTS THE DYNAMITE. THE UNCLUTTERED CT
IMAGE CLEARLY SHOWS THE DYNAMITE'S LOCATION REGARDLESS OF ITS PROXIMITY TO BAG
CONTENTS. THERE IS NO INTERFERENCE FROM THE CHAMPAGNE BOTTLE.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................................................................. 4
Forward Looking Statements..................................................................... 6
Risk Factors................................................................................... 6
Use of Proceeds................................................................................ 16
Price Range of Common Stock.................................................................... 16
Dividend Policy................................................................................ 16
Capitalization................................................................................. 17
Dilution....................................................................................... 18
Selected Consolidated Financial Data........................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 20
Business....................................................................................... 27
Management..................................................................................... 39
Certain Transactions........................................................................... 44
Principal and Selling Stockholders............................................................. 46
Description of Capital Stock................................................................... 48
Shares Eligible for Future Sale................................................................ 51
Underwriting................................................................................... 52
Legal Matters.................................................................................. 54
Experts........................................................................................ 54
Additional Information......................................................................... 54
Index to Consolidated Financial Statements..................................................... F-1
</TABLE>
------------------
"InVision" is a registered trademark of the Company and "CTX 5000" and the
"InVision" logo are trademarks of the Company. Certain other trademarks of the
Company and other companies are used in this Prospectus.
The Company was founded in September 1990. The Company's headquarters are
located at 3420 E. Third Avenue, Foster City, California, 94404 and its
telephone number is (415) 578-1930.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements examined by its independent
public accountants and quarterly reports containing unaudited consolidated
financial information for the first three quarters of each fiscal year.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS, INCLUDING THE INFORMATION UNDER "RISK
FACTORS."
THE COMPANY
InVision Technologies, Inc. ("InVision" or the "Company") is the worldwide
leader in explosive detection technology. The Company develops, manufactures,
markets and supports an explosive detection system ("EDS") for civil aviation
security based on advanced computed tomography ("CT" or "CAT Scan") technology.
To date, the Company's CTX 5000 is the only EDS to be certified by the Federal
Aviation Administration ("FAA") for use in the inspection of checked luggage on
commercial flights. Historically, the FAA has been the leader in establishing
standards for aviation security worldwide, and the Company believes that
airports around the world will migrate over time towards security policies
consistent with those of the FAA. As a result, the Company believes that the CTX
5000 is well positioned to become the industry standard. In December 1996, the
Company received an order from the FAA for 54 CTX 5000 systems to be installed
at the busiest U.S. airports. For the fiscal year ended December 31, 1996 and
the quarter ended March 31, 1997, the Company had revenues of $15.8 million and
$9.4 million, respectively, and at March 31, 1997 had orders in backlog in the
amount of $68.6 million. As of March 31, 1997, 37 CTX 5000 systems had been
shipped to 13 airports in eight countries around the world.
The Company believes that the CTX 5000 is the only EDS capable of reliably
detecting all types of explosives designated by the FAA to be a threat to
commercial aviation, and that the CTX 5000 is superior to competing systems by
virtue of its advanced detection technology. The CTX 5000 is capable of
capturing and processing substantially more data than other explosive detection
systems, and of rendering three-dimensional images of suspicious objects. By
combining the superior capability of CT technology and advanced software for
image processing with simple user interfaces, the Company's CTX 5000 is capable
of providing high detection and low false alarm rates, as well as advanced
threat resolution capability and increased operator efficiency.
There are over 600 airports worldwide providing scheduled service for an
aggregate of approximately 2.5 billion passengers per year. Of these airports,
over 400 are located in the United States, and a substantial portion of the
remainder are located in Europe and the Asia/Pacific region. It is estimated
that it would cost approximately $2.2 billion to equip the 76 largest airports
in the United States with certified explosive detection systems.
In recent years, increased incidents of bombings and airline terrorism have
contributed to an enhanced perception of the threat of terrorism among the
general public. According to a report of the President's Commission on Aviation
Security and Terrorism dated May 15, 1990, there were 41 bombings against
civilian aviation targets worldwide between 1975 and 1989. According to Time
Magazine, there were 10,222 bombings in the United States between 1983 and 1993.
According to a CBS poll conducted in July 1996, airline passengers have
expressed a willingness to pay more for airline travel and endure delays if such
actions will decrease the threat of successful airline bombings. Following the
December 1988 bombing of Pan American Flight 103, the United States enacted the
Aviation Security Improvement Act of 1990, in response to which the FAA
sponsored the development of advanced explosive detection technology,
established protocols for the certification of such technology, and began to set
forth the guidelines for its worldwide implementation. To date, the FAA has
spent approximately $150 million on development related to high detection
technology and, subsequent to a report of the White House Commission on Aviation
Safety and Security, Congress has recently appropriated $144 million for the
purchase of EDS to be deployed at major airports in the United States.
The Company's objective is to become the leading provider of explosive
detection systems worldwide and to extend its technology expertise to address
broader applications for detection. Specific elements of the Company's growth
strategy are to enhance its technological leadership, expand its sales and
marketing organization, leverage its detection technology expertise to enter new
markets for detection, and selectively pursue strategic relationships and
acquisitions.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company... 1,875,000 shares
Common Stock Offered by the Selling
Stockholders........................ 1,250,000 shares
Common Stock to be Outstanding after
the Offering........................ 11,092,000 shares(1)
Use of Proceeds....................... To purchase capital equipment and
undertake facility improvements, to fund
research and development, for working
capital and other general corporate
purposes, and to pursue possible
acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbol......... INVN
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues........................... $ -- $ -- $ -- $ 9,066 $ 15,841 $ 3,922 $ 9,377
Gross profits...................... -- -- -- 2,289 6,105 1,469 4,669
Income (loss) from operations...... (2,044) (3,025) (3,324) (2,988)(2) (2,233)(2) (185) 760(2)
Net income (loss).................. (2,196) (3,307) (3,727) (3,292) (3,572)(3) (1,215)(3) 642
Net income (loss) per share(4)..... $ (0.50) $ (0.44) $ (0.17) $ 0.06
Shares used in per share
calculations(4).................. 6,642 8,142 7,081 10,272
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash................................................................................... $ 2,251 $27,869
Working capital........................................................................ 7,283 32,901
Total assets........................................................................... 19,509 45,127
Long-term liabilities.................................................................. 110 110
Total stockholders' equity............................................................. 9,845 35,463
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding on March 31, 1997. Excludes, as
of such date, (i) approximately 1,086,000 shares of Common Stock issuable
upon exercise of options outstanding, of which options to purchase
approximately 729,000 shares were exercisable at a weighted average
exercise price of $0.80 per share, (ii) 180,000 shares of Common Stock
issuable upon exercise of warrants outstanding at an exercise price of
$6.60 per share, (iii) approximately 835,000 shares reserved for future
grants under the Company's Equity Incentive Plan, and (iv) 300,000 shares
reserved for issuance pursuant to the Company's 1996 Employee Stock
Purchase Plan. Common Stock outstanding after the Offering includes 11,806
shares to be issued upon the exercise of options by the Selling
Stockholders, all of which shares are being sold in this Offering. See
"Management--Equity Incentive Plans," "Principal and Selling Stockholders,"
"Description of Capital Stock" and Note 8 of Notes to Consolidated
Financial Statements.
(2) The Company recorded non-cash charges related to grants of stock options
having exercise prices below the fair market value on the date of grant to
employees and directors in the amounts of $369,000, $489,000 and $90,000,
respectively, in 1995, 1996 and the three months ended March 31, 1997. See
Note 8 of Notes to Consolidated Financial Statements.
(3) The Company recorded a non-cash charge resulting from amortization of a
bridge loan warrant discount in the amount of $1.3 million in 1996,
including $949,000 in the three months ended March 31, 1996. See Note 6 of
Notes to Consolidated Financial Statements.
(4) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute per
share amounts.
(5) As adjusted to give effect to (i) the exercise of options to purchase
11,806 shares of Common Stock to be sold in this Offering by the Selling
Stockholders at a weighted average exercise price of $0.55 per share, (ii)
the sale of the 1,875,000 shares of Common Stock offered by the Company
hereby at an assumed public offering price of $14.875 per share, and (iii)
the application of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES (i)
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (ii) THE EXERCISE OF
OPTIONS TO PURCHASE 11,806 SHARES OF COMMON STOCK TO BE SOLD IN THIS OFFERING BY
THE SELLING STOCKHOLDERS AND THE APPLICATION OF PROCEEDS THEREFROM, AND (iii) NO
EXERCISE OF WARRANTS OUTSTANDING OR THE REMAINING OPTIONS OUTSTANDING ON MARCH
31, 1997 TO PURCHASE AN AGGREGATE OF APPROXIMATELY 1,276,000 SHARES OF COMMON
STOCK. ALL REFERENCES TO THE COMPANY'S FISCAL YEARS REFER TO THE PERIODS ENDING
DECEMBER 31.
5
<PAGE>
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS MAY CONTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO
THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS COULD
DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED BY, THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF THE COMPANY'S SINGLE
PRODUCT, FLUCTUATIONS IN THE COMPANY'S QUARTERLY AND ANNUAL OPERATING RESULTS,
THE LOSS OF ORDERS OF THE COMPANY'S PRODUCT, INCLUDING THE LOSS OF THE COMPANY'S
MOST RECENT ORDER FROM THE FAA, LOSS OF ANY OF THE COMPANY'S SOLE SOURCE
SUPPLIERS, INTENSE COMPETITION, RELIANCE ON LARGE ORDERS, CONCENTRATION OF THE
COMPANY'S CUSTOMERS, RISKS RELATED TO THE LENGTHY SALES CYCLES FOR THE CTX 5000,
BUDGETING LIMITATIONS OF THE COMPANY'S CUSTOMERS AND PROSPECTIVE CUSTOMERS, AND
THE RISKS RELATED TO THE COMPANY'S LIMITED MANUFACTURING EXPERIENCE, AS WELL AS
THOSE DISCUSSED IN "RISK FACTORS," IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND ELSEWHERE IN THIS
PROSPECTUS.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following risk factors should
be considered carefully in evaluating the Company and its business before
purchasing the Common Stock offered hereby.
HISTORY OF LOSSES; NO ASSURANCE OF PROFITABILITY
The Company commenced operations in September 1990, remained in the
development stage through 1994 and received its first revenues from product
sales in the first quarter of 1995. The Company has experienced net losses for
each quarter and year since inception through December 31, 1996 and, as of March
31, 1997, had an accumulated deficit of approximately $18.9 million. There can
be no assurance that the Company will achieve profitability on a quarterly or
annual basis or, if it is achieved, that profitability can be maintained. The
Company expects to expand its manufacturing, research and development, sales and
marketing, and administrative capabilities. The anticipated increase in the
Company's operating expenses caused by this expansion could have a material
adverse effect on the Company's business, financial condition and results of
operations if revenues do not increase at an equal or greater rate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
SINGLE PRODUCT; UNCERTAINTY OF MARKET ACCEPTANCE
The CTX 5000 currently is the only product offered by the Company and the
Company derives substantially all of its revenues from the sale of CTX 5000
units. The Company's orders to date have been received from a limited number of
customers and the substantial majority of these have been from a single
customer, the FAA. The commercial success of the CTX 5000 will depend upon its
acceptance by domestic and international airports, government agencies and
airlines as a useful and cost-effective alternative to less expensive, higher
throughput (i.e. bags per hour) competing products employing different
technologies. The large capital commitment (approximately $1.0 million) required
to purchase the CTX 5000 may limit the marketability of the CTX 5000. In
addition, the Company's failure to compete successfully with respect to
throughput, the ability to scan all sizes of baggage, the ease of integration of
the CTX 5000 into existing baggage handling systems and other factors could
delay, limit or prevent market acceptance of the CTX 5000. Moreover, the market
for EDS technology is largely undeveloped, and the Company believes that the
overall demand for EDS technology will depend significantly upon public
perception of the risk of terrorist attacks. There can be no assurance that the
public will perceive the threat of terrorist bombings to be substantial or that
the airline industry and governmental agencies will actively pursue EDS
technology. As a result, there can be no assurance the Company will be able to
achieve market penetration, revenue growth or profitability. See
"Business--Competition" and "--Industry Background."
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FLUCTUATIONS IN OPERATING RESULTS
The Company's past operating results have been, and its future operating
results will be, subject to fluctuations resulting from a number of factors,
including: the timing and size of orders from, and shipments to, major
customers; budgeting and purchasing cycles of its customers; delays in product
shipments caused by custom requirements of customers or ability of the customer
to accept shipment; the timing of enhancements to the CTX 5000 by the Company or
new products by its competitors; changes in pricing policies by the Company, its
competitors or suppliers, including possible decreases in average selling prices
of the CTX 5000 in response to competitive pressures; the proportion of revenues
derived from competitive bid processes; the mix between sales to domestic and
international customers; market acceptance of enhanced versions of the CTX 5000;
the availability and cost of key components; the availability of manufacturing
capacity; and fluctuations in general economic conditions. The Company also may
choose to reduce prices or to increase spending in response to competition or to
pursue new market opportunities, all of which may have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's systems revenues in any period are derived from sales of multiple CTX
5000 systems to a limited number of customers and are recognized upon shipment
which, in view of the high cost of one CTX 5000, causes minor variations in the
number of orders, or the timing of shipments, to substantially affect the
Company's quarterly revenues. Because a significant portion of the Company's
quarterly operating expenses are, and will continue to be, relatively fixed in
nature, such revenue fluctuations will cause the Company's quarterly and annual
operating results to vary substantially. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not meaningful and
cannot be relied upon as indications of future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations." Because of all of the foregoing
factors, the Company's operating results may be below the expectations of public
market analysts and investors in some future quarters, which would likely result
in a decline in the trading price of the Common Stock.
DEPENDENCE ON SUPPLIERS
Certain key components used in the Company's products have been designed by
the Company to its specifications and are currently available only from one or a
limited number of suppliers. The Company currently does not have long-term
agreements with these suppliers. Moreover, in view of the high cost of many of
these components, the Company does not maintain significant inventories of some
necessary components. If the Company's suppliers were to experience financial,
operational, production or quality assurance difficulties, the supply of
components to the Company would be reduced or interrupted. In the event that a
supplier were to cease operations, discontinue a product or withhold supply for
any reason, the Company may be unable to acquire such product from alternative
sources within a reasonable period of time. The Company also uses a variety of
independent third party manufacturers and subassemblers. The inability of the
Company to develop alternative sources for single or sole source components, to
find alternative third party manufacturers or subassemblers, or to obtain
sufficient quantities of these components could result in delays or
interruptions in product shipments, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
COMPETITION
The market for explosive detection systems is intensely competitive and is
characterized by continuously developing technology and frequent introductions
of new products and features. The Company expects competition to increase as
other companies introduce additional and more competitive products in the EDS
market and as the Company develops additional capabilities and enhancements for
the CTX 5000 and new applications for its certified technology. Historically,
the principal competitors in the market for explosive detection systems have
been InVision, Vivid Technologies, Inc., EG&G Astrophysics, Heimann Systems
GmbH, Thermedics Detection Inc., and Barringer Technologies Inc. Each of these
competitors provides EDS solutions and products for use in the inspection of
checked luggage, although to date only the Company's CTX 5000, operating
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as two units in parallel to meet the throughput requirement, has been certified
by the FAA. The Company is aware of certain major corporations competing in
other markets that intend to enter the EDS market. In particular, in January
1996 Lockheed Martin Corporation received a grant in the amount of approximately
$8.5 million from the FAA for the design and development of a CT-based EDS over
a two-year period. Announcements of currently planned or other new products may
cause customers to delay their purchasing decisions for EDS products, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Each of the Company's competitors may have
substantially greater financial resources than the Company. There can be no
assurance that the Company will be able to compete successfully with its
competitors or with new entrants to the EDS market.
The Company believes that its ability to compete in the EDS market is based
upon such factors as: product performance, functionality, quality and features;
quality of customer support services, documentation and training; and the
capability of the technology to appeal to broader applications beyond the
inspection of checked baggage. Although the Company believes that the CTX 5000
is superior to its competitors' products in its explosive detection capability
and accuracy, the CTX 5000 must also compete on the basis of price, throughput,
the ability to handle all sizes of baggage, and the ease of integration into
existing baggage handling systems. Certain of the Company's competitors may have
an advantage over the Company's existing technology with respect to these
factors. Currently, the CTX 5000 has an average selling price of approximately
$1.0 million, compared to substantially lower prices for systems offered by the
Company's competitors; has a throughput rate of approximately 300 bags per hour
("bph"), compared to rates claimed to exceed 1,000 bph by certain of the
Company's competitors; has a gantry size which limits the ability of the unit to
accept all sizes of baggage; and requires that the baggage remain still while
being scanned, making it difficult to integrate into the continuously moving
baggage handling systems found in most airports. There can be no assurance that
the Company will be successful in convincing potential customers that the CTX
5000 is superior to other systems given all of the necessary performance
criteria, that new systems with comparable or greater performance, lower price
and faster or equivalent throughput will not be introduced, or that, if such
products are introduced, customers will not delay or cancel existing or future
orders for the Company's system. Further, there can be no assurance that the
Company will be able to enhance the CTX 5000 to better compete on the basis of
cost, throughput, accommodation of baggage size and ease of integration, or that
the Company will otherwise be able to compete successfully with existing or new
competitors. The failure of the Company to develop such enhancements or
otherwise successfully compete in the EDS market for any of the above reasons
would have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATIONS; LENGTHY SALES CYCLE
In any given fiscal year, the Company's revenues have principally consisted,
and the Company believes will continue to consist, of orders of multiple units
from a limited number of customers. While the number of individual customers may
vary from period to period, the Company is nevertheless dependent upon these
multiple orders for a substantial portion of its revenues. There can be no
assurance that the Company will obtain such multiple orders on a consistent
basis. During the first quarter of 1997, approximately $8.3 million, or 88.9%,
of the Company's revenues were generated from sales to the Company's three
largest customers. During the fiscal year ended December 31, 1996, revenues from
the Company's six largest customers were approximately $14.0 million, or 88.4%,
of the Company's revenues. During the fiscal year ended December 31, 1995,
revenues from the Company's three largest customers were approximately $6.8
million, or 75.0%, of the Company's revenues. To date, all orders from United
States customers have been entirely funded by the FAA, and the Company's largest
sales contract to date, for 54 CTX 5000 systems, is with the FAA. There can be
no assurance that such funding or sales will continue in the future. The
Company's inability to obtain sufficient multiple orders or the failure of the
FAA to continue such purchases or funding would have a material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, the timing and shipment of such orders could cause the operating
results in any quarter to differ from the projections of securities analysts,
which could adversely affect the trading price of the Common Stock. Losses
arising from customer disputes regarding shipping schedules, product condition
or performance, or the Company's inability to collect accounts
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receivable from any major customer could also have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Recent Developments."
The sales process of the CTX 5000 is often protracted due to the lengthy
approval processes that typically accompany large capital expenditures. The
Company's revenues depend in significant part upon the decision of a government
agency to upgrade and expand existing facilities, alter workflows and hire
additional technical expertise in addition to procuring the CTX 5000, all of
which involve a significant capital commitment as well as significant future
support costs. The sales cycle of the CTX 5000 is often lengthy due to the
protracted approval process that typically accompanies large capital
expenditures and the time required to manufacture the CTX 5000 and install and
assimilate the CTX 5000. Typically, six to twelve months may elapse between a
new customer's initial evaluation of the Company's system and the execution of a
contract. Another three months to a year may elapse prior to shipment of the CTX
5000 as the customer site is prepared and the CTX 5000 is manufactured. During
this period the Company expends substantial funds and management resources but
recognizes no associated revenue. See "--Fluctuations in Operating Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Quarterly Results of Operations."
PUBLIC AGENCY CONTRACT AND BUDGET CONSIDERATIONS
Substantially all of the Company's customers to date have been public
agencies or quasi-public agencies. In contracting with public agencies, the
Company is subject to public agency contract requirements which vary from
jurisdiction to jurisdiction and which are subject to budgetary processes and
expenditure constraints. Budgetary allocations for explosive detection systems
are dependent, in part, upon governmental policies which fluctuate from time to
time in response to political and other factors, including the public's
perception of the threat of commercial airline bombings. Many domestic and
foreign government agencies have experienced budget deficits that have led to
decreased capital expenditures in certain areas. The Company's results of
operations may be subject to substantial period-to-period fluctuations as a
result of these and other factors affecting capital spending. A reduction of
funding for explosive detection technology deployment could materially and
adversely affect the Company's business, financial condition and results of
operations. Future sales to public agencies will depend, in part, on the
Company's ability to meet public agency contract requirements, certain of which
may be onerous or even impossible for the Company to satisfy. In addition,
public agency contracts are frequently awarded only after formal competitive
bidding processes, which have been and may continue to be protracted, and
typically contain provisions that permit cancellation in the event that funds
are unavailable to the public agency. There can be no assurance that the Company
will be awarded any of the contracts for which its products are bid or, if
awarded, that substantial delays or cancellations of purchases will not result
from protests initiated by losing bidders. See "Business--Sales and Marketing."
LIMITED FIELD OPERATIONS; DEPENDENCE ON OPERATOR PERFORMANCE
As of March 31, 1997, 37 CTX 5000 systems had been shipped to 13 airports in
eight countries around the world. A majority of these units were installed since
January 1996, and the Company's customers have only limited experience with the
operation of the CTX 5000 in high-volume airport operations. Many of the factors
necessary to make the overall baggage scanning system a success, such as the CTX
5000's integration with the baggage handling system, ongoing system maintenance
and the performance of operators, are beyond the control of the Company. In
particular, once the CTX 5000 identifies a threat, the operator must make a
determination whether the threat is actual or a false alarm and, therefore,
whether or not to allow the bag to continue onto the aircraft. Unsatisfactory
performance of operators can lead to reduced efficacy of the CTX 5000. The
failure of the CTX 5000 to perform successfully in deployments, whether due to
the limited experience of the Company's customers with the CTX 5000, operator
error or any other reason, may have an adverse effect on the market's perception
of the efficacy of the CTX 5000, which in turn could have a material adverse
effect on the Company's business, financial condition and results of operations.
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LIMITED MANUFACTURING EXPERIENCE; MANAGEMENT OF GROWTH
As of March 31, 1997, the Company had produced a total of 40 CTX 5000
systems and had not sustained then current production levels for any significant
period of time. As a result of the FAA's recent order of 54 CTX 5000 systems,
the Company is in the process of substantially increasing its rate of
manufacture of the CTX 5000, which has placed significant demands on the
Company's management, working capital and financial and management control
systems. Failure to upgrade the Company's operating, management and financial
control systems when necessary, or difficulties encountered during such
upgrades, could have a material adverse effect on the Company's business,
financial condition and results of operations. The success of the increase in
production capability will depend in part upon the Company's ability to continue
to improve and expand its engineering and technical resources and to attract,
retain and motivate key personnel. The failure of the Company to establish such
production capability or to increase its revenues sufficiently to compensate for
the increase in operating expenses resulting from current or any future
expansion would have a material adverse effect on the Company's business,
financial condition and results of operations.
To accommodate the recent increase in the manufacturing rate, the Company
has entered into a lease for a new, substantially larger, manufacturing
facility. The ability of the Company to successfully transition its
manufacturing operation to this new facility is subject to a variety of factors,
including the ability to install appropriate equipment, adapt to a new working
environment, and quickly and efficiently move to the new facility. The
operations of this new facility will also require the Company to incur
substantially larger fixed costs than it has experienced in the past. Unforeseen
delays and complications that may arise in the transition to the new facility
which could interrupt the Company's manufacturing rate, failure of the FAA to
perform under the December 1996 purchase contract, or failure to maintain an
order rate sufficient to fully utilize this new manufacturing facility each
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Recent Developments,"
"--Manufacturing" and "--Facilities."
NO ASSURANCE OF CONTINUED CERTIFICATION; RISK OF CERTIFICATION OF COMPETING
TECHNOLOGIES; RISK OF CHANGING STANDARDS
The FAA has the responsibility for setting and maintaining performance
standards for explosive detection systems for all U.S. airlines, both in the
United States and abroad. The FAA Final Criteria for Certification of EDS,
published in September 1993, requires, among other things, a throughput of 450
bph for an explosive detection system. The Company's CTX 5000 unit currently has
been tested by the FAA at less than 450 bph and therefore has not been certified
as a single unit. The CTX 5000, when combined in a system consisting of two
units, was certified by the FAA in 1994. To date no other EDS has been certified
by the FAA. There currently is no requirement that U.S. airlines or airports (or
international airlines or airports) deploy FAA-certified explosive detection
systems or that U.S. airlines or airports (or most international airlines or
airports) deploy explosive detection systems at all. Should the standards be
lowered, resulting in other lower priced or higher throughput explosive
detection systems becoming certified, or should other competitive systems
otherwise become certified, the Company would lose a significant competitive
advantage. Under such circumstances, there can be no assurance that the
Company's product would be able to compete successfully with these systems.
Accordingly, the certification by the FAA of any competing EDS could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, should the FAA increase its certification
standards, there can be no assurance that the CTX 5000 would meet such
standards. See "Business--Industry Background."
The Company intends to continue to modify the CTX 5000 in an effort to make
throughput enhancements, cost reductions and other modifications to the CTX 5000
based upon the availability of adequate funds. Any such modifications or updated
versions of the CTX 5000 may require FAA approval in order to retain
certification or may require re-certification. There can be no assurance that
any such modifications will be approved or, if required, certified by the FAA,
and the failure to gain approval or certification for such products could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company believes that its long-term success will
depend in part upon the ability to manufacture an EDS that meets or
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exceeds the throughput standards of the FAA Final Certification Criteria without
being combined with another unit. See "Business--Product Development."
COMPETITION FOR FAA GRANTS
The U.S. Government currently plays an important role in funding the
development of EDS technology and sponsoring its deployment in U.S. airports. As
of March 31, 1997, the Company had received $8.0 million from FAA grants and
contracts, and expects to receive an additional $2.7 million for further
throughput enhancement and cost reduction activities in 1997. The Company is
also aware that Lockheed Martin Corporation was awarded a grant of approximately
$8.5 million in January, 1996 from the FAA for the design and development of a
CT-based EDS over a two-year period. There can be no assurance that additional
research and development funds from the FAA will become available in the future
or that the Company will receive any such additional funds. Failure by the FAA
to continue to sponsor the Company's technology could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the grant to Lockheed Martin Corporation and any future grants to
the Company's other competitors may improve such competitors' ability to develop
and market high detection EDS technology and cause the Company's customers to
delay any purchase decisions, which could have a material adverse effect on the
Company's ability to market the CTX 5000 and on the Company's business,
financial condition and results of operations. See "Business-- Product
Development."
DEPENDENCE ON KEY PERSONNEL
The Company's performance depends in part on the expertise of certain
technical personnel with skills in the disciplines of x-ray physics, image
reconstruction and expert systems design. In addition, much of the Company's
proprietary technology is known only by certain technical employees and might be
unavailable should such individuals leave the Company. The number of scientists
qualified to perform the development required by the Company is extremely
limited. The Company also depends on the skills of certain key management
personnel. While the Company maintains key-man life insurance for Dr. Sergio
Magistri, its President and Chief Executive Officer, in the amount of $3.0
million, the Company does not maintain key person life insurance for any of its
other employees and has employment agreements with only four of its executive
officers, which agreements the employees may terminate at will. There can be no
assurance that these individuals will continue employment with the Company. The
loss of certain key personnel or failure of the Company to attract and retain
new key personnel, particularly as the Company seeks to expand, could materially
adversely affect the Company's business, financial condition and results of
operations. See "Management."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's performance depends in part upon its proprietary technology.
In the United States, the Company relies upon patents, copyrights and trade
secrets for the protection of the proprietary elements of the CTX 5000 and the
Company's CT technology. There can be no assurance, however, that the Company
could enforce such patents, trade secrets or copyrights. The Company has two
United States patents for automatic concealed object detection systems using a
pre-scan stage which expire in the years 2010 and 2011 (the "Patents"). There
can be no assurance that the Patents would be effective in preventing CT-based
competition. In accordance with certain Federal Acquisition Regulations included
in the Company's development contract, dated September 27, 1991, with the FAA
(the "FAA R&D Contract"), the United States Government has rights to use certain
of the Company's proprietary technology developed after the award of the FAA R&D
Contract and funded by the FAA R&D Contract. The U.S. Government may use such
rights to produce or have produced for the U.S. Government competing products
using the Company's CT technology. In the event that the U.S. Government were to
exercise these rights, the Company's exclusivity in supplying the U.S.
Government with certified CT-based explosive detection systems could be
materially adversely affected.
The Company generally enters into confidentiality agreements with each of
its employees, and on a case-by-case basis enters into similar agreements with
distributors, customers, and potential customers. In addition,
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the Company limits access to distribution of its software, documentation and
other proprietary information. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by others. Outside the United States, the time period
for filing foreign counterparts of the Patents has expired, and the Company has
not sought or obtained patent protection (except to the extent of licenses held
under patents owned by Imatron Inc.) and has relied to date primarily on
software copyrights and trade secrets for the protection of its proprietary
technology. The absence of a foreign counterparts to the Patents could adversely
affect the Company's ability to prevent a competitor from using technology
similar to technology used in the CTX 5000. There can be no assurance that the
steps taken by the Company to protect its proprietary technology will be
adequate or that its competitors will not be able to develop similar,
functionally equivalent or superior technology.
The Company in the past has received, and from time to time in the future
may receive, communications from third parties alleging infringements by the
Company or one of its suppliers of patents or other intellectual proprietary
rights owned by such third parties. There can be no assurance that any
infringement claims (or claims for indemnification resulting from infringement
claims against third parties, such as customers) will not be asserted against
the Company. If the Company's product is found to infringe a patent, a court may
grant an injunction to prevent making, selling or using the product in the
applicable country. Protracted litigation may be necessary to defend the Company
against alleged infringement of others' rights. Irrespective of the validity or
success of such claims, defense of such claims could result in significant costs
to the Company and the diversion of time and effort by management, either of
which by itself could have a material adverse effect on the business, financial
condition and results of operations of the Company. Further, adverse
determinations in such litigation could result in the Company's loss of
proprietary rights, subject the Company to significant liabilities (including
treble damages in certain circumstances), or prevent the Company from selling
its products. If infringement claims are asserted against the Company, the
Company may seek to obtain a license of such third party's intellectual property
rights, which may not be available under reasonable terms or at all. In
addition, litigation may be necessary to enforce patents issued to or licensed
exclusively to the Company and protect trade secrets or know-how owned or
licensed by the Company and, whether or not the Company is successful in
defending such intellectual property, the Company could incur significant costs
and divert considerable management and key technician time and effort with
respect to the prosecution of such litigation, either of which by itself could
have a material adverse effect on the business, financial condition and results
of operations of the Company. See "Business--Intellectual Property and
Proprietary Rights."
INTERNATIONAL BUSINESS; FLUCTUATION IN EXCHANGE RATES; RISK OF CHANGE IN FOREIGN
REGULATIONS
The Company markets its products to customers outside of the United States
and, accordingly, is exposed to the risks of international business operations,
including unexpected changes in regulatory requirements, changes in foreign
control legislation, possible foreign currency controls, uncertain ability to
protect and utilize its intellectual property in foreign jurisdictions, currency
exchange rate fluctuations or devaluation, tariffs or other barriers,
difficulties in staffing and managing foreign operations, difficulties in
obtaining and managing vendors and distributors, and potentially negative tax
consequences. International sales are subject to certain inherent risks
including tariffs, embargoes and other trade barriers, staffing and operating
foreign sales and service operations and collecting accounts receivable. The
Company is also subject to risks associated with regulations relating to the
import and export of high technology products. The Company cannot predict
whether quotas, duties, taxes or other charges or restrictions upon the
importation or exportation of the Company's products in the future will be
implemented by the United States or any other country. Fluctuations in currency
exchange rates could cause the Company's products to become relatively more
expensive to customers in a particular country, leading to a reduction in sales
or profitability in that country. There can be no assurance that any of these
factors will not have a material adverse effect on the Company's business,
financial condition and results of operations.
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PRODUCT LIABILITY RISKS; RISK OF FAILURE TO DETECT EXPLOSIVES; AVAILABILITY OF
INSURANCE
The Company's business exposes it to potential product liability risks which
are inherent in the manufacturing and sale of explosive detection systems. There
are many factors beyond the control of the Company that could lead to liability
claims, such as the reliability of the customer's operators, the training of the
operators after the initial installation and training period, and the
maintenance of the units by the customers. For these and other reasons,
including software and hardware limitations and malfunctions of the CTX 5000,
there can be no assurance that the systems will detect all explosives hidden in
the luggage scanned. The Company does not believe that it would be liable for
any such claims, but the cost of defending any such claims would be significant
and any adverse determination may be in excess of the Company's insurance
coverage. Moreover, the failure of the CTX 5000 to detect an explosive would
also result in negative publicity which could have a material adverse effect on
sales and may cause customers to cancel orders already placed, either of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Many of the Company's customers require the
Company to maintain insurance at certain levels. The Company currently has
product liability insurance in the amount of $150 million. There can be no
assurance that additional insurance coverage, if required by customers or
otherwise, could be obtained on acceptable terms, if at all.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
An element of the Company's strategy is to review acquisition prospects that
would complement its existing product offerings, augment its market coverage,
enhance its technological capabilities or otherwise offer growth opportunities.
Although the Company has no present understandings, commitments or agreements
with respect to any material acquisition of any businesses, products or
technologies, the Company may make acquisitions of businesses, products or
technologies in the future. Future acquisitions by the Company could result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities, and amortization expenses related to goodwill and other
intangible assets, any of which could materially adversely affect the Company's
business, financial condition and results of operations. Acquisitions entail
numerous risks, including difficulties in the assimilation of acquired
operations, technologies and products, diversion of management's attention from
other business concerns, risks of entering markets in which the Company has no
or limited prior experience and potential loss of key employees of acquired
organizations. The Company's management has limited experience in assimilating
acquired organizations. No assurance can be given as to the ability of the
Company to successfully integrate any businesses, products, technologies or
personnel that might be acquired in the future, and the failure of the Company
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONCENTRATION OF OWNERSHIP; CONTROL BY MANAGEMENT
Upon completion of this offering, the Company's principal stockholder, HARAX
Holding, S.A. ("HARAX"), and its affiliates will hold approximately 23.5% of the
Company's Common Stock (22.5% if the Underwriters' over-allotment option is
exercised in full), and the present directors and executive officers of the
Company and their affiliates will, in the aggregate, beneficially own 13.0% of
the outstanding Common Stock (12.5% if the Underwriters' over-allotment option
is exercised in full), in each case including shares issuable pursuant to stock
options exercisable within 60 days of March 31, 1997. Consequently, HARAX
together with the Company's directors and executive officers, acting in concert,
will have the ability to significantly affect the election of the Company's
directors and have a significant effect on the outcome of corporate actions
requiring stockholder approval. In addition, HARAX, acting alone, will have the
power to significantly affect matters relating to the Company's affairs and
business. See "Principal and Selling Stockholders."
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue up to five million shares of preferred stock in one or more
series, to fix the rights, preferences, privileges and restrictions granted to
or imposed upon any wholly unissued shares of preferred stock, to fix the number
of
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shares constituting any such series, and to fix the designation of any such
series, without further vote or action by its stockholders. The rights of the
holders of Common Stock will be subject to, and may be materially adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. The Company has no present plans to issue shares of
preferred stock. In addition, in the event of certain transactions by which the
Company is acquired or becomes controlled by a single investor or group of
investors, the Board of Directors pursuant to the Company's Employee Stock
Purchase Plan, has discretion to provide that each right to purchase Common
Stock will be assumed or an equivalent right substituted by the successor
corporation, if any, or the Board may shorten the offering period and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such transaction. Furthermore, the Company's Certificate of
Incorporation provides for a staggered board and does not permit stockholder
action by written consent, both of which may have the effect of delaying or
preventing changes in control or management of the Company. The Company also is
subject to the provisions of Section 203 of the Delaware General Corporation
Law, which places restrictions on business combinations with certain interested
stockholders. The above factors, coupled with the concentration of ownership in
the directors and executive officers, could discourage certain types of
transactions involving an actual or potential change in control of the Company,
including transactions in which the holders of Common Stock might otherwise
receive a premium for their shares over then current prices, and may limit the
ability of such stockholders to cause or approve transactions which they may
deem to be in their best interests, all of which could have a material adverse
effect on the market price of the Common Stock offered hereby. See "Description
of Capital Stock-- Delaware Law and Certain Charter Provisions."
VOLATILITY OF STOCK PRICE; DILUTION
Since the Company's initial public offering in April 1996, the price of the
Company's Common Stock has fluctuated widely, with sales on the Nasdaq SmallCap
Market ranging from, on a post-split basis, $4.63 to $17.88. See "Price Range of
Common Stock." Although the Common Stock has been approved for quotation on
Nasdaq National Market, there can be no assurance that a more orderly and active
trading market will develop for the Common Stock or, if one does develop, that
it will be maintained. The market price of the shares of Common Stock, like that
of the common stock of many other high technology companies, is highly volatile.
The Company believes that factors such as the crash of TWA Flight 800, the Gore
Commission report and the entering into of the FAA contract for 54 CTX 5000
systems have greatly affected the fluctuation in the Company's Common Stock
trading price. In the future such events, as well as announcements of
technological innovations or new products by the Company or its competitors and
general market conditions, may have a significant effect on the market price of
the Common Stock. In addition, in recent years the stock market in general, and
the market for small capitalization stocks in particular, has experienced
extreme price fluctuations which have often been unrelated to the operating
performance of affected companies. Such fluctuations could adversely affect the
market price of the Company's Common Stock. Purchasers of the Common Stock
offered hereby will experience immediate, substantial dilution in the net
tangible book value per share of the Common Stock from the public offering
price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market following
this Offering could have an adverse effect on the trading price of the Common
Stock. Upon completion of this Offering, based on shares outstanding as of March
31, 1997, the Company will have outstanding approximately 11,092,000 shares of
Common Stock assuming no exercise of options after March 31, 1997 other than the
options to purchase 11,806 shares that will be exercised by Selling Stockholders
and sold in this Offering. Of such shares outstanding, approximately 7,114,000
shares, including the 3,125,000 shares offered hereby (approximately 7,583,000
and 3,594,000 shares, respectively, if the Underwriters' overallotment option is
exercised in full), will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining approximately
14
<PAGE>
3,978,000 shares of Common Stock outstanding upon completion of this Offering
are "restricted securities" as that term is defined in Rule 144, and may be sold
under Rule 144 subject to the holding period, volume limitations and other
restrictions under Rule 144. As a result of lock-up agreements between certain
securityholders and the representatives of the Underwriters, approximately
4,194,098 shares of the Company's Common Stock (excluding shares offered hereby)
may not be sold for a period of 120 days from the effective date of the
registration statement of which this Prospectus is a part, which restriction may
be waived at the sole discretion of Robertson, Stephens & Company LLC. Of the
shares subject to lock-up agreements, 479,318 shares have been pledged to secure
a margin loan and, in the event of a margin call, may be sold by the lender
immediately without regard to the lock-up agreement. Following the lock-up
period, all of the shares subject to the lock-up agreements will be available
for immediate sale, subject in certain cases to the holding period, volume
limitations and other restrictions under Rule 144.
The Company has entered into an agreement with a stockholder pursuant to
which 479,318 shares are currently registered for resale under the Securities
Act, and has entered into agreements with certain of its stockholders and others
pursuant to which such persons following this Offering have the right to require
the Company to register up to an aggregate of 482,493 additional shares of
Common Stock for resale under the Securities Act. Of such shares, 302,493 are
currently outstanding and the remaining 180,000 shares are issuable upon the
exercise of currently outstanding warrants. See "Description of Capital
Stock--Registration Rights" and "Certain Transactions."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,875,000 shares of Common
Stock offered by the Company hereby (2,343,750 if the Underwriters'
over-allotment option is exercised in full) at an assumed public offering price
of $14.875 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, together
with the proceeds from the exercise of options to purchase 11,806 shares of
Common Stock to be sold in this Offering by the Selling Stockholders are
estimated to be approximately $25,618,000 ($32,389,000 if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders. The Company
anticipates that the net proceeds will be used (i) for facility improvements
totaling approximately $2.0 million in connection with a move of the Company's
principal executive offices and manufacturing facility and to purchase
approximately $1.5 million of capital equipment, (ii) to fund research and
development, and (iii) for working capital and other general corporate purposes.
A portion of the proceeds also may be used to acquire or invest in
complementary businesses, products or technologies. From time to time, the
Company evaluates potential acquisitions of such businesses, products or
technologies in the ordinary course of business. The Company has no present
understandings, commitments or agreements with respect to any material
acquisition of any businesses, products or technologies. See "Risk
Factors--Risks Associated with Potential Acquisitions."
Pending the foregoing uses, the Company intends to invest the net proceeds
from this Offering in short-term, interest bearing, investment-grade securities.
PRICE RANGE OF COMMON STOCK
On April 23, 1996, the Common Stock commenced trading on the Nasdaq SmallCap
Market under the symbol "INVN". Prior to that date, there was no public market
for the Common Stock. The following table sets forth, for the periods indicated,
the high and low bid quotations of the Common Stock as reported on the Nasdaq
SmallCap Market giving effect to the Company's 2-for-1 stock split effected on
February 7, 1997 as if the stock split had occurred on April 23, 1996. These
over-the-counter quotations reflect inter-dealer prices, without retail markup,
markdown or commission, and may not necessarily represent the sales prices in
actual transactions.
<TABLE>
<CAPTION>
THE NASDAQ
SMALLCAP MARKET
------------------
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1996
Second quarter (from April 23, 1996).............................................. $ 6 5/8 $ 5 5/8
Third quarter..................................................................... 17 1/16 4 5/8
Fourth quarter.................................................................... 17 5/16 10 7/8
Fiscal 1997
First quarter..................................................................... $17 3/4 $13 5/8
Second quarter (through April 17, 1997)........................................... 15 1/2 12 5/8
</TABLE>
On April 17, 1997, the last sale price of the Common Stock on the Nasdaq
SmallCap Market was $14.875 per share. On March 31, 1997 there were
approximately 175 stockholders of record of Common Stock, and the Company
believes its shares were held beneficially by approximately 4,000 owners on such
date. The Common Stock has been approved for quotation on the Nasdaq National
Market.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and it is currently the intention of the Board of Directors not to pay cash
dividends in the foreseeable future. The Company plans to retain future
earnings, if any, to finance its operations. In addition, the Company's bank
credit facility prohibits the payment of dividends without the lender's consent.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1997 the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to (i) the sale of the 1,875,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $14.875 per share
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company, (ii) the exercise of options to
purchase 11,806 shares of Common Stock to be sold in the Offering by the Selling
Stockholders at a weighted average exercise price of $0.55 per share, and (iii)
the application by the Company of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(In thousands)
<S> <C> <C>
Long-term obligations, net of current portion............................................ $ 110 $ 110
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized;
none issued and outstanding.......................................................... -- --
Common stock, $0.001 par value; 20,000,000 shares authorized;
9,205,000 shares issued and outstanding actual; and
11,092,000 shares issued and outstanding, as adjusted(1)............................. 9 11
Additional paid-in capital............................................................. 28,958 54,574
Deferred stock compensation expense.................................................... (265) (265)
Accumulated deficit.................................................................... (18,857) (18,857)
--------- -----------
Total stockholders' equity........................................................... 9,845 35,463
--------- -----------
Total capitalization............................................................... $ 9,955 $ 35,573
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding on March 31, 1997. Excludes, as of
such date, (i) approximately 1,086,000 shares of Common Stock issuable upon
exercise of options outstanding, of which options to purchase approximately
729,000 shares were exercisable at a weighted average exercise price of
$0.80 per share, (ii) 180,000 shares of Common Stock issuable upon exercise
of warrants outstanding at an exercise price of $6.60 per share, (iii)
approximately 835,000 shares reserved for future grants under the Company's
Equity Incentive Plan, and (iv) 300,000 shares reserved for issuance
pursuant to the Company's 1996 Employee Stock Purchase Plan. See
"Management--Stock Option Plans," "Principal and Selling Stockholders,"
"Description of Capital Stock" and Note 8 of Notes to Consolidated Financial
Statements.
17
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1997 was
$9,845,000, or $1.07 per share of Common Stock. Net tangible book value per
share is determined by dividing the net tangible book value (tangible assets
less total liabilities) of the Company by the number of shares of Common Stock
outstanding at that date. After giving effect to the receipt of the estimated
net proceeds from the sale of the shares of Common Stock offered by the Company
at the assumed public offering price of $14.875 per share, the pro forma net
tangible book value of the Company as of March 31, 1997 would have been
$35,463,000, or $3.20 per share. This represents an immediate increase in net
tangible book value to existing stockholders of $2.13 per share and an immediate
and substantial dilution to new investors of $11.68 per share. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price........................................ $ 14.88
Net tangible book value as of March 31, 1997....................... $ 1.07
Increase in net tangible book value attributable to new
investors........................................................ 2.13
---------
Pro forma net tangible book value after the Offering................. 3.20
---------
Dilution to new investors............................................ $ 11.68
---------
---------
</TABLE>
The above computations assume the exercise of options to purchase 11,806
shares of Common Stock to be sold in this Offering by the Selling Stockholders
at a weighted average exercise price of $0.55 per share. In addition, the above
computations assume no exercise of options to purchase 1,086,000 shares of
Common Stock outstanding at March 31, 1997 at a weighted average exercise price
of $0.80 per share and no exercise of warrants to purchase 180,000 shares of
Common Stock at an exercise price of $6.60 per share outstanding on such date.
To the extent such options and warrants are exercised, there will be further
dilution to investors.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth for the periods and the dates indicated
certain financial data which should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere
herein. The statement of operations data for each of the three fiscal years in
the period ended December 31, 1996, and the balance sheet data at December 31,
1995 and 1996 are derived from the consolidated financial statements of the
Company which have been audited by Price Waterhouse LLP, independent
accountants, and are included elsewhere in this Prospectus. The statement of
operations data for the years ended December 31, 1992 and 1993 and the balance
sheet data at December 31, 1992, 1993, and 1994 are derived from audited
financial statements not otherwise contained herein. The consolidated statements
of operations data for the three months ended March 31, 1996 and 1997 and the
consolidated balance sheet data as of March 31, 1997 are derived from unaudited
financial statements of the Company included elsewhere herein. The unaudited
financial statements have been prepared by the Company on a basis consistent
with the Company's audited consolidated financial statements and, in the opinion
of management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the Company's results of
operations for such periods and financial condition at such dates. The results
of operations for the three months ended March 31, 1997 are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- ----------- ------------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues......................... $ -- $ -- $ -- $ 9,066 $ 15,841 $ 3,922 $ 9,377
Cost of revenues................. -- -- -- 6,777 9,736 2,453 4,708
--------- --------- --------- ----------- ------------- ----------- ------------
Gross profit................... -- -- -- 2,289 6,105 1,469 4,669
--------- --------- --------- ----------- ------------- ----------- ------------
Operating expenses:
Research and development(1).... 744 1,424 1,582 1,940 2,785 585 1,333
Sales and marketing............ 242 520 664 1,866 2,976 597 1,233
General and administrative..... 1,058 1,081 1,078 1,471 2,577 472 1,343
--------- --------- --------- ----------- ------------- ----------- ------------
Total operating expenses..... 2,044 3,025 3,324 5,277 8,338 1,654 3,909
--------- --------- --------- ----------- ------------- ----------- ------------
Income (loss) from operations.... (2,044) (3,025) (3,324) (2,988)(2) (2,233)(2) (185) 760(2)
Interest expense................. (162) (288) (410) (338) (1,511)(3) (1,040)(3) (10)
Other income, net................ 10 6 7 34 172 10 23
--------- --------- --------- ----------- ------------- ----------- ------------
Income (loss) before income
taxes.......................... (2,196) (3,307) (3,727) (3,292) (3,572) (1,215) 773
Provision for income taxes....... -- -- -- -- -- -- 131
--------- --------- --------- ----------- ------------- ----------- ------------
Net income (loss)................ $ (2,196) $ (3,307) $ (3,727) $ (3,292) $ (3,572) $ (1,215) $ 642
--------- --------- --------- ----------- ------------- ----------- ------------
--------- --------- --------- ----------- ------------- ----------- ------------
Net income (loss) per share(4)... $ (0.50) $ (0.44) $ (0.17) $ 0.06
----------- ------------- ----------- ------------
----------- ------------- ----------- ------------
Shares used in per share
calculations(4)................ 6,642 8,142 7,081 10,272
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash..................................................................... $ 562 $ 212 $ 2,241 $ 1,927 $ 2,363
Working capital (deficit)................................................ (2,365) (4,759) (4,893) (3,477) 7,380
Total assets............................................................. 1,804 1,950 4,646 7,316 15,256
Long-term liabilities.................................................... -- -- -- 34 110
Total stockholders' equity (deficit)..................................... (1,696) (3,983) (4,224) (2,522) 9,074
<CAPTION>
MARCH 31,
1997
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash..................................................................... $ 2,251
Working capital (deficit)................................................ 7,283
Total assets............................................................. 19,509
Long-term liabilities.................................................... 110
Total stockholders' equity (deficit)..................................... 9,845
</TABLE>
- ------------------------------
(1) Net of amounts reimbursed by the FAA of $3.1 million, $1.5 million,
$821,000, $593,000, $1.5 million, $538,000 and $339,000, respectively,
during the years 1992, 1993, 1994, 1995, and 1996 and the three months ended
March 31, 1996 and 1997. See Note 4 of Notes to Consolidated Financial
Statements.
(2) The Company recorded non-cash charges related to grants of stock options
having exercise prices below the fair market value on the date of grant to
employees and directors in the amounts of $369,000, $489,000 and $90,000,
respectively, in 1995 and 1996 and the three months ended March 31, 1997.
See Note 8 of Notes to Consolidated Financial Statements.
(3) The Company recorded a non-cash charge resulting from amortization of a
bridge loan warrant discount in the amount of $1.3 million in 1996,
including $949,000 in the three months ended March 31, 1996. See Note 6 of
Notes to Consolidated Financial Statements.
(4) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to compute per share amounts.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS DISCUSSION, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS
THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE, OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED
BY, THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF THE COMPANY'S
SINGLE PRODUCT, FLUCTUATIONS IN THE COMPANY'S QUARTERLY AND ANNUAL OPERATING
RESULTS, THE LOSS OF ORDERS OF THE COMPANY'S PRODUCT, INCLUDING THE LOSS OF THE
COMPANY'S MOST RECENT ORDER FROM THE FAA, LOSS OF ANY OF THE COMPANY'S SOLE
SOURCE SUPPLIERS, INTENSE COMPETITION, RELIANCE ON LARGE ORDERS, CONCENTRATION
OF THE COMPANY'S CUSTOMERS, RISKS RELATED TO THE LENGTHY SALES CYCLES FOR THE
CTX 5000, BUDGETING LIMITATIONS OF THE COMPANY'S CUSTOMERS AND PROSPECTIVE
CUSTOMERS, AND THE RISKS RELATED TO THE COMPANY'S LIMITED MANUFACTURING
EXPERIENCE, AS WELL AS THOSE DISCUSSED IN "RISK FACTORS," IN "BUSINESS," AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
InVision designs, manufactures and markets an explosive detection system
based on advanced CT technology. The Company was formed in September 1990 to
design and develop the CTX 5000 and remained in the development stage through
December 1994. In March 1994, the Company received its first commercial order
for a CTX 5000 system from the Brussels International Airport in Belgium, and
since such time has received orders for a total of 107 systems, of which a total
of 37 had been shipped as of March 31, 1997. For the fiscal year ended December
31, 1996 and the quarter ended March 31, 1997, the Company had revenues of $15.8
million and $9.4 million, respectively, and at March 31, 1997 had orders in
backlog in the amount of $68.6 million. See "Business--Backlog."
The Company considers research and development to be a vital part of its
operating discipline and continues to dedicate substantial resources to research
to enhance the performance, functionality and reliability of its CTX 5000
hardware and software. At March 31, 1997, the Company had 38 full-time employees
engaged in research and development activities, and also was using the services
of 9 specialized contract employees and consultants in this area. Beginning in
1991, total research and development expenditures by the Company have been
partially offset by amounts reimbursed by the FAA under development contracts
and grants. The Company believes that investment in research and development in
absolute dollars will increase substantially to meet its future needs regardless
of the level of funding received from the FAA. During the year ended December
31, 1996 and the quarter ended March 31, 1997, the Company spent $4.3 million
and $1.7 million, respectively, on research and development activities, of which
$1.5 million in 1996 and $339,000 in the quarter ended March 31, 1997 were
funded by the FAA under development contracts and grants. To the extent that FAA
contract and grant receipts decline in the future, research and development
expenses borne by the Company would increase, and the Company expects that its
results of operations would be adversely impacted. See "Risk Factors--
Competition for FAA Grants."
In any given fiscal year, the Company's revenues have principally consisted,
and the Company believes will continue to consist, of orders of multiple units
from a limited number of customers. During the first quarter of 1997,
approximately $8.3 million, or 88.9%, of the Company's revenues were generated
from sales to the Company's three largest customers. During the fiscal year
ended December 31, 1996, revenues from the Company's six largest customers were
approximately $14.0 million, or 88.4%, of the Company's revenues. During the
fiscal year ended December 31, 1995, revenues from the Company's three largest
customers were approximately $6.8 million, or 75.0%, of the Company's revenues.
See "Risk Factors--Dependence on Large Orders; Customer Concentrations; Lengthy
Sales Cycle."
The Company markets its products both directly through internal sales
personnel and indirectly through authorized agents, distributors and systems
integrators. In the United States, the Company markets its CTX
20
<PAGE>
5000 primarily through direct sales personnel. Internationally, the Company
utilizes both a direct sales force and authorized agents to sell its products.
During the quarter ended March 31, 1997 and the years ended December 31, 1996
and 1995, international sales represented 49.3%, 76.2% and 89.2%, respectively,
of the Company's revenues. See "Risk Factors--International Business;
Fluctuation in Exchange Rates; Risk of Change in Foreign Regulations."
The sales cycle of the CTX 5000 is often lengthy due to the protracted
approval process that typically accompanies large capital expenditures and the
time required to manufacture the CTX 5000 and install and assimilate the CTX
5000. Typically, six to twelve months may elapse between a new customer's
initial evaluation of the Company's system and the execution of a contract.
Another three months to a year may elapse prior to shipment of the CTX 5000 as
the customer site is prepared and the CTX 5000 is manufactured. During this
period the Company expends substantial funds and management resources but
recognizes no associated revenue. See "Risk Factors--Dependence on Large Orders;
Customer Concentrations; Lengthy Sales Cycle" and "--Public Agency Contract and
Budget Considerations."
The Company recognizes revenue on shipment unless extended acceptance
criteria exist, in which case revenue is recognized upon achievement of such
acceptance criteria. The Company typically requires significant customer
deposits and progress payments in advance of shipment on customer purchase
orders. Provision for estimated installation, training and warranty costs is
recorded at the time revenue is recognized. Systems typically carry a one-year
warranty.
RESULTS OF OPERATIONS
The following table sets forth certain income and expenditure items from the
Company's consolidated statement of operations expressed as a percentage of
revenues for the periods indicated. Information for 1994 has been omitted as the
Company did not recognize revenue in that year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------- -----------------
1995 1996 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues..................................... 74.8 61.5 62.5 50.2
------ ------ ------ ------
Gross profit....................................... 25.2 38.5 37.5 49.8
------ ------ ------ ------
Operating expenses:
Research and development........................... 21.4 17.6 14.9 14.2
Sales and marketing................................ 20.6 18.8 15.2 13.1
General and administrative......................... 16.2 16.3 12.0 14.3
------ ------ ------ ------
Total operating expenses......................... 58.2 52.7 42.1 41.6
------ ------ ------ ------
Income (loss) from operations........................ (33.0) (14.2) (4.6) 8.2
Interest expense..................................... (3.7) (9.5) (26.5) (0.1)
Other income, net.................................... 0.4 1.1 0.2 0.2
------ ------ ------ ------
Income (loss) before income taxes.................... (36.3) (22.6) (30.9) 8.3
Provision for income taxes........................... -- -- -- 1.4
------ ------ ------ ------
Net income (loss).................................... (36.3)% (22.6)% (30.9)% 6.9%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 1997 AND 1996
REVENUES. The Company's revenues are comprised of system revenues, which
include sales of the CTX 5000, accessories, installation and configuration, and
maintenance related to product support.
21
<PAGE>
The quarter ended March 31, 1997 was the Company's first profitable quarter
since the inception of the Company. Revenues increased by 138% to $9.4 million
in the first quarter of 1997 from $3.9 million in the first quarter of 1996.
This increase was primarily the result of the growth in unit shipments generated
from initial deliveries on the 54 unit order by the FAA, and continuing demand
from international markets.
GROSS PROFIT. Cost of revenues primarily consists of purchased materials
procured for use in the assembly of the Company's products, as well as
manufacturing labor, overhead and warranty costs. In any given period the
Company's gross profit may be affected by several factors, including product
configuration, location of the installation, and complexity of integration into
various airport environments.
Gross profit increased by 218% to $4.7 million in the first quarter of 1997
from $1.5 million in the first quarter of 1996. Gross margins were 49.8% in the
first quarter of 1997 and 37.5% in the first quarter of 1996. This increase in
gross margins is largely the result of improved manufacturing efficiencies and
lower overhead cost per unit resulting from increased production volume.
RESEARCH AND DEVELOPMENT. Research and development expenditures consist
primarily of compensation paid to personnel engaged in research and development
activities, amounts paid for outside services, and costs of materials utilized
in the development of hardware products, including prototype units. All software
and hardware development costs are expensed as incurred. Beginning in 1991,
total research and development expenditures by the Company have been partially
offset by amounts reimbursed by the FAA under development contracts and grants.
The Company believes that research and development expenditures in absolute
dollars will increase substantially in the future regardless of the level of
funding received from the FAA.
Total research and development expenditures increased by 41.7% to $1.7
million in the first quarter of 1997 from $1.2 million in the first quarter of
1996. Of these amounts, $339,000 and $538,000, respectively, were funded by
research and development contracts and grants from the FAA in the first quarters
of 1997 and 1996. As a percentage of revenues, total research and development
expenditures decreased to 17.8% in the first quarter of 1997 from 28.6% in the
first quarter of 1996. The growth in total research and development expenditures
is primarily the result of personnel additions and increased spending on
engineering materials and services.
SALES AND MARKETING. Sales and marketing expenditures consist primarily of
compensation paid to direct and indirect sales and marketing personnel, payments
to consultants, travel related to the sales process, and other selling and
distribution costs.
Sales and marketing expenditures increased by 106% to $1.2 million in the
first quarter of 1997 from $597,000 in the first quarter of 1996. As a
percentage of revenues, sales and marketing expenditures declined to 13.1% in
the first quarter of 1997 from 15.2% in the first quarter of 1996. The increased
level of expenditures in the first quarter of 1997 reflects higher commissions
and other direct selling expenses resulting from the increase in revenues, as
well as increases in staffing.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation paid to administrative personnel, including directors,
payments to consultants, professional service fees, and travel and other general
expenses.
General and administrative expenses increased by 185% to $1.3 million in the
first quarter of 1997 from $472,000 in the first quarter of 1996. As a
percentage of revenues, general and administrative expenses increased to 14.3%
in the first quarter of 1997 from 12.0% in the first quarter of 1996. The
increase in general and administrative expenses is primarily the result of
personnel additions and increased professional and consulting costs incurred to
prepare for planned growth, increased insurance costs, and increased costs of
operations associated with being a publicly traded company.
INTEREST EXPENSE. Interest expense decreased to $10,000 in the first
quarter of 1997 from $1.0 million in the first quarter of 1996. Interest expense
in the first quarter of 1996 reflects the effect of a non-cash charge of
$949,000 resulting from the amortization of a bridge loan warrant discount
arising in December 1995.
22
<PAGE>
INCOME TAXES. The provision for income taxes was $131,000 for the first
quarter of 1997 representing an effective tax rate of 17.0%. No provision for
income taxes was recorded in the first quarter of 1996. The Company's effective
tax rate of 17.0% for the first quarter of 1997 is lower than the U.S. federal
statutory rate of 34.0% as a result of utilization of net operating loss and
other credit carryforwards. At December 31, 1996 the Company had federal net
operating loss carryforwards of approximately $11.0 million available to reduce
future federal taxable income. The Company's net operating loss carryforwards
expire from 2005 to 2011. As a result of changes in ownership that occurred in
the 1995 financings, future utilization of certain of the Company's
carryforwards are limited to not more than approximately $500,000 per year.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
REVENUES. Revenues increased by 74.7% to $15.8 million in 1996 from $9.0
million in 1995. The increase in 1996 revenues is attributable to increased
sales of the CTX 5000, reflecting a 63.6% increase in unit shipments to 18 units
in 1996 from 11 units in 1995 and, to a lesser extent, changes in product
configuration leading to an increase in the average selling price per unit and
sales of add-on products to current customers. There were no revenues recorded
in 1994.
GROSS PROFIT. Gross profit increased by 167% to $6.1 million in 1996 from
$2.3 million in 1995. Gross margins were 38.5% in 1996 and 25.2% in 1995. The
increase in gross margins was primarily caused by lower unit costs resulting
from increased manufacturing efficiency and reduced overhead cost per unit due
to increased volume, as well as changes in product configurations leading to an
increase in the average selling price. Increased operating efficiencies
resulting from a larger installed base also reduced the average cost of
maintenance and warranty service. There was no gross profit in 1994.
RESEARCH AND DEVELOPMENT. Total research and development expenditures
increased by 68.2% to $4.3 million in 1996 from $2.5 million in 1995 and by 5.4%
in 1995 from $2.4 million in 1994. During 1996, 1995 and 1994, the Company was
entitled to reimbursements of $1.5 million, $587,000 and $720,000, respectively,
under research and development contracts and grants from the FAA to develop and
enhance the CTX 5000. Such reimbursements have been reflected as a reduction to
research and development expense in each period presented. Billings are rendered
to the FAA monthly on the basis of actual costs incurred. As a percentage of
revenues, total research and development expenditures remained at approximately
27.3% for both 1996 and 1995. In 1996, the increase in total expenditures
reflects the effects of personnel additions, costs of prototype development,
efforts to increase throughput and develop systems for more effective airport
integration, and conceptual design.
SALES AND MARKETING. Sales and marketing expenditures increased by 59.5% to
$3.0 million in 1996 from $1.9 million in 1995 and by 181% in 1995 from $664,000
in 1994. As a percentage of revenues, sales and marketing expenses declined to
18.8% in 1996 from 20.6% in 1995. The increased levels of expenditures in
absolute dollars for 1996 and 1995 reflect increased selling costs associated
with the higher unit sales, including foreign travel, trade shows, public
relations and commissions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 75.2% to $2.6 million in 1996 from $1.5 million in 1995 and by 36.5% in 1995
from $1.1 million in 1994. As a percentage of revenues, general and
administrative expenses were 16.3% for 1996 and 16.2% for 1995. The increases
for 1996 and 1995 reflect additions to support capabilities required by the
growth in revenues and corporate headcount. The increase in absolute dollars in
1996 also reflects increased costs of operating as a public company.
INTEREST EXPENSE. Interest expense increased to $1.5 million in 1996 from
$338,000 in 1995 and decreased in 1995 from $410,000 in 1994. Interest expense
in 1996 reflects the effect of $1.3 million of amortization of the fair market
value of warrants issued in connection with a bridge loan obtained in December
1995. Interest expense during 1995 and 1994 resulted directly from short-term
debt outstanding during each period.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of operations
data for the four fiscal quarters in each of the years ended December 31, 1995
and 1996 and the first quarter of 1997. This data is unaudited but, in the
opinion of the Company's management, reflects all of the adjustments (consisting
only of normal recurring adjustments) necessary for fair presentation of this
information in accordance with generally accepted accounting principles. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- -------- -------- ---------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $ 892 $2,520 $3,057 $ 2,597 $ 3,922 $3,555 $3,959 $ 4,395 $ 9,377
Cost of revenues...... 658 1,685 2,088 2,346 2,453 2,188 2,232 2,863 4,708
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Gross profit........ 234 835 969 251 1,469 1,367 1,727 1,532 4,699
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Operating expenses:
Research and
development....... 351 412 521 656 585 481 615 1,094 1,333
Sales and
marketing......... 222 464 571 609 597 638 758 983 1,233
General and
administrative.... 294 257 419 501 472 674 730 701 1,343
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Total operating
expenses........ 867 1,133 1,511 1,766 1,654 1,793 2,103 2,778 3,909
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Income (loss) from
operations........... (633) (298) (542) (1,515) (185) (426) (376) (1,246) 760
Interest expense...... (125) (95) (65) (53) (1,040)(1) (455)(1) (7) (9) (10)
Other income, net..... 12 7 11 4 10 51 61 50 23
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Income (loss) before
income taxes......... (746) (386) (596) (1,564) (1,215) (830) (322) (1,205) 773
Provision for income
taxes................ -- -- -- -- -- -- -- -- 131
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Net income (loss)..... $ (746) $ (386) $ (596) $(1,564) $ (1,215) $ (830) $ (322) $(1,205) $ 642
-------- -------- -------- -------- ---------- -------- -------- -------- --------
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Net income (loss) per
share................ $(0.12) $(0.06) $(0.09) $ (0.23) $ (0.17) $(0.11) $(0.04) $ (0.13) $ 0.06
-------- -------- -------- -------- ---------- -------- -------- -------- --------
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Shares used in per
share calculations... 6,323 6,438 6,929 6,876 7,081 7,816 8,650 9,023 10,272
</TABLE>
- ------------------------
(1) The Company recorded noncash charges of $949,000 and $381,000 in the
quarters ended March 31, 1996 and June 30, 1996, respectively, resulting
from amortization of a bridge loan warrant discount.
24
<PAGE>
The following table sets forth, as a percentage of revenues, certain
consolidated statements of operations data for the four fiscal quarters in each
of the years ended December 31, 1995 and 1996 and the first quarter of 1997.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............ 73.8 66.9 68.3 90.3 62.5 61.5 56.4 65.1 50.2
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit.............. 26.2 33.1 31.7 9.7 37.5 38.5 43.6 34.9 49.8
Operating expenses:
Research and
development............. 39.3 16.3 17.0 25.3 14.9 13.5 15.5 24.9 14.2
Sales and marketing....... 24.9 18.4 18.7 23.5 15.2 17.9 19.1 22.4 13.1
General and
administrative.......... 33.0 10.2 13.7 19.3 12.0 19.0 18.4 15.9 14.3
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses.............. 97.2 44.9 49.4 68.1 42.1 50.4 53.0 63.2 41.6
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations................. (71.0) (11.8) (17.7) (58.4) (4.6) (11.9) (9.4) (28.3) 8.2
Interest expense............ (14.0) (3.8) (2.1) (2.0) (26.5) (12.8) (0.2) (0.2) (0.1)
Other income, net........... 1.3 0.3 0.4 0.2 0.2 1.4 1.5 1.1 0.2
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes...................... (83.7)% (15.3)% (19.4)% (60.2)% (30.9)% (23.3)% (8.1)% (27.4)% 8.3%
Provision for income
taxes...................... -- -- -- -- -- -- -- -- 1.4
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........... (83.7)% (15.3)% (19.4)% (60.2)% (30.9)% (23.3)% (8.1)% (27.4)% 6.9%
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
The Company's quarterly revenues have fluctuated significantly in the past
and are expected to fluctuate significantly in the future. These fluctuations
are the result of a variety of factors, including the Company's delivery cycle,
variations in product configuration, timing of orders, and suitability of client
sites. The Company's cost of revenues fluctuates from quarter to quarter
consistent with fluctuations in such revenues. In addition, the Company's gross
margins may be affected by, among other factors, the configuration of systems
sold, the mix between system and add-on sales, and the breakdown between
domestic and international sales. During 1996, as the number of orders shipped
and associated revenues increased, the overall variability of the Company's
gross profits decreased.
The first quarter of 1997 was the Company's first profitable quarter since
inception. There can be no assurance that the Company will continue to be
profitable on a quarterly basis or will become profitable on annual basis. The
Company's past operating results have been, and its future operating results
will be, subject to fluctuations resulting from a number of factors, including
the timing and announcement of orders, delays in shipments caused by customer
readiness or integration issues, the timing of new or enhanced product offerings
by the Company or it's competitors, the mix between sales to domestic and
international customers, market acceptance of any new or enhanced version of the
Company's products, availability of key components, the availability of
manufacturing capacity, the Company's ability to rapidly increase production,
and fluctuations in demand driven by general conditions impacting the aviation
industry beyond the control of the Company. The Company's revenues in any period
are generally derived from a limited number of customers. The Company may also
choose to reduce prices or increase spending in response to competition or to
pursue new market opportunities, all of which may adversely affect the Company's
business, financial condition and results of
25
<PAGE>
operations. See "Risk Factors--History of Losses; No Assurance of Profitability"
and "--Fluctuations in Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of $16.5 million of Preferred and Common Stock (of which $5.6
million represents indebtedness converted to equity), the sale of $9.5 million
of Common Stock in the Company's Initial Public Offering in April 1996, and $3.2
million of short-term borrowings. At March 31, 1997, the Company had $2.3
million in cash and no outstanding borrowings.
In February 1997, the Company entered into two one-year revolving line of
credit agreements with Silicon Valley Bank. The first agreement provides for
maximum borrowings generally in an amount up to the lower of 80% of domestic
eligible accounts receivable or $4.5 million. Borrowings under this agreement
generally bear interest at the bank's prime rate plus 1.00% per annum (9.25% at
March 31, 1997). The second agreement is partially guaranteed by the
Export-Import Bank of the United States and provides for maximum borrowings
generally in an amount up to the lower of (i) the sum of 90% of eligible export
accounts receivable plus 70% of eligible raw materials and work-in-process
inventory designated for export customers, (ii) $4.5 million less outstanding
letters of credit or (iii) $3.0 million. Borrowings under this agreement
generally bear interest at the bank's prime rate plus 0.75% per annum (9.00% at
March 31, 1997). Borrowings under both agreements are secured by all of the
Company's assets. The agreements require that the Company maintain certain
financial ratios and levels of tangible net worth and profitability and also
prohibit the Company from paying cash dividends. Proceeds of loans under the
first line of credit may be used for general corporate purposes, and proceeds of
loans under the second line of credit must be used to finance goods intended for
export.
Cash provided by operating activities was $143,000 in the first quarter of
1997. Cash used in operations was $9.4 million in 1996 and $2.0 million in 1995.
Net cash was provided by operating activities in the first quarter of 1997
principally due to the net income of $642,000, a $2.0 million increase in
accounts payable and accrued expenses and a $1.5 million increase in deferred
revenues, which more than offset a $1.4 million increase in restricted cash, a
$1.3 million increase in inventories and a $1.3 million increase in prepaid
expenses. Net cash used in operations for 1996 was primarily due to the net loss
of $3.6 million, a $5.3 million increase in accounts receivable and a $1.4
million increase in inventories which were partially offset by a non-cash charge
for the amortization of the warrant discount of $1.3 million. For 1995, net cash
used in operations was due primarily to the net loss of $3.3 million and
increases in accounts receivable and inventories associated with increased
manufacturing and sales activities, which were partially offset by an increase
in accounts payable and accrued liabilities.
Net cash used in investing activities was $265,000 in the first quarter of
1997, $1.1 million in 1996 and $590,000 in 1995, in each case due primarily to
the purchase of property and equipment. The Company anticipates spending
approximately $2.0 million for facility improvements and approximately $1.5
million for purchases of capital equipment in the second and third quarters of
1997 in connection with a move of the Company's principal executive offices and
manufacturing facility. The Company has no other significant capital spending or
purchase commitments other than normal purchase commitments and commitments
under leases.
Net cash provided by financing activities was $10,000 in the first quarter
of 1997, $10.9 million in 1996 and $2.3 million in 1995. The increase in 1996
was due to $14.0 million in net proceeds from issuances of Common Stock
primarily associated with the Company's initial public offering in 1996 which
were partially offset by $3.2 million in net repayments of short-term debt
financing. Net cash provided by financing activities in 1995 was due primarily
to $1.2 million in proceeds from the issuance of Preferred Stock and $1.0
million in proceeds from short-term debt financing.
The Company believes that existing cash of $2.3 million as of March 31, 1997
and available borrowings under the Company's line of credit agreements, together
with the anticipated net proceeds from this Offering, will be sufficient to
finance its working capital and capital expenditure requirements for at least
the next 12 months.
26
<PAGE>
BUSINESS
THE FOLLOWING DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS DISCUSSION, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS
THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE, OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED
BY, THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF THE COMPANY'S
SINGLE PRODUCT, FLUCTUATIONS IN THE COMPANY'S QUARTERLY AND ANNUAL OPERATING
RESULTS, THE LOSS OF ORDERS OF THE COMPANY'S PRODUCT, INCLUDING THE LOSS OF THE
COMPANY'S MOST RECENT ORDER FROM THE FAA, LOSS OF ANY OF THE COMPANY'S SOLE
SOURCE SUPPLIERS, INTENSE COMPETITION, RELIANCE ON LARGE ORDERS, CONCENTRATION
OF THE COMPANY'S CUSTOMERS, RISKS RELATED TO THE LENGTHY SALES CYCLES FOR THE
CTX 5000, BUDGETING LIMITATIONS OF THE COMPANY'S CUSTOMERS AND PROSPECTIVE
CUSTOMERS, AND THE RISKS RELATED TO THE COMPANY'S LIMITED MANUFACTURING
EXPERIENCE, AS WELL AS THOSE DISCUSSED IN "RISK FACTORS," IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
ELSEWHERE IN THIS PROSPECTUS.
GENERAL
InVision is the worldwide leader in explosive detection technology. The
Company develops, manufactures, markets and supports an explosive detection
system for civil aviation security based on advanced CT technology. To date, the
Company's CTX 5000 is the only EDS to be certified by the FAA for use in the
inspection of checked luggage on commercial flights. Historically, the FAA has
been the leader in establishing standards for aviation security worldwide, and
the Company believes that airports around the world will migrate over time
towards security policies consistent with those of the FAA. As a result, the
Company believes that the CTX 5000 is well positioned to become the industry
standard. In December 1996, the Company received an order from the FAA for 54
CTX 5000 systems to be installed at the busiest U.S. airports. For the fiscal
year ended December 31, 1996 and the quarter ended March 31, 1997, the Company
had revenues of $15.8 million and $9.4 million, respectively, and at March 31,
1997 had orders in backlog in the amount of $68.6 million. As of March 31, 1997,
37 CTX 5000 systems had been shipped to 13 airports in eight countries around
the world.
The Company believes that the CTX 5000 is the only EDS capable of detecting
all types of explosives designated by the FAA to be a threat to commercial
aviation and that the CTX 5000 is superior to competing systems by virtue of its
advanced detection technology. The CTX 5000 is capable of capturing and
processing substantially more data than other explosive detection systems. The
Company believes that there are important technological advantages that lead to
the superiority of the CTX 5000 over systems of the Company's primary
competitors. By combining heightened levels of data capture and diagnosis
capabilities with simple user interfaces, the Company's CTX 5000 is capable of
providing high detection and low false alarm rates, as well as advanced threat
resolution capability and increased operator efficiency.
The Company's objective is to become the dominant provider of explosive
detection systems worldwide and to extend its expertise in EDS technology to
address broader applications. Specific elements of the Company's growth strategy
are to enhance its technological leadership, expand its sales and marketing
organization, leverage its detection technology expertise to enter new markets
for detection, and selectively pursue strategic relationships and acquisitions.
INDUSTRY BACKGROUND
MARKET SIZE. There are over 600 airports worldwide providing scheduled
service for an aggregate of approximately 2.5 billion passengers per year. Of
these airports, over 400 are located in the United States, and a substantial
portion of the remainder are located in Europe and the Asia/Pacific region. It
is estimated that it will cost approximately $2.2 billion to equip the 76
largest airports in the United States with certified explosive detection
systems.
THE TERRORIST THREAT. In recent years, increased incidents of bombings and
airline terrorism have contributed to an enhanced perception of the threat of
terrorism among the general public. According to a report of the
27
<PAGE>
President's Commission on Aviation Security and Terrorism dated May 15, 1990,
there were 41 bombings against civilian aviation targets worldwide between 1975
and 1989. According to Time Magazine, there were 10,222 bombings in the United
States between 1983 and 1993. According to a CBS poll conducted in July 1996,
airline passengers have expressed a willingness to pay more for airline travel
and endure delays if such actions will decrease the threat of successful airline
bombings.
THE EVOLUTION OF EXPLOSIVE DETECTION TECHNOLOGIES. In the 1970's, in
response to hijackings, airports worldwide began to install x-ray systems to
screen carry-on baggage for weapons such as guns and knives. In response to the
implementation of this technology, terrorists in some cases adopted the tactic
of airline bombings. The effort to develop automated explosive detection
capabilities was first established in the late 1970's by the FAA and was
predicated on the application of conventional x-ray technology. However, until
the advent of certified explosive detection systems in 1994, the Company
believes that EDS technology remained largely inadequate. Following the bombing
of Pan American Flight 103 over Lockerbie, Scotland in December 1988, certain
European countries hastened to implement explosive detection capabilities based
upon then-existing technologies. In order to placate immediate public safety
concerns, these conventional systems were designed to process 100% of checked
baggage. However, these conventional systems were and continue to remain
deficient in that they are unable to reliably detect and identify all of the
types and amounts of explosives determined by the FAA to be a threat to civil
aviation.
Several advanced explosive detection technologies have been developed to
attempt to address the need for effective explosive detection. These systems
include CT, dual energy x-ray and trace detection. CT technology uses a source
of x-rays rotating around an object to create multiple two-dimensional images,
commonly know as "slices," of the density distribution of the object's cross
section and compares parameters derived from the analysis of the density images
to a database of explosives characteristics. Dual energy x-ray systems measure
the x-ray absorption properties of a bag's contents at two different x-ray
energies to determine if any of the contents have the physical characteristics
of explosive materials. Trace detection equipment, known as "sniffers," detect
particulate and chemical traces of explosive materials collected by an operator
by wiping or vacuuming the bag under inspection. The only explosive detection
system to be certified by the FAA is the Company's CTX 5000, which is based on
CT technology.
THE EMERGENCE OF WORLDWIDE STANDARDS AND FAA CERTIFICATION. Throughout the
history of civil aviation, the FAA has been a leader in setting the standards
for aviation security worldwide. In the 1970's, the FAA first established
standards for worldwide security by setting guidelines for screening of carry-on
baggage for guns and knives. These standards were subsequently mandated by the
United Nations for adoption by all of its member states, leading to the
installation of over 7,000 detection systems worldwide. Following the December
1988 bombing of Pan American Flight 103, the United States enacted the Aviation
Security Improvement Act of 1990 (the "Aviation Security Act"), in response to
which the FAA increased research and development funding for advanced explosives
detection technology. To date the FAA has spent approximately $150 million on
such activities.
In 1993, as required by the Aviation Security Act, the FAA adopted a
certification protocol regarding explosive detection systems for use on checked
baggage. The FAA certification process was developed to certify equipment that,
alone or as part of an integrated system, can detect under realistic air carrier
operating conditions the amounts, configurations and types of explosive material
which would be likely to be used to cause catastrophic damage to commercial
aircraft. To do so, the FAA contracted with the National Academy of Sciences to
establish a scientifically valid protocol for certification. The FAA also
consulted with a variety of public agencies, including the Federal Bureau of
Investigation and the Central Intelligence Agency. The result of this
collaboration was the establishment of a detection protocol which focuses on (i)
the categories of explosive substances to be detected, (ii) the probability of
detection by explosive category, (iii) the minimum quantity of explosive that
must be detectable, (iv) the number of bags processed per hour, and (v) the
maximum acceptable false alarm rates. To date only one explosive detection
system, the Company's CTX 5000, has met the requirements of the protocol and has
been certified by the FAA. In order to meet the throughput criteria established
in the FAA protocol, the CTX 5000 was certified with two units operating in
parallel.
28
<PAGE>
IMPLEMENTATION OF MULTI-LEVEL SCREENING PROCESSES. As the capabilities of
EDS technology have evolved and worldwide detection standards have become more
pervasive, certain airports around the world have sought to augment their
detection capabilities by implementing various multi-level screening processes.
To date, two distinct processes have become most prevalent: a system first
implemented by the British Airport Authority (the "BAA Approach"); and a system
endorsed by the FAA (the "FAA Approach"). Prior to the development of certified
detection technology and in recognition of the deficiencies of existing x-ray
technology in providing comprehensive detection, certain European airports
adopted the BAA Approach, which consists of the use of several explosive
detection systems operating in series in order to attempt to increase detection
rates while maintaining throughput rates.
The FAA Approach was developed following the advent of certified detection
technology. Currently, the FAA Approach is comprised of a process of passenger
"profiling" combined with the use of certified EDS equipment for the detection
of explosives in baggage deemed to be high risk. Profiling involves an initial
determination of whether a particular passenger represents a high threat based
on certain decision criteria which are believed to be reasonable predictors of
risk. Based on this determination, a passenger's baggage may undergo a higher
level of investigation, which will in most cases involve the baggage being
screened with the use of certified EDS equipment. In contrast to the BAA
Approach, in which the effectiveness of the entire detection process is
dependent on technologies with greater emphasis on throughput than detection,
the FAA Approach is predicated on the use of high-detection technology and is
focused on the ability to accurately and effectively detect explosives and to
identify individuals believed to pose the greatest threat to civil aviation. The
Company believes that the FAA Approach, as it is currently being implemented at
major airports throughout the United States, will prove to be the more effective
process in reducing the dangers associated with the use of explosives against
civil aviation.
THE GORE COMMISSION. In response to the recent crash of TWA Flight 800 off
Long Island, New York in July 1996, President Clinton announced the formation of
the White House Commission on Aviation Safety and Security, chaired by Vice
President Gore (the "Gore Commission"), to review airline and airport security
and oversee aviation safety. The Gore Commission concluded that "the threat
against civil aviation is changing and growing, and that the federal government
must lead the fight against it" and recommended that "the federal government
commit greater resources to improving aviation security." The Gore Commission
released its initial report in September 1996, and in October 1996 the United
States enacted legislation which includes a $144 million appropriation for 1997
for the deployment of explosives detection systems and other advanced security
equipment for use by air carriers and airport authorities. Of this amount, $52.2
million, or 36.2%, was allocated to the purchase of certified CT technology.
THE INVISION TECHNOLOGY ADVANTAGE
The Company believes that the CTX 5000 is the only EDS presently capable of
reliably detecting all types of explosives designated by the FAA to be a threat
to commercial aviation and that the CTX 5000 is superior to competing systems by
virtue of its advanced detection technology.
The Company's CTX 5000 employs CT technology which was pioneered in the
medical field in the 1970's and enhanced for use in explosive detection by the
Company's engineers in the 1990's. As its principal detection vehicle, the CTX
5000 uses a source of x-rays rotating around an object to create two-dimensional
images of the density distribution of the object's cross section. These
cross-sectional images are commonly known as "slices." The CTX 5000 is capable
of measuring data from several contiguous slices of an object in order to
capture the 3-dimensional characteristics of an object. The data gathered from
the slices is used to measure the physical characteristics of objects by
determining their linear attenuation coefficients (density), morphology (shape),
and granularity (uniformity). Once measured, each characteristic is
automatically compared, using sophisticated image processing algorithms, to a
database of characteristics of compounds used in explosive devices in order to
assess the threat. If an object is determined to contain the characteristics of
an explosive, additional slices of the object are collected in order to
determine the mass descriminates (quantity) of the threat. At this stage,
potential threats which cannot be cleared automatically by the CTX 5000 are
submitted to an operator for threat
29
<PAGE>
resolution. The operator is also presented with information regarding the
presence of detonators, power sources, proximity charges, metallic objects and
other characteristics of a potential bomb, and the suspicious objects are
highlighted in different colors.
The Company believes that there are three important technical
characteristics which lead to the superiority of the CTX 5000 over systems of
the Company's primary competitors, which are based on dual energy technology.
These characteristics are:
DATA QUALITY AND QUANTITY. Dual energy x-ray systems collect data from one
or two views of an object to determine the atomic number of materials
encountered during the scan. CT technology, with approximately 500 views per
slice, yields more data and is capable of measuring the density of an object.
While explosives have well defined density ranges which are generally distinct
from those of the contents of checked baggage, certain classes of explosives
have atomic numbers which are similar to those of many materials found in
checked baggage. As a result, the CTX 5000 is better able to distinguish between
explosives and the benign contents of checked baggage, resulting in higher
detection and lower false alarm rates.
THREE DIMENSIONAL DATA. CT technology's ability to render three dimensional
data concerning an object also contributes to its superior detection compared to
dual energy x-ray technology. By utilizing these data, CT technology is able to
map characteristics of an object, such as mass and density, regardless of the
object's position in the bag and the superposition of other objects. Dual energy
x-ray systems render only two dimensional data. As a result, if multiple objects
are superimposed over the potential explosive, the system's ability to calculate
the atomic number of the potential explosive is diminished. Given the inherent
limitations of the use of atomic numbers as a parameter for explosive detection,
this diminished capacity with regard to stacked objects is particularly
problematic.
ADVANCED THREAT RESOLUTION. Threat resolution refers to the process
following an alarm of determining whether checked baggage is safe or contains a
threat. Once an alarm occurs, the CTX 5000 presents its operators with images
and threat analysis tools that are unavailable in dual energy systems. For
example, the CTX 5000 simultaneously provides operators with both x-ray images
and CT images on separate screens. These data are cross-referenced with each
other to give the operator an overall image of a suitcase and detailed CT
information relating to the contents, and in particular relating to the
potential threat. In addition to the images, the CTX 5000 provides an abundance
of tools and data, designed to allow operators to determine whether a bag is a
threat requiring further action or is safe to clear to the plane. One of these
tools is the ability to take additional slices to provide more data and focus in
on the threat. In contrast, dual energy x-ray systems display a single x-ray
image of a potential threat and have a limited ability to provide additional
information to an operator who suspects that an explosive is present.
The Company believes that the strengths of the CTX 5000 with respect to
these three important technical characteristics were central to the CTX 5000
meeting the stringent FAA standards for certification and to gaining operational
acceptance by the commercial aviation industry. In addition, the Company
believes that the limitations of competing technologies with respect to these
important characteristics will limit these technologies' ability to attain the
high detection and low false alarm rates necessary to obtain FAA certification.
However, there can be no assurance that future technological innovations will
not enable these technologies to overcome these limitations. As the only EDS to
be certified by the FAA, the Company believes its CTX 5000 system is well
positioned to be the cornerstone of the advanced explosive detection process
being promoted by the FAA for implementation at airports around the world.
GROWTH STRATEGY
The Company's objective is to be the leading provider of explosive detection
systems worldwide and to extend its technology expertise to address broader
applications for detection. Specific elements of the Company's growth strategy
are to:
ENHANCE TECHNOLOGICAL LEADERSHIP. The Company believes that its
technological capabilities provide it with a significant competitive advantage.
Accordingly, the Company considers research and development to be a
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vital part of its operating discipline, and continues to make substantial
investments to enhance the performance, functionality and reliability of its CTX
5000 hardware and software. Among the Company's priorities in enhancing its
technological capabilities are to increase throughput rates while maintaining
certified detection capability and to increase threat resolution capabilities.
In 1996 and the first quarter of 1997, the Company spent $4.3 million and $1.7
million, respectively for research and development to improve the Company's
technology.
EXPAND SALES AND MARKETING CAPABILITIES. The Company believes that its
sales and marketing capability is vital to achieving high levels of market
penetration for its systems. The objectives of the Company's sales force include
promoting broader acceptance for EDS technology worldwide and emphasizing the
importance of high detection rate EDS technology. Because sales cycles for the
CTX 5000 can be lengthy, the Company's sales and marketing efforts are focused
on developing and maintaining close working relationships with key management
personnel at regulatory authorities, airports and airport authorities worldwide.
As the market for certified explosive detection technology expands, the Company
intends to supplement its sales and marketing capability by adding sales
personnel in the U.S. and in Asia, enhancing customer support capabilities in
Europe through the addition of systems integration expertise, and continuing to
educate governmental entities worldwide about the benefits of certified
detection and the advantages of the CTX 5000.
LEVERAGE TECHNOLOGY EXPERTISE TO ENTER NEW MARKETS FOR DETECTION. The
Company believes that installations of advanced automated explosive detection
systems at airports will accelerate the adoption of this technology for
additional aviation applications such as screening of carry-on baggage and
trailer-mounted mobile units for inspections at remote location, as well as for
other security applications, including the detection of drugs, the protection of
government and private facilities, and the screening of mail. Since the amount
of government money spent in drug interdiction efforts far surpasses the amount
spent for the development of EDS technology, the Company believes that drug
detection applications afford significant market opportunities for the
application of the Company's certified detection technology. The Company
believes that its leadership in high detection technology will be a competitive
advantage as these markets develop.
PURSUE STRATEGIC RELATIONSHIPS AND ACQUISITIONS. From time to time the
Company reviews strategic relationship opportunities, including potential
acquisitions, that would complement its existing product offerings, augment its
market coverage, enhance its technological capabilities or otherwise offer
growth opportunities. The Company believes that the CTX 5000 is suited to the
integration of applications which are direct extensions of its strength in
explosive detection technology. Pursuant to this strategy, the Company has
entered a strategic relationship with EG&G Astrophysics for the development of
an explosive detection system based upon a combination of the CTX 5000 as it
currently exists and a pre-scanner based upon EG&G's x-ray scanning technology.
In addition, the Company has made a minority equity investment in Quantum
Magnetics, Inc. ("Quantum") and, in connection with such investment, Quantum has
agreed to certain limitations on its ability to license or transfer certain of
its explosives detection technology. See "--Recent Developments."
PRODUCT DEVELOPMENT
The Company considers research and development to be a vital part of its
operating discipline and continues to dedicate substantial resources to research
and development to enhance the performance, functionality and reliability of its
CTX 5000 hardware and software. In particular, the Company recognizes the need
to improve certain of its system capabilities, specifically related to
throughput and gantry size, in order to accommodate the breadth of market
potential for EDS technology. At March 31, 1997 the Company had 38 full-time
employees engaged in research and development activities, and also was using the
services of 9 specialized contract employees and consultants in this area.
During the years ended December 31, 1996, 1995 and 1994, respectively, the
Company spent $4.3 million, $2.5 million and $2.4 million on research and
development activities, of which $1.5 million, $587,000 and $720,000,
respectively, was funded by the FAA under development contracts and grants. In
order to fulfill the objectives of its growth strategy, the Company intends to
continue to invest heavily in product development.
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The Company's development efforts under the current FAA research grant are
primarily focused on increasing the speed (throughput) and decreasing the
manufacturing cost of the CTX 5000. The Company is also developing, in
conjunction with the FAA, improvements to the user-interface, inspection
algorithms, and operator on-line testing techniques. See "Risk
Factors--Competition" and "--No Assurance of Continued Certification; Risk of
Certification of Competing Technologies; Risk of Changing Standards."
CUSTOMERS
In order to capitalize on the global opportunity for deployment of explosive
detection technology for civil aviation, the Company focuses on three important
markets: (i) installations at key U.S. airports, (ii) installations at new
airports under construction worldwide and (iii) installations at international
airports.
The following is a list of the airports which are employing the Company's
CTX 5000 technology or have a CTX 5000 on order as of March 31, 1997:
<TABLE>
<CAPTION>
AIRPORT LOCATION OPERATED BY
- ------------------------------------------------- ------------------------ ------------------------
<S> <C> <C>
John F. Kennedy International (1 unit) New York, New York El Al Israel Airlines
Hartsfield International (2 units) Atlanta, Georgia Delta Airlines
San Francisco International (1 unit) San Francisco, United Airlines
California
London Heathrow (4 units) London, England British Airport
Authority
Manchester International (10 units)(2 UNITS) Manchester, England Manchester Airport
Brussels National (1 unit) Brussels, Belgium Brussels Airport
Narita International (1 unit) Tokyo, Japan A distributor
Ben Gurion International (5 units)(1 UNIT) Tel Aviv, Israel Israel Airports
Authority
Nino Aquino International (2 units) Manila, Philippines Northwest Airlines
King Khaled International (1 UNIT) Riyadh, Saudi Arabia A distributor
Subang Kuala Lumpur International (2 units) (4 Kuala Lumpur, Malaysia Kuala Lumpur Airport
UNITS)
Various (3 UNITS) Various El Al Israel Airlines
French Airports (2 units) (10 UNITS) (1) France Direction Generale de
L'Aviation Civi le
U.S. Airports (5 units) (49 UNITS) (1)(2) United States Various U.S. Airlines
</TABLE>
- ------------------------
ITALICIZED ITEMS DENOTE NUMBER OF UNITS ON ORDER BUT NOT YET SHIPPED.
(1) For security reasons, the locations remain undisclosed.
(2) Under the FAA Contract
In December 1996, as an extension of legislation enacted upon the
recommendation of the Gore Commission, the Company received an order for 54 CTX
5000 systems from the FAA. Under the terms of the FAA contract, these systems
are to be installed during 1997 at America's busiest airports. As of March 31,
1997, five of these systems have been shipped. For reasons of security, the FAA
will not divulge the deployment schedule or locations of the systems at this
time. See "--Recent Developments."
The Company believes that customer service and support are critical to its
success and has committed significant resources to these functions. Accordingly,
the Company provides a high level of customer support to assist in the site
planning, installation and integration of the Company's products into its
customer's facilities in addition to field service for maintaining the
reliability of the Company's products once installed. The Company's service
organization includes customer service engineers, product application
specialists, operator training engineers and technical support engineers. As of
March 31, 1997 the Company had 23 individuals employed in customer service and
support roles. The Company typically hires and trains its own support staff
throughout the world rather than relying on third-party maintenance services. In
addition to providing generally a one year
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parts warranty, the Company offers fee-based primary and back-up service
contracts to its customers to provide system maintenance, ongoing technical
support, documentation, training and, under full service contracts, periodic
software releases.
The Company believes that operator qualification and training is as
important to the explosives detection process as the CTX 5000's automated
detection process. In this regard, the Company has developed and provides in
depth operator training and testing as a critical component of each sale and
installation. See "Risk Factors--Limited Field Operations; Dependence on
Operator Performance."
SALES AND MARKETING
The Company markets its products both directly through internal sales
personnel and indirectly through authorized agents, distributors and systems
integrators. As of March 31, 1997, the Company employed a total of nine people
in sales and marketing. In North America, the Company markets its CTX 5000
primarily through direct sales personnel, which as of March 31, 1996 consisted
of three individuals. Internationally, the Company utilizes both a direct sales
force and authorized agents to sell its products. As of March 31, 1997, the
Company had five direct international sales personnel broadly covering Europe,
Asia, and the Middle East and additional authorized agents representing the
Company in specific countries. For sales through its authorized agents and
distributors, the Company generally is directly involved in developing proposal
documents and negotiating contract terms. During the quarter ended March 31,
1997 and the fiscal years ended December 31, 1996 and 1995, international sales
represented 49.3%, 76.2% and 89.2%, respectively, of the Company's revenues. See
"Risk Factors--International Business; Fluctuation in Exchange Rates; Risk of
Change in Foreign Regulations."
Support for the direct and indirect sales representatives is provided by
product application specialists who assist in pre- and post-sale support. Such
support includes assistance in designing customer configurations, educating
customers on the system and technology and supporting the implementation and
integration process. In addition, the Company provides its sales representatives
with training, promotional literature, a multi-media presentation, videos and
competitive analysis.
The selling process often involves a team comprised of individuals from
sales, marketing, engineering, customer service and support, and senior
management. The team frequently engages in a multi-level sales effort directed
toward a variety of constituents, including government regulators, the local
airport operator or authority, systems and or conveyor integrators, individual
airlines and airline operating committees. The combination of the high average
selling prices, the time needed for various agencies to secure funding for
systems and the negotiation and execution of actual contracts leads to a typical
sales cycle lasting from six to twelve months, or more, from initial contact
with a customer. Often, local government regulators become involved in the sales
decision process or provide funds for the purchase. For repeat orders from
existing customers, the Company can often expedite the sales cycle by utilizing
existing contracts and contract extensions and thereby avoiding lengthy
procurement processes. See "Risk Factors--Dependence on Large Orders; Customer
Concentrations; Lengthy Sales Cycle" and "--Public Agency Contract and Budget
Considerations."
BACKLOG
The Company measures its backlog of system revenues as orders for which
contracts or purchase orders have been signed, but which have not yet been
shipped and for which revenues have not yet been recognized. The Company
includes in its backlog only those customer orders which are scheduled for
delivery within the next 18 months. The Company typically ships its products
within three to twelve months after receiving an order. However, such shipments
may be impacted by delays which occur in the delivery of components to the
Company or customers' readiness to accept delivery for reasons of site
preparation or otherwise. At March 31, 1997, the Company's system revenues
backlog was approximately $68.6 million, and at March 31, 1996, the Company's
system revenues backlog was approximately $7.7 million.
A majority of the Company's backlog as of March 31, 1997 is expected to be
shipped during the current fiscal year. Any failure of the Company to meet an
agreed upon schedule could lead to the cancellation of the
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<PAGE>
related order. Variations in the size, complexity and delivery requirements of
the customer order may result in substantial fluctuations in backlog from period
to period. The Company believes that it is important for competitive reasons and
to better satisfy customer requirements to reduce order lead times and expects
that the Company's backlog may decrease on a relative basis over time. In
addition, all orders are subject to cancellation or delay by the customer and,
accordingly, there can be no assurance that such backlog will eventually result
in revenues. For these reasons, the Company believes that backlog cannot be
considered a meaningful indicator of the Company's performance on an annual or
quarterly basis.
MANUFACTURING
The Company seeks to focus its manufacturing resources on activities which
emphasize the Company's core competencies and distinctive value. The Company's
manufacturing operations consist primarily of: materials management; assembly,
test and quality control of parts and components subassemblies; and final system
testing. Using the Company's designs and specifications, subcontractors assemble
mechanical and electrical sub-components. The Company performs final assembly
and test of systems, including configuration to customers orders and testing
with current release software, prior to shipment. The Company's manufacturing
organization has expertise in mechanical, electrical, electronic and software
assembly and testing. In addition, because quality and reliability over the life
of the Company's products are vital to customer satisfaction and repeat
purchases, the Company believes its quality assurance program to be a key
component of its business strategy.
The Company generally purchases major contracted assemblies from single
source suppliers in order to ensure high quality, prompt delivery and low cost.
The Company reviews its single source procurements on a case by case basis and
began to qualify second sources for certain contracted assemblies in 1996. The
Company purchases components, materials and electro-mechanical subsystems from
single source suppliers pursuant to purchase orders placed from time to time in
the ordinary course of business and has no guaranteed supply arrangements with
such suppliers. Although to date the Company has not experienced any significant
delays in obtaining any of its single source assemblies, there can be no
assurance that the Company will not face shortages of one or more of these
systems in the future. See "Risk Factors--Dependence on Suppliers."
The Company outsources certain manufacturing processes, including standard
and build-to-print fabricated parts such as mechanical sub-assemblies, sheet
metal fabrication, cables and assembled printed circuit boards. This strategy
enables the Company to leverage product development, manufacturing and
management resources while retaining greater control over product delivery,
final product configuration and timing of new product introductions, all of
which the Company believes are critical to exceeding customer expectations.
The Company is currently producing approximately four systems per month and
has the capacity to accommodate production of over six systems per month in its
current facility. In February 1997, the Company entered into a lease agreement
for a new headquarters and manufacturing facility. The new facility is expected
to be outfitted for occupancy in July 1997. The new facility is expected to have
an initial capacity in excess of 15 systems per month. The Company's plans call
for production levels which may be in excess of its current facility's capacity.
Any delays in the availability of the new facility for the production of CTX
5000 systems could cause delays in shipments of such systems to customers, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Limited Manufacturing
Experience; Management of Growth" and "--Facilities."
RECENT DEVELOPMENTS
FAA PROCUREMENT CONTRACT. On December 24, 1996, the FAA awarded a $52.2
million contract to the Company for the purchase of 54 CTX 5000 systems to be
installed at major airports throughout the United States. This contract calls
for all 54 units to be delivered to airports by the end of 1997. In addition,
the government has the option to purchase up to 46 additional systems for 1998,
bringing the total purchase price under such contract, if such option is fully
exercised, to $110.9 million. The FAA may cancel this contract at any
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<PAGE>
time and for any reason, in which case the FAA would only be obligated to pay
for units delivered and to reimburse the Company for costs incurred and
commitments made by the Company in order to fulfill the contract.
EG&G ASTROPHYSICS. In November 1996, the Company entered into a Research
and Development Agreement with EG&G Astrophysics ("EG&G") whereby the parties
agreed to attempt to jointly develop and introduce to the EDS marketplace a
system combining the two companies' products into an automatic, high throughput,
high detection system. The terms of the agreement provide for the parties to
equally fund and jointly own the technology developed in the development
program. Either party may terminate the agreement for cause, or may terminate
the agreement without cause (which in certain cases would result in a penalty)
on 60 days' notice. The agreement terminates in May 1998. This alliance targets
the furtherance of the Company's strategy to increase throughput and provide a
better solution than multi-level detection systems currently in use in certain
airports in the United Kingdom and Asia which, the Company believes, represent a
significant compromise in detection and increase the cost and complexity of the
baggage handling system. There can be no assurance that the Company and EG&G
will be able to develop such an EDS in a cost-effective manner or at all. In
connection with the collaboration, an affiliate of EG&G made an equity
investment of $2.0 million in the Company.
QUANTUM MAGNETICS, INC. In April 1997, the Company made an equity
investment of approximately $1.2 million, representing an approximate 10%
ownership interest, in Quantum Magnetics, Inc. ("Quantum"). The equity
investment entitles the Company to designate one member to serve on Quantum's
board of directors and entitles the Company to certain registration, first
refusal and other rights. In connection with the equity investment, for the
period extending through December 1997, Quantum has agreed not to license or
transfer its technology related to explosive detection for use in explosives or
drug detection without consent of the Company except in connection with the sale
of Quantum or transfer of substantially all of its assets.
COMPETITION
The market for explosive detection systems is intensely competitive and is
characterized by continuously developing technology and frequent introductions
of new products and features. The Company expects competition to increase as
other companies introduce additional and more competitive products in the EDS
market and as the Company develops additional capabilities and enhancements for
the CTX 5000 and new applications for its certified technology. Historically,
the principal competitors in the market for explosive detection systems have
been InVision, Vivid Technologies, Inc., EG&G Astrophysics, Heimann Systems
GmbH, Thermedics Detection Inc., and Barringer Technologies Inc. Each of these
competitors provides EDS solutions and products for use in the inspection of
checked luggage, although to date only the Company's CTX 5000 has been certified
by the FAA. The Company is aware of certain major corporations competing in
other markets that intend to enter the EDS market. In particular, in January
1996 Lockheed Martin Corporation received a grant in the amount of approximately
$8.5 million from the FAA for the design and development of a CT-based EDS over
a two-year period. Announcements of currently planned or other new products may
cause customers to delay their purchasing decisions for EDS products, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Each of the Company's competitors may have
substantially greater financial resources than the Company. There can be no
assurance that the Company will be able to compete successfully with its
competitors or with new entrants to the EDS market.
The Company believes that its ability to compete in the EDS market is based
upon such factors as: product performance, functionality, quality and features;
quality of customer support services, documentation and training; and the
capability of the technology to appeal to broader applications beyond the
inspection of checked baggage. Although the Company believes that the CTX 5000
is superior to its competitors' products in its explosive detection capability
and accuracy, the CTX 5000 must also compete on the basis of price, throughput,
the ability to handle all sizes of baggage, and the ease of integration into
existing baggage handling systems. Certain of the Company's competitors may have
an advantage over the Company's existing technology with respect to these
factors. Currently, the CTX 5000 has an average selling price of approximately
$1.0 million,
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<PAGE>
compared to substantially lower prices for systems offered by the Company's
competitors; has a throughput rate of approximately 300 bags per hour ("bph"),
compared to rates claimed to exceed 1,000 bph by certain of the Company's
competitors; has a gantry size which limits the ability of the unit to accept
all sizes of baggage; and requires that the baggage remain still while being
scanned, making it difficult to integrate into the continuously moving baggage
handling systems found in most airports. There can be no assurance that the
Company will be successful in convincing potential customers that the CTX 5000
is superior to other systems given all of the necessary performance criteria,
that new systems with comparable or greater performance, lower price and faster
or equivalent throughput will not be introduced, or that, if such products are
introduced, customers will not delay or cancel existing or future orders for the
Company's system. Further, there can be no assurance that the Company will be
able to enhance the CTX 5000 to better compete on the basis of cost, throughput,
accommodation of baggage size and ease of integration, or that the Company will
otherwise be able to compete successfully with existing or new competitors. The
failure of the Company to develop such enhancements or otherwise successfully
compete in the EDS market for any of the above reasons would have a material
adverse effect on the Company's business, financial condition and results of
operations.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's performance depends in part upon its proprietary technology.
In the United States, the Company relies upon patents, copyrights and trade
secrets for the protection of the proprietary elements of the CTX 5000 and the
Company's CT technology. There can be no assurance, however, that the Company
could enforce such patents, trade secrets or copyrights. The Company has two
United States patents for automatic concealed object detection systems using a
pre-scan stage which expire in the years 2010 and 2011 (the "Patents"). There
can be no assurance that the Patents would be effective in preventing CT-based
competition. In accordance with certain Federal Acquisition Regulations included
in the Company's development contract, dated September 27, 1991, with the FAA
(the "FAA R&D Contract"), the United States Government has rights to use certain
of the Company's proprietary technology developed after the award of the FAA R&D
Contract and funded by the FAA R&D Contract. The U.S. Government may use such
rights to produce or have produced for the U.S. Government competing products
using the Company's CT technology. In the event that the U.S. Government were to
exercise these rights, the Company's exclusivity in supplying the U.S.
Government with certified CT-based explosive detection systems could be
materially adversely affected.
The Company generally enters into confidentiality agreements with each of
its employees, and on a case-by-case basis enters into similar agreements with
distributors, customers, and potential customers. In addition, the Company
limits access to distribution of its software, documentation and other
proprietary information. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known to or
independently developed by others. Outside the United States, the time period
for filing foreign counterparts of the Patents has expired, and the Company has
not sought or obtained patent protection (except to the extent of licenses held
under patents owned by Imatron Inc. ("Imatron")) and has relied to date
primarily on software copyrights and trade secrets for the protection of its
proprietary technology. The absence of a foreign counterparts to the Patents
could adversely affect the Company's ability to prevent a competitor from using
technology similar to technology used in the CTX 5000. There can be no assurance
that the steps taken by the Company to protect its proprietary technology will
be adequate or that its competitors will not be able to develop similar,
functionally equivalent or superior technology.
The Company in the past has received, and from time to time in the future
may receive, communications from third parties alleging infringements by the
Company or one of its suppliers of patents or other intellectual proprietary
rights owned by such third parties. There can be no assurance that any
infringement claims (or claims for indemnification resulting from infringement
claims against third parties, such as customers) will not be asserted against
the Company. If the Company's product is found to infringe a patent, a court may
grant an injunction to prevent making, selling or using the product in the
applicable country. Protracted litigation may be necessary to defend the Company
against alleged infringement of others' rights. Irrespective of the validity or
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<PAGE>
success of such claims, defense of such claims could result in significant costs
to the Company and the diversion of time and effort by management, either of
which by itself could have a material adverse effect on the business, financial
condition and results of operations of the Company. Further, adverse
determinations in such litigation could result in the Company's loss of
proprietary rights, subject the Company to significant liabilities (including
treble damages in certain circumstances), or prevent the Company from selling
its products. If infringement claims are asserted against the Company, the
Company may seek to obtain a license of such third party's intellectual property
rights, which may not be available under reasonable terms or at all. In
addition, litigation may be necessary to enforce patents issued to or licensed
exclusively to the Company and protect trade secrets or know-how owned or
licensed by the Company and, whether or not the Company is successful in
defending such intellectual property, the Company could incur significant costs
and divert considerable management and key technician time and effort with
respect to the prosecution of such litigation, either of which by itself could
have a material adverse effect on the business, financial condition and results
of operations of the Company.
The Company also holds an exclusive, worldwide, perpetual and fully-paid
license from Imatron (obtained in connection with the formation of the Company)
under Imatron's patents and know-how to develop, manufacture and sell (a)
systems for the inspection of mail, freight, parcels and baggage, and (b)
compact medical scanner products for military field applications. The Company,
in exchange, granted to Imatron an exclusive, worldwide, perpetual and
fully-paid license under the Company's patent or future patents and know-how to
permit Imatron to utilize such technology in medical scanner products (other
than compact medical scanner products for military field applications). Imatron
is a manufacturer of medical scanning systems and holds a portfolio of CT
patents.
While the Company believes that its intellectual property rights are
valuable, the Company also believes that because of the rapid pace of
technological change in the industry, factors such as innovative skills,
technical expertise, the ability to adapt quickly to new technologies and
evolving customer requirements, product support, and customer relations are of
greater competitive significance.
EMPLOYEES
As of March 31, 1997, the Company employed 150 people, of whom 38 were
primarily engaged in research and development activities, 30 in marketing and
sales, customer support and field service, 23 in manufacturing and 22 in
administration and finance. In addition, the Company utilized the services of 37
full-time consultants and temporary employees in 1996. Management believes that
the Company's relationship with its employees is good.
FACILITIES
The Company's principal administrative, marketing, development and
manufacturing facility is located in Foster City, California and consists of
approximately 27,000 square feet under a lease which expires in October 1998.
The Company has an option to extend the lease for one year. The base rent under
this lease is approximately $300,000 per year. In March 1997, the Company
entered into a lease for new principal corporate offices and manufacturing
facilities in Newark, California, which consists of approximately 95,000 square
feet under a lease which expires in May 2007. The Company has an option to
extend the lease for five years. The initial base rent under this lease is
approximately $672,000 per year. The Company anticipates relocating to this new
facility upon completion of tenant improvements, currently scheduled for July
1997. Management believes that the new facilities will be sufficient to satisfy
the Company's administrative and manufacturing needs for the foreseeable future.
The Company's manufacturing facility is currently producing approximately
four systems per month and has the capacity to accommodate production of over
six systems per month. The new facility is expected to have a capacity in excess
of 15 systems per month before the implementation of activities for
manufacturing cycle time reduction and multiple shifts.
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<PAGE>
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation, including
litigation relating to claims arising out of its operations in the normal course
of business. As of the date of this Prospectus, the Company is not a party to
any legal proceedings, the adverse outcome of which, in management's opinion,
individually or in aggregate would have a material adverse effect on the
Company's business, financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth certain information regarding the Company's
executive officers and directors as of March 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------
<S> <C> <C>
Dr. Sergio Magistri........... 44 President, Chief Executive Officer and Director
Sauveur Chemouni.............. 43 Vice President, Engineering
Curtis P. DiSibio............. 40 Vice President and Chief Financial Officer
David M. Pillor............... 42 Senior Vice President, Sales and Marketing
Dr. Fredrick L. Roder......... 49 Vice President, Federal Systems
Dr. Benno Stebler............. 44 Vice President, Manufacturing
Stephen Wolff................. 38 Vice President, Marketing & Product Development
Dr. Douglas P. Boyd(1)(2)..... 55 Director
Dr. Giovanni Lanzara(2)....... 57 Chairman of the Board
Dr. Bruno Trezza(1)........... 60 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
DR. SERGIO MAGISTRI has served as President, Chief Executive Officer and
Director of the Company since December 1992. From June 1991 to November 1992, he
was a Project Manager with AGIE, Switzerland, a manufacturer of high precision
tooling equipment, responsible for all aspects of a family of new products for
high precision electro-erosion machining with sub-micron precision. From 1988 to
June 1991, Dr. Magistri was a consultant to high technology companies, including
FI.M.A.I. Holding, S.A. As a consultant to FI.M.A.I., Dr. Magistri was involved
in the formation of the Company and the development of its business plan and of
its technology. From 1983 to 1988, Dr. Magistri held various positions with
Imatron Inc. ("Imatron"), a CT medical scanner company, including as an
Engineering Physicist and Manager of Advanced Reconstruction Systems, and
Director of Computer Engineering. Dr. Magistri holds a degree in Electrical
Engineering and a doctorate in Biomedical Engineering from the Swiss Institute
of Technology, Zurich, Switzerland.
SAUVEUR CHEMOUNI joined the Company in 1990 as Manager and from January 1994
to September 1995 served as Director of Engineering. He has served as Vice
President of Engineering since September 1995. From 1988 to 1990, he was with
Imatron, where he was instrumental in the development of the Company's original
EDS capability. From 1983 to 1988, he was the owner of a computer graphics
company. Mr. Chemouni holds a degree in physics and a Masters degree in Computer
Sciences from Supelec, Paris, France.
CURTIS P. DISIBIO has served as Vice President, Finance and Administration
of the Company since April 1991 and Chief Financial Officer since March 1993.
From 1980 to 1986, Mr. DiSibio worked in public accounting. In 1986 Mr. DiSibio
served as controller of Trilogy Systems Corporation ("Trilogy"), a development
stage mainframe computer company, and was involved in the sale of Trilogy's
operations to Digital Equipment Corporation. From 1987 to 1990, Mr. DiSibio held
various positions including Treasurer and Chief Financial Officer of ELXSI
Corporation, a publicly traded mini-super computer company which Trilogy had
acquired. Mr. DiSibio received a Masters degree in Business Administration
degree from Santa Clara University.
DAVID M. PILLOR joined the Company in July 1994 as Vice President, Sales and
Marketing, and has served as Senior Vice President, Sales and Marketing since
November 1995. From 1988 to July 1994, Mr. Pillor held various positions
including Area Sales Manager, National Sales Manager and Vice President of Sales
of Technomed International, a medical products company. Mr. Pillor holds a
Bachelor of Science degree in Chemistry from the University of Maryland.
DR. FREDRICK L. RODER has served as Vice President, Federal Systems, of the
Company since January 1997, following the acquisition of Imatron Federal
Systems, Inc. ("IFS") by the Company. From June 1991 to December 1996, he served
as President of IFS and as Prime Contractor and Principal Investigator on FAA
39
<PAGE>
research and development contracts. From 1986 until 1991, he served as Director,
New Product Development, of Imatron. He holds a Bachelor of Science degree in
Physics from City College of New York, a Masters degree in Physics from Yeshiva
University and a doctorate in Nuclear Science and Engineering from Catholic
University of America.
DR. BENNO STEBLER joined the Company in May 1991 as Vice President,
Engineering, and has served as Vice President, Manufacturing, of the Company
since September 1995. From 1989 to 1991, Dr. Stebler served as Staff Engineer at
Toshiba America, a consumer electronics company. From 1986 to 1989, Dr. Stebler
served in various positions at Imatron including Software Manager of the Compact
Medical Scanner, a predecessor to the CTX 5000. Dr. Stebler holds a diploma of
Electrical Engineering and a doctorate in Biomedical Engineering from the Swiss
Institute of Technology, Zurich, Switzerland.
STEPHEN WOLFF joined the Company in 1990 first as Manager and then as
Director, Marketing & Product Development, and has served as Vice President,
Marketing & Product Development, of the Company since October 1995. From 1981 to
1990, Mr. Wolff held various positions at Science Applications International,
Corp., a government research contractor, including Project Coordinator for
development of a Prototype Thermal Neutron Analysis explosive detection system.
Mr. Wolff was also principal investigator for an FAA sponsored testing program
for weapons detection technology. Mr. Wolff holds a Bachelor of Science degree
in Chemical Engineering from Imperial College, London, England and a Masters
degree in Chemical Engineering from Stanford University.
DR. DOUGLAS P. BOYD served as a Director of the Company from September 1990
to December 1992, and since June 1993. Dr. Boyd was a founder of Imatron in 1981
and has held various positions at Imatron, and currently serves as its Chairman
of the Board and Chief Technology Officer. Dr. Boyd is an Adjunct Professor of
Radiology at the University of California, San Francisco.
DR. GIOVANNI LANZARA has served as a Director of the Company since September
1990 and as Chairman of the Board since March 1994. Since 1978, he has served as
a professor and President of the Transportation Engineering Department at the
University of Aquila, Rome, Italy. Dr. Lanzara has been President of the
International Center for Transportation Studies since 1987. Dr. Lanzara served
as director of Imatron from August 1993 to June 1996.
DR. BRUNO TREZZA has served as a Director of the Company since November
1993. Since 1974, he has served as a professor of economics at the University
"La Sapienza" in Rome, Italy. From 1980 to 1981, Dr. Trezza served as an
economic advisor to the Italian Prime Minister. From 1974 to 1983, he served as
a member of the Committee for Economic Planning of the Italian Ministry of
Planning. He has served as a director of several private companies and public
institutions in Italy.
The Board of Directors has set the size of the Board at five directors.
Since there are currently only four elected directors, a vacancy exists which
may be filled at the Board's discretion. The Company's Board of Directors is
divided into three classes with the members of each class serving for terms of
office expiring at the third annual meeting of stockholders following their
election and until successors are duly qualified. The terms of office of the
Class I, II, and III directors expire at the annual meetings of stockholders in
1997, 1998 and 1999, respectively. The Class I director is Dr. Magistri; the
Class II director is Dr. Lanzara (the other Class II position is currently
vacant); and the Class III directors are Drs. Boyd and Trezza. Executive
officers serve at the discretion of the Board of Directors. See "--Employment
Agreements."
The Board of Directors has an Audit Committee and a Compensation Committee.
The functions of the Audit Committee include recommending to the Board the
retention of independent auditors, reviewing the scope of the annual audit
undertaken by the Company's independent auditors and the progress and results of
their work, and reviewing the financial statements of the Company and its
internal accounting and auditing procedures. The functions of the Compensation
Committee include reviewing and approving executive compensation policies and
practices, reviewing salaries and bonuses for certain officers of the Company,
administering the Company's employee stock option plans, and considering such
other matters as may, from time to time, be delegated to the Compensation
Committee by the Board of Directors.
40
<PAGE>
Non-employee directors currently receive $1,200 per day in cash compensation
for their services as members of the Board of Directors and are reimbursed for
expenses incurred in connection with the performance of services as directors.
In addition, non-employee directors of the Company currently receive $1,200 per
day for each day of consulting services rendered to the Company not in
connection with their services as directors.
Aggregate consulting fees earned by directors of the Company were $136,280
in 1994, $115,800 in 1995 and $263,600 in 1996. During these years Giovanni
Lanzara (who earned $100,000 in 1994, $71,400 in 1995 and $117,600 in 1996) and
Bruno Trezza (who earned $104,400 in 1996) were the only individual directors
who earned consulting fees in excess of $60,000 in any individual calendar year.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation earned by the Company's
Chief Executive Officer and the Company's other four most highly compensated
executive officers whose salary and bonus for the year ended December 31, 1996
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------- SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME YEAR SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------------------ ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Dr. Sergio Magistri............................. 1996 $136,666 $ -- -- $ --
President and Chief Executive Officer 1995 131,982 -- 63,272 10,000(1)
Curtis P. DiSibio............................... 1996 111,250 34,750 -- --
Chief Financial Officer 1995 109,000 18,790 39,326 --
David M. Pillor................................. 1996 110,000 117,603(2) -- --
Senior Vice President, Sales & Marketing 1995 100,000 117,790(2) 154,186 --
Dr. Benno Stebler............................... 1996 116,000 37,876 -- --
Vice President, Manufacturing 1995 114,000 19,206 43,798 --
Sauveur Chemouni................................ 1996 104,478 33,000 -- --
Vice President, Engineering 1995 100,000 -- 51,848 --
</TABLE>
- ------------------------
(1) Represents relocation expenses.
(2) Includes commission payments of $97,603 in 1996 and $70,790 in 1995; amount
in 1995 includes $47,000 related to orders received in 1994.
The Company has a policy of granting certain cash incentive awards to its
senior management based upon the achievement of certain performance goals. The
specific performance goals are determined by the Company's Board of Directors
and are designed to fairly reward senior management for significant positive
contributions to the Company.
RECENT OPTION GRANTS
The Company did not grant any stock options to its Named Executive Officers
during fiscal 1996.
OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
During the last fiscal year no options were exercised by the Named Executive
Officers. The following table sets forth information with respect to the number
of securities underlying unexercised options held by the
41
<PAGE>
Named Executive Officers as of December 31, 1996 and the value of unexercised
in-the-money options as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Dr. Sergio Magistri.................. 139,732 81,714 $ 2,221,726 $ 1,298,338
Curtis P. DiSibio.................... 50,788 14,895 799,669 230,146
David M. Pillor...................... 125,530 49,829 1,969,076 774,679
Dr. Benno Stebler.................... 58,004 15,054 913,573 231,831
Sauveur Chemouni..................... 45,590 20,092 711,690 309,416
</TABLE>
- ------------------------
(1) Based on a per share price of $16.50, the closing price of the Common Stock
as reported on the Nasdaq SmallCap Market, minus the exercise price of the
option, multiplied by the number of shares underlying the option.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Magistri,
DiSibio, Pillor and Stebler which provide for salaries and other employment
terms. The agreements with Messrs. Magistri, DiSibio, Pillor and Stebler each
provide that if the Company terminates the employee's employment without cause,
the employee is entitled to a severance payment equal to his annual base salary
for six months. All of the employment agreements are terminable at the will of
either the employee or the Company, with or without cause. In each case,
termination by the employee requires two months notice to the Company.
401(K) PLAN
In April 1992, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering all of the Company's employees.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the annual limit prescribed by statute ($9,500 in 1996
unless limited by other statutory provisions) and contribute the amount of such
reduction to the 401(k) Plan. The 401(k) Plan does not provide for any matching
or discretionary contributions to the 401(k) Plan by the Company. The trustee
under the 401(k) Plan, at the direction of each participant, invests the assets
of the 401(k) Plan in specified investment options. The 401(k) Plan is intended
to qualify under Section 401 of the Internal Revenue Code so that contributions
by employees to the 401(k) Plan, and income earned on plan contributions, are
not taxable until withdrawn, and so that the contributions by employees will be
deductible by the Company when made.
STOCK OPTION PLANS
EQUITY INCENTIVE PLAN
The Company's 1991 Stock Option Plan was adopted by the Board of Directors
in May 1991 and approved by the shareholders in June 1991. In March 1996, the
1991 Stock Option Plan was amended and restated as the Equity Incentive Plan
(the "Equity Plan"). In December 1996 the Board of Directors approved an
amendment to the Equity Plan, subject to stockholder approval, increasing the
number of shares available thereunder by 640,000 shares. A total of 2,221,818
shares of Common Stock have been reserved for issuance under the Equity Plan.
The Equity Plan provides for grants of incentive stock options, nonstatutory
stock options, stock bonuses, rights to purchase restricted stock, and stock
appreciation rights (collectively "Stock Awards") to employees (including
officers and employee directors) and consultants of the Company and its
affiliates. The Equity Plan is presently being administered by the Compensation
Committee, which determines optionees and the terms of options granted,
including the exercise price, number of shares subject to the option and the
exercisability thereof.
The terms of options granted under the Equity Plan may not exceed ten years
from the date of grant. Options granted under the Equity Plan to date have been
at the discretion of the Board and have typically vested at the rate of 25% of
the shares subject to option at the end of the first anniversary of the date of
grant and 1/16th of such shares at the end of each quarter thereafter. No
incentive stock option may be transferred by the
42
<PAGE>
optionee other than by will or the laws of descent or distribution. Incentive
stock options shall be exercisable during the lifetime of the person to whom the
option is granted only by such person. An optionee whose relationship with the
Company or any related corporation ceases for any reason (other than by death or
permanent and total disability) may exercise options in the three month period
following such cessation (unless such options terminate or expire sooner by
their terms) or in such shorter period (not to be less than 30 days) determined
by the Board of Directors.
Shares subject to Stock Awards (other than stock appreciation rights)
granted under the Equity Plan which have lapsed or terminated may again be
subject to Stock Awards granted under the Equity Plan. The Board of Directors
has the authority to effect, with the consent of affected holders, the
cancellation of outstanding Stock Awards under the Equity Plan in return for the
grant of new Stock Awards for the same or different number of Stock Awards with
an exercise price per share of 85%, 100% or, under certain circumstances, 110%
of fair market value of the Common Stock on the new grant date, with the shares
subject to the outstanding Stock Awards again becoming available for grant under
the Equity Plan. Upon any merger or consolidation in which the Company is not
the surviving corporation, all outstanding Stock Awards shall either be assumed
by the surviving entity or continue in full force and effect. If any surviving
entity refuses to assume or continue such Stock Awards or substitute similar
Stock Awards then such Stock Awards shall be terminated if not exercised prior
to such event.
As of December 31, 1996, approximately 246,000 shares of Common Stock had
been issued upon the exercise of options granted under the Equity Plan, options
to purchase approximately 1,141,000 shares of Common Stock at a weighted average
exercise price of $1.92 per share were outstanding and approximately 835,000
shares remained available for future option grants. The Equity Plan will
terminate on May 2, 2001 unless sooner terminated by the Board of Directors. To
date, no stock bonuses, restricted stock, or stock appreciation rights have been
granted under the Equity Plan.
1996 EMPLOYEE STOCK PURCHASE PLAN
In March 1996, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 300,000 shares of Common Stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code. Under the Purchase
Plan, the Board of Directors may authorize participation by eligible employees,
including officers, in periodic offerings following the adoption of the Purchase
Plan. The offering period for any offering will be no more than 27 months.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board of Directors for at least 20
hours per week and are employed by the Company or a subsidiary of the Company
designated by the Board for at least five months per calendar year. Employees
who participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld will then be used to purchase
shares of the Common Stock on specified dates determined by the Board of
Directors. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period except as provided in the terms of the offering, and
participation ends automatically on termination of employment with the Company.
In the event of a change of control of the Company, the Board of Directors
has discretion to provide that each right to purchase Common Stock will be
assumed or an equivalent right substituted by the successor corporation, if any,
or the Board may shorten the offering period and provide for all sums collected
by payroll deductions to be applied to purchase stock immediately prior to such
transaction. The Purchase Plan will terminate in March 2006 unless earlier
terminated by the Board of Directors. The Board has the authority to amend or
terminate the Purchase Plan, subject to the limitation that no such action may
adversely affect any outstanding rights to purchase Common Stock and subject, in
certain cases, to stockholder approval. No shares were issued under the Purchase
Plan in 1996 or the first quarter of 1997.
43
<PAGE>
CERTAIN TRANSACTIONS
In connection with the formation of the Company, the Company issued 195,455
shares of Series A Preferred Stock to FI.M.A.I. in consideration for $650,000 in
cash and $1,500,000 in cancellation of indebtedness to Imatron, and 195,455
shares of Series A Preferred Stock to Imatron in consideration for $250,000 in
cash and Imatron's licensing of certain technology to the Company pursuant to
the Technology License Agreement, dated as of September 11, 1990 between the
Company and Imatron, Inc. (the "Technology Agreement"). In addition, in
connection with the formation of the Company, FI.M.A.I. entered into a
Manufacturing and Distribution Agreement dated as of September 11, 1990 (the
"Distribution Agreement") with which agreement appointed FI.M.A.I. as the
exclusive manufacturer, purchaser and distributor for the CTX 5000 in Europe.
FI.M.A.I. transferred its rights under the Distribution Agreement to
ElectroParts and HARAX in April 1995 in connection with the transfer from
FI.M.A.I. to HARAX and ElectroParts of FI.M.A.I.'s equity interest in the
Company. In June 1995, the Company issued 56,818 shares of Series D Preferred
Stock to ElectroParts, S.A. and 170,455 shares of Series D Preferred Stock to
HARAX in exchange for the cancellation of the Distribution Agreement.
FI.M.A.I.'s entire equity interest in the Company was transferred to
ElectroParts and HARAX, who are affiliated with FI.M.A.I.
In July 1991, the Company entered into a Standby Financing Agreement with
FI.M.A.I. (the "Standby Financing") pursuant to which FI.M.A.I. agreed to
provide an equity investment in the Company of up to $3,000,000 and to guarantee
a line of credit for the Company of up to $3,000,000. From July 1991 to April
1994, FI.M.A.I. guaranteed approximately $3,000,000 in bank indebtedness and
purchased 151,515 shares of Series C Preferred Stock at a purchase price of
$19.80 per share or an aggregate of $3,000,000. In June 1994, the Company issued
802,957 shares of Series D Preferred Stock to FI.M.A.I. at a purchase price of
$3.74 per share or an aggregate purchase price of $3,000,000. The funds received
from the sale of the Series D Preferred Stock were used to pay down $3,000,000
of the Company's $5,300,000 debt then outstanding and to terminate FI.M.A.I.'s
guarantee with respect to such amount. The Series D Preferred Stock was issued
to FI.M.A.I. on the same terms offered to all investors in the Company's Series
D Preferred Stock.
From July 1993 to November 1994, the Company borrowed approximately
$2,325,000 from HARAX at an interest rate of prime plus 1%. In May 1995, the
Company issued 649,434 shares of Series D Preferred Stock to HARAX at a purchase
price of $3.74 per share in exchange for the cancellation by HARAX of the
principal amount and interest of such indebtedness, or an aggregate purchase
price of $2,428,882.
HARAX and ElectroParts are participation holding companies that are
affiliated with FI.M.A.I. HARAX currently holds approximately 35.1% of the
outstanding equity of the Company and will hold approximately 23.5% of the
outstanding equity of the Company following this offering. ElectroParts
currently holds 5.9% of the outstanding equity of the Company and will hold 2.2%
of the outstanding equity of the Company following this offering.
On October 13, 1994, the Company issued 3,818 shares of Series D Preferred
Stock to Louis Turpen in consideration of services previously rendered by Mr.
Turpen. Mr. Turpen served as a director of the Company from December 1992 until
June 1995.
On November 11, 1994, the Company issued 5,455 shares of Series D Preferred
Stock to Lucio Lanza in consideration of services previously rendered by Mr.
Lanza. Mr. Lanza acted as Chairman of the Board of the Company from December
1992 until November 1993.
In July 1994, Dr. Sergio Magistri loaned the Company $50,000 for working
capital. In June 1995 the Company issued 13,368 shares of Series D Preferred
Stock to Dr. Sergio Magistri in exchange for the cancellation by Dr. Magistri of
such indebtedness.
In August 1996, Anaconda Opportunity Fund, L.P. ("Anaconda"), the successor
to Anaconda Partners, L.P., exercised warrants to purchase 420,454 shares of
Common Stock at an exercise price of $4.40 per share and 58,864 shares of Common
Stock at an exercise price of $5.50 per share. The original warrants were issued
to Anaconda in connection with a certain Bridge Loan and Security Agreement,
dated as of December 28, 1995,
44
<PAGE>
entered into between the Company and Anaconda Partners, L.P.. Also in August
1996, LEO Holding, Inc. exercised a warrant to purchase 34,090 shares of Common
Stock at an exercise price of $4.40 per share and 4,772 shares of Common Stock
at an exercise price of $5.50 per share. Such warrant was originally issued to
Anaconda Partners, L.P. and was subsequently transferred to LEO Holding, Inc. In
connection with the warrant issuance the Company agreed to register the offer
and resale of shares issuable upon exercise of the warrants. In June 1996, the
Company registered the offer and resale of such shares. Of such shares, 479,318
shares continue to remain registered for resale by Anaconda.
On December 31, 1996, the Company issued 32,000 shares of Common Stock to
Fredrick L. Roder, Vice President, Federal Systems of the Company, in
consideration of all of the outstanding common voting stock of Imatron Federal
Systems, Inc.
The Company believes that the foregoing transactions were in its best
interests and were on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
ADDITIONAL INFORMATION REGARDING MAJOR STOCKHOLDER
HARAX, a major stockholder of the Company, is owned and controlled by
Eugenio Rendo. Mr. Rendo was a senior executive of the Italimprese Group, a
large, privately-held conglomerate based in Italy. Mr. Rendo has been charged in
Italy with bribery of public officials in connection with obtaining public
sector contracts. These charges arise from political contributions made by Mr.
Rendo in 1991. Mr. Rendo denies such allegations and is vigorously defending
himself in such matter. In particular, Mr. Rendo asserts that the payments made
by him which have been called into question were lawful contributions to a
political party and he denies that any favor or other improper benefit was
received in exchange. In early 1996, the proceedings with respect to such
charges were relocated from Milan, Italy to Rome, Italy, and the formal
indictment in Milan was annulled. To resume the proceedings, a new indictment
would be required from the judges in Rome; however, to date no new indictment
has been issued. In the event that a new indictment is issued, under Italian law
two trials must be held before a conviction is obtained. The Company believes
that, regardless of the outcome of any such legal proceedings, such events will
not have an adverse effect on the business or operations of the Company.
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 1997, and as adjusted to reflect
the sale of Common Stock offered hereby, by: (i) each person (or group of
affiliated persons) known by the Company to beneficially own 5% or more of the
Common Stock; (ii) each director of the Company; (iii) each Named Executive
Officer; (iv) each Selling Stockholder; and (v) all directors and executive
officers of the Company as a group. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common stock, except to the
extent authority is shared by spouses under applicable law. The information set
forth in the table and accompanying footnotes has been furnished by the named
beneficial owners.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERING(1)
------------------------ BEING ------------------------
NAME NAME PERCENTAGE OFFERED NUMBER PERCENTAGE
- ----------------------------------------------------- ---------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
HARAX Holding, S.A.(2)............................... 3,234,782 35.1% 633,198 2,601,584 23.5%
Eugenio Rendo(3)..................................... 3,234,782 35.1 633,198 2,601,584 23.5
ElectroParts S.A.(4)................................. 540,642 5.9 300,000 240,642 2.2
HAKON Holdings, S.A.(5).............................. 485,474 5.3 100,000 385,474 3.5
Anaconda Opportunity Fund, L.P.(6)................... 479,318 5.2 0 479,318 4.3
PASTEC Holdings, S.A................................. 441,888 4.8 100,000 341,888 3.1
EG&G International Ltd............................... 183,750 2.0 91,875 91,875 *
Dr. Sergio Magistri(7)............................... 242,738 2.6 0 242,738 2.1
Sauveur Chemouni(8).................................. 53,632 * 5,363 48,269 *
Curtis P. DiSibio(9)................................. 57,583 * 0 57,583 *
David M. Pillor(10).................................. 143,598 1.5 0 143,598 1.3
Fredrick L. Roder.................................... 32,000 * 3,200 28,800 *
Dr. Benno Stebler(11)................................ 64,429 * 6,443 57,986 *
Stephen Wolff(12).................................... 36,675 * 3,668 33,007 *
Dr. Douglas P. Boyd(13).............................. 62,533 * 6,253 56,280 *
Dr. Giovanni Lanzara(14)............................. 534,420 5.8 100,000 434,420 3.9
Dr. Bruno Trezza(15)................................. 531,955 5.7 100,000 431,955 3.9
All directors and executive officers as a group (10
persons)(16)....................................... 1,759,562 17.8 224,927 1,534,635 13.0
</TABLE>
- ------------------------
* Less than 1% of the outstanding Common Stock.
(1) Applicable percentage of ownership at March 31, 1997 is based upon
9,205,000 shares of Common Stock outstanding. Applicable percentage
ownership after this offering is based upon 11,092,000 shares of Common
Stock outstanding. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and includes sole or shared
voting or investment power with respect to shares shown as beneficially
owned. Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not deemed
outstanding for computing the percentage ownership of any other person.
(2) The business address for the named stockholder is 231, Val des Bons
Malades, Luxembourg-Kirchberg, Luxembourg L-2121.
(3) The business address for the named individual is Via de Notaris No. 3
Pairoli, Rome, Italy 00161. Represents 3,234,782 shares held by HARAX.
Eugenio Rendo is the controlling stockholder of HARAX and is deemed to
beneficially own such shares.
(4) Mario Rendo is the controlling stockholder of ElectroParts and is deemed to
beneficially own such shares. All of such shares have been pledged to HARAX
to secure a loan made by HARAX to ElectroParts, which loan becomes due and
payable in October 1997. A portion of such shares are being sold in this
Offering to repay such loan. The business address for the named stockholder
and Mario Rendo is 12 Avenue de la Liberte, L-190 Luxembourg.
(5) The business address for the named stockholder is 2 Boulevard Royal,
Luxembourg.
(6) The business address for the named stockholder is c/o Anaconda Capital
Management, LLC, 730 Fifth Avenue, 15th Floor, New York, NY 10019. The
479,318 shares are held by Anaconda Opportunity Fund, L.P. ("AOF"). Anaconda
Capital L.P., the sole general partner of
46
<PAGE>
AOF, and Mitchell J. Kelley, the managing and sole general partner of
Anaconda Capital L.P., may also be deemed to beneficially own such shares.
(7) Includes 216,000 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
(8) Represents 53,632 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
(9) Represents 57,583 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
(10) Represents 143,598 shares issuable pursuant to option exercisable within 60
days of March 31, 1997.
(11) Includes 400 shares held by Dr. Stebler's wife and 64,029 shares issuable
pursuant to options exercisable within 60 days of March 31, 1997.
(12) Includes 20,455 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
(13) Includes 54,442 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
(14) Includes 441,888 shares held by PASTEC, Holdings, S.A. Giovanni Lanzara is
the controlling stockholder of PASTEC. Also includes 34,090 shares issuable
pursuant to option exercisable within 60 days of March 31, 1997.
(15) Includes 485,474 shares held by HAKON Holdings, S.A. Bruno Trezza is the
controlling stockholder of HAKON. Also includes 46,481 shares issuable
pursuant to options exercisable within 60 days of March 31, 1997.
(16) Includes 927,362 shares held by entities affiliated with certain directors
of the Company as described in footnotes 14 and 15 above and 690,310 shares
subject to options exercisable within 60 days of March 31, 1997.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $0.001, and 5,000,000 shares of Preferred Stock, par
value $0.001. As of March 31, 1997, approximately 9,205,000 shares of Common
Stock were outstanding, held of record by approximately 175 stockholders. After
completion of this offering, there will be approximately 11,092,000 shares of
Common Stock outstanding (approximately 11,560,000 shares if the Underwriters'
over-allotment option is exercised in full). No shares of Preferred Stock are
currently outstanding.
The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Certificate") and Amended Bylaws (the "Bylaws") is a summary and is
qualified in its entirety by the provisions of the Certificate and Bylaws which
have been filed as exhibits to the Company's Registration Statement, of which
this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors and, as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone.
Subject to preferences that may be applicable to any outstanding shares of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, without any further vote or action by the stockholders. The
issuance of Preferred Stock could adversely affect the voting power of holders
of Common Stock and the likelihood that such holders will receive dividend
payments and payments upon liquidation and may have the effect of delaying,
deferring or preventing a change in control of the Company, which could have a
depressive effect on the market price of the Company's Common Stock. The Company
has no present plan to issue any shares of Preferred Stock.
WARRANTS
In connection with the Company's initial public offering, the Company issued
to Donald & Co. Securities, Inc. a warrant (the "Warrant") to purchase 180,000
shares of Common Stock at an exercise price of $6.60 per share. Such warrant
contains provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon exercise of the warrant under certain
circumstances, including stock dividends, stock splits, reorganizations,
reclassification and consolidations, and will expire on April 22, 2001.
48
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Shareholders rights and related matters are governed by the Delaware General
Corporation Law (the "Delaware Law") and the Certificate and Bylaws.
LIMITATION OF LIABILITY AND INDEMNIFICATION. The Company's Certificate
contains certain provisions permitted under the Delaware Law relating to the
liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware Law, or (iv) for any transaction from which the director derives an
improper personal benefit. These provisions do not limit or eliminate the rights
of the Company or any stockholder to seek non-monetary relief, such as an
injunction or rescission, in the event of a breach of director's fiduciary duty.
These provisions will not alter a director's liability under federal securities
laws. The Company's Certificate also contains provisions indemnifying the
directors and officers of the Company to the fullest extent permitted by the
Delaware Law. The Company believes that these provisions will assist the Company
in attracting and retaining qualified individuals to serve as directors.
CERTAIN ANTI-TAKEOVER PROVISIONS. The Company is subject to the provisions
of Section 203 of the Delaware Law, an anti-takeover law. In general, the
statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "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.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The foregoing provisions of the Delaware Law as well as the right of the
Board of Directors to designate the features of, and issue shares of, Preferred
Stock without a shareholder vote, and the staggered election of the Board of
Directors may tend to discourage attempts by third parties to acquire any
substantial ownership position in the Common Stock and may adversely affect the
price that such a potential purchaser would be willing to pay for the Common
Stock.
DIRECTORS-NUMBER, VACANCIES, REMOVAL AND NOMINATION. Pursuant to the
Certificate, the number of directors is determined by resolutions adopted by the
Board, which currently consists of four members. The authorized number of
directors is currently five. The Certificate provides that each director will
serve for a three-year term and that approximately one-third of the directors
are to be elected annually. Candidates for directors shall be nominated only by
the Board of Directors or by a stockholder who gives written notice to the
Company at least 20 days before the annual meeting. Between stockholder
meetings, the Board may appoint new directors to fill vacancies or newly created
directorships. The Certificate does not provide for cumulative voting at
stockholder meetings for election of directors. Stockholders controlling more
than 50% of the outstanding Common Stock can elect the entire Board of
Directors, while stockholders controlling 49% of the outstanding Common Stock
may not be able to elect any directors. A director may be removed from office
only for cause by the affirmative vote of a majority of the combined voting
power of the then outstanding shares of stock entitled to vote generally in the
election of directors. See "Management--Executive Officers and Directors."
RESTRICTIONS ON SPECIAL MEETINGS. The Company's Certificate requires that
any action required or permitted to be taken by stockholders of the Company must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by a consent in writing. Under the Bylaws, special meetings of
the shareholders may be called only by the President, the Chairman of the Board,
a majority of the directors, or the holders of record of 10% or more of the
Company's outstanding shares of stock entitled to vote at such meeting.
49
<PAGE>
This provision may impede a shareholder who wishes to require the Company to
call a special meeting of shareholders to consider any proposed corporate
action.
TRANSFER AGENT
The transfer agent for the Common Stock of the Company is Continental Stock
Transfer & Trust Company.
REGISTRATION RIGHTS
After completion of the Offering, the holders of 302,493 shares of Common
Stock and a warrant to purchase up to 180,000 shares of Common Stock
(collectively, the "Registrable Securities") or their transferees, will have
certain rights with respect to the registration of such shares under the
Securities Act. In addition, in June 1996 the Company registered shares of
Common Stock on a shelf registration statement pursuant to registration rights
held by a stockholder of the Company, of which 479,318 of such shares have yet
to be sold.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this Offering could have an adverse effect on the trading price of the Common
Stock. Upon completion of this Offering, based on shares outstanding as of March
31, 1997, the Company will have outstanding approximately 11,092,000 shares of
Common Stock assuming no exercise of options after March 31, 1997 other than the
options to purchase 11,806 shares that will be exercised by Selling Stockholders
and sold in this Offering. Of the shares outstanding, approximately 7,114,000
shares, including the 3,125,000 shares offered hereby (approximately 7,583,000
and 3,594,000 shares, respectively, if the Underwriters' overallotment option is
exercised in full), will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining approximately 3,978,000 shares of Common Stock outstanding upon
completion of this Offering are "restricted securities" as that term is defined
in Rule 144, and may be sold under Rule 144 subject to the holding period,
volume limitations and other restrictions under Rule 144. As a result of lock-up
agreements between certain securityholders and the representatives of the
Underwriters, approximately 4,194,098 shares of the Company's Common Stock
(excluding shares offered hereby) may not be sold for a period of 120 days from
the effective date of the registration statement of which this Prospectus is a
part, which restriction may be waived at the sole discretion of Robertson,
Stephens & Company. Of the shares subject to lock-up agreements, 479,318 shares
have been pledged to secure a margin loan and, in the event of a margin call,
may be sold by the lender immediately without regard to the lock-up agreement.
Following the lock-up period, all of the shares subject to the lock-up
agreements will be available for immediate sale, subject in certain cases to the
holding period, volume limitations and other restrictions under Rule 144.
The Company has entered into an agreement with Anaconda pursuant to which
479,318 shares are currently registered for resale under the Securities Act. In
addition, the Company has entered into other agreements with certain of its
stockholders and others pursuant to which such persons following this offering
have the right to require the Company to register up to an aggregate of 482,493
additional shares of Common Stock for resale under the Securities Act. Of such
shares, 302,493 are currently outstanding and the remaining 180,000 shares are
issuable upon the exercise of currently outstanding warrants. See "Description
of Capital Stock--Registration Rights" and "Certain Transactions."
In general, under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year, including a
person who may be deemed an affiliate of the Company, is entitled to sell,
within any three-month period, a number of shares of Common Stock that does not
exceed the greater of one percent of the then-outstanding shares of Common Stock
(approximately 110,092 shares after completion of this offering) or the average
weekly reported trading volume of the Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are subject to certain
restrictions relating to manner of sale, notice, and availability of current
public information about the Company. In addition, under Rule 144(k), a person
who is not an affiliate and has not been an affiliate at any time during the 90
days preceding a sale, and who has beneficially owned shares for at least two
years, would be entitled to sell such shares immediately following this offering
without regard to the volume limitations, manner of sale provisions or notice or
other requirements of Rule 144.
Sales of substantial amounts of such shares in the public market, or the
perception that such sales might occur, could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Risk Factors--Shares
Eligible for Future Sale; Registration Rights."
51
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Prudential Securities Incorporated, Schroder
Wertheim & Co. Incorporated and Donald & Co. Securities Inc. (the
"Representatives"), have severally agreed with the Company and the Selling
Stockholders, subject to the terms and conditions of the Underwriting Agreement,
to purchase from the Company and the Selling Stockholders the numbers of shares
of Common Stock set forth opposite their names below. The Underwriters are
committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------------------- ----------
<S> <C>
Robertson, Stephens & Company LLC...........................................................
Prudential Securities Incorporated..........................................................
Schroder Wertheim & Co. Incorporated........................................................
Donald & Co. Securities Inc.................................................................
----------
Total..................................................................................... 3,125,000
----------
----------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which $ may
be reallowed to other dealers. After the public offering, the public offering
price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 468,750
additional shares of Common Stock at the same price per share as the Company and
the Selling Stockholders receive for the 3,125,000 shares that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of Common Stock to be purchased by it shown in the above table represents
as a percentage of the 3,125,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those on
which the 3,125,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
Each executive officer and director of the Company and certain other
securityholders of the Company have agreed with the Representatives for a period
of 120 days from the date of this Prospectus (the "Lock-Up Period") not to offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, now owned or hereafter acquired
directly by such holders or with respect to which such holders have or
hereinafter acquire the power of disposition without the prior written consent
of Robertson, Stephens & Company LLC, which may, in its sole discretion and at
any time or from time to time, without notice, release all or any portion of the
shares subject to the lock-up agreements. In addition, the Company has agreed
that during the Lock-Up Period, it will not, without the prior written consent
of Robertson, Stephens & Company LLC, issue, sell, contract to sell or otherwise
dispose of any shares of Common Stock, any options or warrants to purchase any
shares of Common Stock or any securities convertible into, exercisable for or
exchangeable for shares of Common Stock other than the issuance of Common Stock
upon the exercise of outstanding options and under the existing employee stock
purchase plan and the Company's issuance of options under existing employee
stock option plans.
52
<PAGE>
The offering price of the Common Stock will be determined by negotiations
among the Company and the Representatives of the Underwriters, based largely
upon the market price for the Common Stock as reported on the Nasdaq SmallCap
Market.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on The Nasdaq Stock Market may
engage in passive market making transactions in the Common Stock on The Nasdaq
Stock Market in accordance with Rule 103 of Regulation M under the Securities
Exchange Act of 1934, as amended, during the business day prior to the pricing
of the offering before the commencement of offers or sales of the Common Stock.
Passive market makers must comply with applicable volume and price limitations
and must be identified as such. In general, a passive market maker must display
its bid at a price not in excess of the highest independent bid for such
security; if all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded.
Certain persons participating in this Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
common stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on The Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
53
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, Palo Alto, California. Certain legal
matters will be passed upon for the Underwriters by Brobeck, Phleger & Harrison
LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 31, 1995 and 1996 and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and the regulations of
the Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, and each such
statement is qualified in all respects by such reference. The Company is subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy
statements, and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copies at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048; and 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, or from the Commission's Internet web site at http://www.sec.gov. In
addition, such materials also may be inspected and copied at the offices of The
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
54
<PAGE>
INVISION TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996, and March 31, 1997........................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 and the Three
Months Ended March 31, 1996 and 1997..................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and the Three
Months Ended March 31, 1996 and 1997..................................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1994, 1995 and
1996..................................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
InVision Technologies, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders' equity
(deficit) present fairly, in all material respects, the financial position of
InVision Technologies, Inc. and its subsidiary at December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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.
PRICE WATERHOUSE LLP
San Jose, California
February 20, 1997
F-2
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------- MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................................................ $ 1,927 $ 2,363 $ 2,251
Restricted cash............................................................. -- -- 1,365
Accounts receivable......................................................... 735 5,987 5,476
Inventories................................................................. 3,413 4,810 6,111
Prepaid expenses............................................................ 252 292 1,634
--------- --------- -----------
Total current assets.................................................... 6,327 13,452 16,837
Property and equipment, net................................................... 914 1,804 1,872
Other assets.................................................................. 75 -- 800
--------- --------- -----------
$ 7,316 $ 15,256 $ 19,509
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................ $ 3,035 $ 2,541 $ 3,960
Accrued liabilities......................................................... 1,217 1,020 1,569
Short-term debt............................................................. 2,260 -- --
Advances from stockholders.................................................. 200 -- --
Deferred revenue............................................................ 3,082 2,443 3,986
Current maturities of obligations under capital lease....................... 10 68 39
--------- --------- -----------
Total current liabilities............................................... 9,804 6,072 9,554
--------- --------- -----------
Long-term obligations under capital lease, less current portion............... 34 110 110
--------- --------- -----------
Commitments (Notes 9, 11 and 12)
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value; 5,000 shares authorized;
2,619 shares, none issued and outstanding in 1996 and 1997................ 12,212 -- --
Preferred stock, $0.001 par value; 5,000 shares authorized; none issued and
outstanding............................................................... -- -- --
Common stock, $0.001 par value; 20,000 shares authorized; 124, 9,160 and
9,205 shares issued and outstanding....................................... -- 9 9
Additional paid-in capital.................................................. 1,885 28,919 28,958
Deferred stock compensation expense......................................... (692) (355) (265)
Accumulated deficit......................................................... (15,927) (19,499) (18,857)
--------- --------- -----------
Total stockholders' equity (deficit).................................... (2,522) 9,074 9,845
--------- --------- -----------
$ 7,316 $ 15,256 $ 19,509
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................................... $ -- $ 9,066 $ 15,841 $ 3,922 $ 9,377
Cost of revenues............................................ -- 6,777 9,736 2,453 4,708
--------- --------- --------- --------- ---------
Gross profit.............................................. -- 2,289 6,105 1,469 4,669
--------- --------- --------- --------- ---------
Operating expenses:
Research and development.................................. 1,582 1,940 2,785 585 1,333
Sales and marketing....................................... 664 1,866 2,976 597 1,233
General and administrative................................ 1,078 1,471 2,577 472 1,343
--------- --------- --------- --------- ---------
Total operating expenses................................ 3,324 5,277 8,338 1,654 3,909
--------- --------- --------- --------- ---------
Income (loss) from operations............................... (3,324) (2,988) (2,233) (185) 760
Interest expense (including related party interest expense
of $90; $104; $54; $14 and none).......................... (410) (338) (1,511) (1,040) (10)
Other income, net........................................... 7 34 172 10 23
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes............. (3,727) (3,292) (3,572) (1,215) 773
Provision for income taxes.................................. -- -- -- -- 131
--------- --------- --------- --------- ---------
Net income (loss)........................................... $ (3,727) $ (3,292) $ (3,572) $ (1,215) $ 642
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share (Note 2)........................ $ (0.50) $ (0.44) $ (0.17) $ 0.06
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in per share calculations (Note 2).............. 6,642 8,142 7,081 10,272
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $ (3,727) $ (3,292) $ (3,572) $ (1,215) $ 642
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 255 239 371 79 197
Amortization of bridge loan warrant expense...................... -- -- 1,330 949 --
Stock compensation expense....................................... -- 369 489 99 90
Changes in assets and liabilities:
Restricted cash................................................ -- -- -- -- (1,365)
Accounts receivable............................................ 163 (611) (5,252) (592) 511
Inventories.................................................... (939) (1,887) (1,397) 114 (1,301)
Prepaid expenses............................................... -- -- (34) (41) (1,342)
Other assets................................................... (29) (135) -- (268) (800)
Accounts payable............................................... 618 2,219 (522) (1,206) 1,419
Accrued liabilities............................................ 121 915 (202) 199 549
Deferred revenues.............................................. 2,948 134 (639) (452) 1,543
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities.......... (590) (2,049) (9,428) (2,334) 143
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment.............................. (117) (590) (1,074) (136) (265)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term debt...................................... 2,250 1,000 1,000 1,000 --
Repayments of short-term debt...................................... -- -- (4,200) -- --
Proceeds from capital lease financing.............................. -- 53 169 -- --
Repayments of capital lease financing.............................. -- (9) (35) -- (29)
Proceeds from issuance of preferred stock.......................... 464 1,244 -- -- --
Proceeds from issuance of common stock, net........................ 22 37 14,004 13 39
--------- --------- --------- --------- ---------
Net cash provided by financing activities...................... 2,736 2,325 10,938 1,013 10
--------- --------- --------- --------- ---------
Net increase (decrease) in cash for the period....................... 2,029 (314) 436 (1,457) (112)
Cash at beginning of period.......................................... 212 2,241 1,927 1,927 2,363
--------- --------- --------- --------- ---------
Cash at end of period................................................ $ 2,241 $ 1,927 $ 2,363 $ 470 $ 2,251
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid...................................................... $ 319 $ 220 $ 233 $ 62 $ 2
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Issuance of common stock upon conversion of preferred stock........ $ -- $ -- $ 12,212 $ -- $ --
Issuance of Series D preferred stock upon the conversion of
short-term debt and accrued interest............................. $ 3,000 $ 2,604 $ -- $ -- $ --
Warrants issued in connection with bridge loan financing........... $ -- $ 740 $ 590 $ 590 $ --
Issuance of common stock in connection with acquisition of
subsidiary....................................................... $ -- $ -- $ 85 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INVISION TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
-------------------- ---------------------- PAID-IN COMPENSATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL EXPENSE DEFICIT
--------- --------- --------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 586 $ 4,900 32 $ -- $ 25 $ -- $ (8,908)
Issuance of Series D preferred
stock........................... 926 3,464 -- -- -- -- --
Exercise of common stock
options......................... -- -- 26 -- 22 -- --
Net loss.......................... -- -- -- -- -- -- (3,727)
--------- --------- --------- --- ----------- ------------- ------------
Balance at December 31, 1994...... 1,512 8,364 58 -- 47 -- (12,635)
Issuance of Series D preferred
stock........................... 789 2,948 -- -- -- -- --
Issuance of Series D preferred
stock to stockholders for
distribution rights............. 227 -- -- -- -- -- --
Issuance of Series E preferred
stock........................... 91 900 -- -- -- -- --
Deferred stock compensation....... -- -- -- -- 1,061 (1,061) --
Amortization of deferred stock
compensation.................... -- -- -- -- -- 369 --
Issuance of warrant............... -- -- -- -- 740 -- --
Exercise of common stock
options......................... -- -- 66 -- 37 -- --
Net loss.......................... -- -- -- -- -- -- (3,292)
--------- --------- --------- --- ----------- ------------- ------------
Balance at December 31, 1995...... 2,619 12,212 124 -- 1,885 (692) (15,927)
Issuance of common stock pursuant
to initial public offering, net
of expenses..................... -- -- 2,070 2 9,530 -- --
Conversion of preferred stock to
common stock upon completion of
initial public offering......... (2,619) (12,212) 6,106 6 12,206 -- --
Deferred stock compensation....... -- -- -- -- 152 (152) --
Amortization of deferred stock
compensation.................... -- -- -- -- -- 489 --
Issuance of warrant............... -- -- -- -- 590 -- --
Exercise of common stock
options......................... -- -- 122 -- 84 -- --
Exercise of common stock
warrants........................ -- -- 518 1 2,318 -- --
Issuance of common stock pursuant
to EG&G agreement............... -- -- 184 -- 1,974 -- --
Issuances of common stock
primarily pursuant to
acquisition of subsidiary....... -- -- 36 -- 180 -- --
Net loss.......................... -- -- -- -- -- -- (3,572)
--------- --------- --------- --- ----------- ------------- ------------
Balance at December 31, 1996...... -- $ -- 9,160 $ 9 $ 28,919 $ (355) $ (19,499)
--------- --------- --------- --- ----------- ------------- ------------
--------- --------- --------- --- ----------- ------------- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at December 31, 1993...... $ (3,983)
Issuance of Series D preferred
stock........................... 3,464
Exercise of common stock
options......................... 22
Net loss.......................... (3,727)
-------------
Balance at December 31, 1994...... (4,224)
Issuance of Series D preferred
stock........................... 2,948
Issuance of Series D preferred
stock to stockholders for
distribution rights............. --
Issuance of Series E preferred
stock........................... 900
Deferred stock compensation....... --
Amortization of deferred stock
compensation.................... 369
Issuance of warrant............... 740
Exercise of common stock
options......................... 37
Net loss.......................... (3,292)
-------------
Balance at December 31, 1995...... (2,522)
Issuance of common stock pursuant
to initial public offering, net
of expenses..................... 9,532
Conversion of preferred stock to
common stock upon completion of
initial public offering......... --
Deferred stock compensation....... --
Amortization of deferred stock
compensation.................... 489
Issuance of warrant............... 590
Exercise of common stock
options......................... 84
Exercise of common stock
warrants........................ 2,319
Issuance of common stock pursuant
to EG&G agreement............... 1,974
Issuances of common stock
primarily pursuant to
acquisition of subsidiary....... 180
Net loss.......................... (3,572)
-------------
Balance at December 31, 1996...... $ 9,074
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY:
InVision Technologies, Inc. ("InVision," or the "Company") is the worldwide
leader in explosive detection technology. The Company develops, manufactures,
markets and supports an explosive detection system ("EDS") for civil aviation
security based on advanced computed tomography ("CT" or "CATScan" technology).
Formed in 1990, InVision exited the development stage in 1995 upon the first
commercial sales of its product, the CTX 5000 explosive detection system. The
CTX 5000 is sold to airport and regulatory authorities and airlines throughout
the world.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiary, Imatron Federal Systems, Inc.,
acquired in December 1996. All significant intercompany transactions and
accounts have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
STOCK SPLIT
Share information for all periods presented has been retroactively adjusted
to reflect a 1-for-11 reverse stock split of Common Stock and Preferred Stock
effected on March 15, 1996, and a 2-for-1 Common Stock split in the form of a
stock dividend effected on February 7, 1997.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment unless extended
acceptance criteria exist, in which case revenue is recognized upon completion
of such acceptance criteria. Provision for estimated installation, training and
warranty costs is recorded at the time revenue is recognized.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
which range from one to five years. Leasehold improvements are amortized using
the straight-line method over the shorter of their useful lives or the terms of
the leases.
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Accordingly, the Company evaluates the recoverability
of its assets when events and changes in circumstances indicate that such
amounts may not be recoverable. The Company determines the recoverability of the
carrying amount of each intangible asset by reviewing the following factors: the
undiscounted value of expected operating cash flows in relation to its net
capital investment; the estimated useful or contractual life of the intangible
asset; the contract or product supporting the intangible asset; and, in the case
of purchased technology, the Company periodically reviews the
F-7
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
recoverability of the asset value by evaluating its products with respect to
technological advances, competitive products and the long-lived asset impairment
losses.
DEFERRED REVENUE
Deferred revenue arises from advance payments received from customers for
systems to be delivered within the next year.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
Contractually reimbursable costs for certain research and development activities
are reflected as a reduction to research and development expense in the period
the related costs are incurred (Note 4).
SOFTWARE DEVELOPMENT COSTS
To date, the period between achieving technological feasibility and the
general availability of software included in the Company's product has been
short and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.
STOCK COMPENSATION
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In January 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation" (see Note 8).
DEPENDENCE ON SUPPLIERS
The Company's ablility to timely deliver its products is dependent upon the
availability of quality components and subsystems used in these products. The
Company depends in part upon subcontractors to manufacture, assemble and deliver
certain items in a timely and satisfactory manner. The Company obtains certain
components and subsystems from single, or a limited number of, sources. A
significant interruption in the delivery of such items could have a material
adverse effect on the Company's financial condition and results of operations.
F-8
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EXPORT SALES AND CONCENTRATION OF CREDIT RISK
The Company markets its systems both internationally and domestically.
Product sales by geographic region are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Europe (primarily United Kingdom)......................................... $ 6,578 $ 7,488
United States............................................................. 975 3,766
Pacific Rim............................................................... 863 2,062
Middle East............................................................... 650 2,525
--------- ---------
$ 9,066 $ 15,841
--------- ---------
--------- ---------
</TABLE>
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company limits the amount of credit exposure of cash balances by maintaining
its accounts in a high credit quality financial institution. Except for the
Federal Aviation Administration contract (see Note 3), the Company's standard
credit policy requires prepayment of up to 50% prior to shipment on all sales.
To date, the Company has not experienced any material credit losses and
accordingly has not recorded an allowance for doubtful accounts at December 31,
1995 or 1996. The Company's revenues are denominated in U.S. dollars. At
December 31, 1996, two customers accounted for 59% and 18% of total accounts
receivable. Significant customers which represented 10% or more of revenues for
the respective periods were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Customer A...................................................... 51% 22%
Customer B...................................................... 12% --
Customer C...................................................... 11% --
Customer D...................................................... -- 13%
Customer E...................................................... -- 12%
Customer F...................................................... -- 12%
Customer G...................................................... -- 16%
Customer H...................................................... -- 13%
</TABLE>
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
Common Stock and common equivalent shares, when dilutive, from stock options and
warrants (using the treasury stock method). Pursuant to Securities and Exchange
Commission Staff Accounting Bulletins, Common Stock and common equivalent shares
issued by the Company during the 12-month period prior to the Company's initial
public offering consisting of convertible preferred stock (using the
if-converted method), and stock options and warrants (using the treasury stock
method) have been included in the calculation as if they were outstanding for
all periods prior to and including March 31, 1997, even though their effect is
antidilutive. Historical net loss per share amounts have not been presented in
1994 because such amounts are not deemed meaningful due to the
F-9
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
significant changes in the Company's capital structure that occurred in
connection with the initial public offering.
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of March 31, 1997 and for the
three months ended March 31, 1996 and 1997 have been prepared on the same basis
as the audited financial statements and, in the opinion of management, include
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles. The data disclosed in the notes to the
financial statements for these periods are unaudited. The results of operations
for the interim periods are not necessarily indicative of the results to be
expected for any future period.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to be consistent with the
1996 presentation.
NOTE 3--FEDERAL AVIATION ADMINISTRATION (FAA) CONTRACT:
In December 1996, the Company entered into a contract with the Federal
Aviation Administration ("FAA" and the "FAA Contract") to deliver fifty-four
(54) CTX 5000 systems to various airports in the United States beginning in
January and ending in December 1997. The minimum amount due from the FAA under
this contract, including all related products and associated installation and
support services, is $52.2 million. The Company will invoice and collect
progress payments while systems are being manufactured in an amount equal to 80%
of manufacturing costs incurred. The balance will be invoiced and collected
after delivery and installation of each system.
The number of systems deliverable under the FAA Contract during 1997 exceeds
the total number of systems manufactured by the Company to date. The Company has
determined that its existing manufacturing facilities are inadequate to meet its
obligation to deliver 54 systems under the FAA Contract and, accordingly, has
entered into a lease agreement for new primary operating facilities including
new manufacturing facilities (see Note 12). The Company believes that these new
facilities will be adequate to meet its current delivery obligations.
NOTE 4--RESEARCH AND DEVELOPMENT CONTRACTS:
The Company has been awarded various research and development contracts and
grants by the FAA to share in the costs of developing and enhancing the
Company's product. During 1994, 1995 and 1996, the Company was entitled to
reimbursements of $821,000, $593,000 and $1,476,000, respectively, under these
contracts and grants. Such reimbursements have been reflected as a reduction to
research and development expense in each period presented. Billings are rendered
to the FAA monthly on the basis of actual costs incurred. At December 1995 and
1996, the related receivable balance from the FAA was $17,000 and $331,000,
respectively.
F-10
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------- MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable:
Billed..................................................... $ 388 $ 5,026 $ 4,417
Unbilled................................................... 347 961 1,059
--------- --------- -----------
$ 735 $ 5,987 $ 5,476
--------- --------- -----------
--------- --------- -----------
Inventories:
Raw material and purchased components...................... $ 1,853 $ 3,003 $ 3,582
Work-in-process............................................ 779 1,331 2,124
Finished goods............................................. 781 476 405
--------- --------- -----------
$ 3,413 $ 4,810 $ 6,111
--------- --------- -----------
--------- --------- -----------
Property and equipment:
Machinery and equipment.................................... $ 868 $ 1,400 $ 1,614
Self constructed assets.................................... 606 1,140 1,197
Furniture and fixtures..................................... 71 160 162
Leasehold improvements..................................... 73 145 131
--------- --------- -----------
1,618 2,845 3,104
Less accumulated depreciation and amortization............. (704) (1,041) (1,232)
--------- --------- -----------
$ 914 $ 1,804 $ 1,872
--------- --------- -----------
--------- --------- -----------
</TABLE>
Self-constructed assets are manufactured by the Company for use in
system testing and support, and include the cost of parts and
materials, and an overhead allocation. The Company depreciates
self-constructed assets over their respective estimated useful
lives which range from three to five years.
At December 31, 1995 and 1996 the Company had $53,000 and
$222,000, respectively, of capitalized lease equipment and related
accumulated amortization of $6,000 and $39,000, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------- MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued liabilities:
Warranty reserves.......................................... $ 695 $ 645 $ 1,028
Accrued employee compensation.............................. 327 311 232
Income taxes............................................... -- -- 131
Other...................................................... 195 64 178
--------- --------- -----------
$ 1,217 $ 1,020 $ 1,569
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-11
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--SHORT-TERM DEBT:
At December 31, 1995, $2,000,000 of short-term debt was outstanding
representing all of the funds available under a line of credit agreement with a
bank. Interest accrued under the line of credit agreement at a rate of prime
plus 1%. The rate in effect at December 31, 1995 was 9.75%. All amounts
outstanding under this line of credit agreement were repaid in May 1996, and the
line of credit agreement was subsequently terminated.
In December 1995, the Company entered into a $2,000,000 Bridge Loan
Agreement (the "Bridge Loan") with a lender. Under the agreement, the Company
borrowed $1,000,000 in December 1995, and an additional $1,000,000 in February
1996. Principal outstanding under the agreement was secured by all assets of the
Company. The Bridge Loan was repaid in full on May 1, 1996, in accordance with
its terms.
In connection with the Bridge Loan, the lender received the Bridge Loan
Warrants described in Note 7, below. The aggregate fair value of the Bridge Loan
Warrants, as determined at their respective dates of issuance, was $1,330,000.
Such value represents a discount that was amortized as a financing cost over the
period that the Bridge Loan was outstanding.
At December 31, 1995, certain of the Company's stockholders had advanced
$200,000 directly to the Company. Interest accrued at prime plus 1%. This
advance was repaid in December 1996.
NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT):
COMMON STOCK
In November 1996, the Company issued 183,750 shares of unregistered Common
Stock to EG&G International Ltd. at $10.88 per share, reflecting a 10% discount
from the market price of the Company's Common Stock in connection with the
signing of a Research, Development and License Agreement (Note 11). Net proceeds
totaled $1,974,000. These shares will be registered at the request of the
shareholder upon the earlier of a public offering by the Company resulting in
net proceeds of at least $10,000,000 or November 1997.
In April 1996, the Company issued 1,800,000 shares of Common Stock at $5.50
per share in conjunction with the Company's initial public offering ("IPO").
Proceeds to the Company, net of discounts, commissions and offering expenses,
totaled $8,211,000. In May 1996, the underwriters exercised their over-allotment
option to purchase 270,000 additional shares of Common Stock for total net
proceeds to the Company of $1,321,000. Proceeds from the IPO were used primarily
to repay short term debt, reduce outstanding accounts payable and to provide
working capital for the Company.
In connection with the Company's IPO, Donald & Co. Securities Inc., the
underwriter, received, under the terms of the underwriting agreement, four-year
warrants to purchase 180,000 shares of the Company's Common Stock at a price of
$6.60 per share commencing April 23, 1997.
PREFERRED STOCK
In conjunction with the Company's IPO, all outstanding Convertible Preferred
Stock converted to Common Stock. As of December 31, 1996, there were 5,000,000
shares of Preferred Stock authorized and no shares were issued and outstanding.
The Board of Directors is authorized to issue Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences, and number of
shares constituting any series or the designation of such series, without
further action or vote by the Company's stockholders.
F-12
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
WARRANTS
In connection with the Bridge Loan, the Company issued three-year warrants
to purchase 63,636 and 227,272 shares of Common Stock in 1995 at $5.50 and $4.40
per share, respectively, and 227,272 shares of Common Stock at $4.40 per share
in 1996. The Bridge Loan warrants were exercised in full at various times during
the month of August 1996, with the Company receiving net proceeds from the
exercise of $2,319,000.
NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS:
EQUITY INCENTIVE PLAN
In March 1996, the Board of Directors approved the amended and restated 1991
Stock Option Plan, which was renamed the Equity Incentive Plan. The Equity
Incentive Plan provides for the granting of incentive stock options and non
qualified stock options for the purchase of up to an aggregate of 2,221,818
shares of the Company's common stock by officers, employees, consultants and
directors of the Company. The Board of Directors is responsible for
administration of the Equity Incentive Plan. The Board of Directors determines
the term of each option, option exercise price, number of shares for which each
option is granted and the rate at which each option is exercisable. Options
granted under the Equity Incentive Plan generally vest over a four year period.
Incentive and non qualified stock options may be granted at an exercise
price per share of not less than 85% of the fair value per common share on the
date of the grant (not less than 110% of the fair value in the case of holders
of more than 10% of the Company's voting stock). Options granted under the
Equity Incentive Plan generally expire ten years from the date of the grant
(five years for incentive stock options granted to holders of more than 10% of
the Company's voting stock). In December 1994, the Company repriced all
outstanding options in order to reconstitute the option pool as a result of the
dilutive effect on common stock of the issuance of Series D Preferred Stock
during the year. The outstanding options were cancelled and new options were
issued at an exercise price of $0.55 per share, which represented the fair value
of common stock as determined by the Board of Directors. Cumulative vesting
percentages applicable to the cancelled options were given to the regranted
options.
In connection with grants of stock options to employees and directors in
1995 and 1996, the Company recorded $1,061,000 and $152,000, respectively, of
deferred compensation representing the difference between the deemed fair value
of the Company's Common Stock and the exercise price at the date of grant. Of
such amounts, $369,000 and $489,000 were recorded to expense in 1995 and 1996,
respectively. The remaining $355,000 is being amortized over the remaining
vesting period of the related options.
F-13
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS: (CONTINUED)
Transactions under the Equity Incentive Plan are summarized as follows (in
thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1995 1996
------------------------ ------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period.................... 234 $ 1.23 383 $ 0.57 1,190 $ 0.82
Granted............................................. 402 0.63 896 0.92 150 9.13
Exercised........................................... (26) 0.61 (66) 0.55 (122) 0.69
Canceled............................................ (227) 1.36 (23) 0.96 (77) 0.85
--- ----- ---------
Outstanding at period end............................. 383 0.57 1,190 0.82 1,141 1.92
--- ----- ---------
--- ----- ---------
Options exercisable at period end..................... 202 0.58 384 0.56 643 0.80
--- ----- ---------
--- ----- ---------
Weighted average grant date fair value of such options
granted during the year.............................. $ 4.04
---------
---------
Weighted average grant date fair value of options
granted during the year at exercise prices below
market prices........................................ $ --
---------
---------
</TABLE>
The following table summarizes information about employee and director stock
options outstanding at December 31, 1996 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------- ---------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------------------------------------------- ----------- ----------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
$0.55................................................ 479 7.9 $ 0.55 356 $0.55
$1.10................................................ 512 8.8 1.10 287 1.10
$3.30................................................ 9 9.0 3.30 -- --
$4.40................................................ 15 9.2 4.40 -- --
$5.50................................................ 28 9.4 5.54 -- --
$10.50............................................... 7 9.8 10.50 -- --
$11.25............................................... 41 10.0 11.25 -- --
$11.88............................................... 50 9.9 11.88 -- --
----- -----
1,141 8.5 1.92 643 0.80
----- -----
----- -----
</TABLE>
F-14
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS: (CONTINUED)
FAIR VALUE DISCLOSURES
Had compensation cost for options granted in 1995 and 1996 under the
Company's 1996 Equity Incentive Plan been determined based on the fair value at
the grant dates, as prescribed in FAS 123, the Company's net loss and pro forma
net loss per share would have been as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net loss:
As reported.......................................................... $ (3,292) $ (3,572)
Pro forma............................................................ (3,330) (3,665)
Pro forma net loss per share:
As reported.......................................................... $ (0.50) $ (0.44)
Pro forma............................................................ (0.50) (0.47)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the applicable period: dividend yield of 0.0% for both periods; risk-free
interest rates of 5.89% to 6.00% for options granted during the year ended
December 31, 1995 and 5.19% to 6.38% for options granted during the year ended
December 31, 1996; weighted average expected option term of five years for both
periods; and a volatility rate of 65%.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in March 1996. A total of 300,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. As of December 31, 1996, no
shares have been issued under the Purchase Plan.
NOTE 9--COMMITMENTS:
The Company leases facilities and equipment under non-cancelable leases
expiring at various times through 2000. Future minimum lease payments under
these leases at December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASE LEASE
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1997................................................................. $ 370 $ 89
1998................................................................ 286 89
1999................................................................ -- 37
--- ---
$ 656 215
---
---
Less amount representing interest................................... (37)
---
Present value of capital lease obligation........................... 178
Less current portion................................................ (68)
---
Long term capital lease obligation................................ $ 110
---
---
</TABLE>
Rent expense for 1994, 1995 and 1996 was $252,000, and $289,000 and
$328,000, respectively.
F-15
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES:
As a result of the losses generated during 1994, 1995 and 1996 the Company
has recorded no provision for income taxes and therefore a reconciliation of the
federal statutory rate to the effective rate is not meaningful.
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net operating loss carryforwards....................................... $ 2,810 $ 4,256
Credit carryforwards................................................... 750 877
Depreciation and amortization.......................................... 31 (103)
Accrued expenses....................................................... 380 490
Other.................................................................. 199 60
--------- ---------
Gross deferred tax assets.............................................. 4,170 5,580
Deferred tax asset valuation allowance................................. (4,170) (5,580)
--------- ---------
Net deferred tax assets................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company provides a valuation allowance for deferred tax assets when it
is more likely than not, based upon currently available evidence including its
prior history of losses, that some portion or all of the deferred tax assets
will not be realized.
At December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $10,969,000 available to reduce future federal
and state taxable income. The Company's net operating loss carryforwards expire
from 2005 to 2011. The tax benefit of the net operating loss and credit
carryforwards may be limited due to the impact of the Tax Reform Act of 1986.
Events which may cause the tax benefit to be limited include, but are not
limited to, a cumulative stock ownership change of more than 50%, as defined,
over a three-year period and the timing of utilization of various tax benefits
carried forward. As a result of changes in ownership that have occurred, future
utilization of certain of the Company's carryforwards will be limited to
approximately $500,000 per year. Accordingly, the balance of net operating loss
carryforwards at December 31, 1996 has been adjusted to reflect the limitation.
NOTE 11--RELATED PARTY TRANSACTIONS:
In November 1996, the Company entered into a Research, Development and
License Agreement with EG&G Astrophysics, an affiliate of EG&G International
Ltd. Under the terms of this agreement, the Company and EG&G Astrophysics are
each committed to contribute up to $1,000,000 to fund a joint research and
development effort to develop an explosive detection system with enhanced
capability for reliable detection of explosives at higher rates of through-put
than the Company's existing system. Any new technology developed in connection
with the research and development effort will be jointly owned. The agreement
terminates in May 1998. As of December 31, 1996, the Company has made no
expenditures related to its commitment under this agreement.
The Company was originally formed as a joint venture arrangement between
Imatron, Inc. ("Imatron", a publicly traded company in the U.S.) and F.I.M.A.I.
Holding, S.A. ("FIMAI", a Luxembourg corporation). In connection with the
formation of the Company, the Company and FIMAI entered into a Manufacturing and
Distribution Agreement (the "Distribution Agreement") which appointed FIMAI as
the exclusive manufacturer, purchaser and distributor for the Company's CTX 5000
systems in Europe. At December 31, 1994, the
F-16
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--RELATED PARTY TRANSACTIONS: (CONTINUED)
Company had obtained a temporary consent from FIMAI for the Company to
manufacture and sell the CTX 5000 in Europe. In April 1995, FIMAI transferred
all of its shares of the Company to HARAX Holding, S.A. ("HARAX," a Luxembourg
Corporation) and ElectroParts Holding, S.A. ("ElectroParts," a Luxembourg
Corporation). Both Harax and ElectroParts have significant common ownership with
FIMAI. As a consequence of the transfer of ownership, FIMAI's rights under the
Distribution Agreement were transferred to HARAX and ElectroParts.
In June 1995, the Company issued 56,818 and 170,455 shares of Series D
Preferred Stock to ElectroParts and HARAX, respectively, in exchange for the
cancellation of the Distribution Agreement. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 48, this transaction is valued at zero,
the historical cost basis of the Distribution Agreement to ElectroParts and
HARAX.
During 1995 and 1996, the Company paid $116,000 and $264,000, respectively
to certain of the Company's directors for professional and/or consulting
services. In May 1995, the Company issued 649,434 shares of Series D Preferred
Stock in satisfaction of $2,429,000 of indebtedness. In June 1995, the Company
issued 13,368 shares of Series D Preferred Stock to an officer of the Company in
satisfaction of $50,000 in indebtedness.
NOTE 12--SUBSEQUENT EVENTS:
The Board of Directors has authorized the Company to file a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933 to sell Common Stock of the Company in a public offering.
NEW FACILITY LEASE
In February 1997, the Company entered into a new lease for its future
primary operating facility. The Company plans to relocate to the new facility in
mid-1997 upon the completion of tenant improvement construction. The lease
covers an initial ten year term and includes a five year renewal option. The
initial rental rate of $672,000 per year increases annually to $1,326,000 in
year ten. The Company plans to sub-lease its current primary operating
facilities subsequent to its relocation. Based on current market rental rates
for similar facilities, the Company estimates that sub-lease rental rates will
not be less than the Company's existing rental rate for the remainder of the
lease term.
LINE OF CREDIT
In February 1997, the Company entered into two one-year revolving line of
credit agreements with Silicon Valley Bank. The first agreement provides for
maximum borrowings generally in an amount up to the lower of 80% of eligible
domestic accounts receivable or $4.5 million. Borrowings under this agreement
generally bear interest at the bank's prime rate plus 1.00% per annum (9.25% at
December 31, 1996). The second agreement is partially guaranteed by the
Export-Import Bank of the United States and provides for maximum borrowings
generally in an amount up to the lower of (i) the sum of 90% of eligible export
accounts receivable plus 70% of eligible raw materials and work-in-process
inventory designated for export customers (ii) $4.5 million less outstanding
letters of credit or (iii) $3.0 million. Borrowings under this agreement
generally bear interest at the bank's prime rate plus 0.75% per annum (9.00% at
December 31, 1996). Borrowings under both agreements are secured by all of the
Company's assets. The agreements require that the Company maintain certain
financial ratios and levels of tangible net worth and profitability and also
prohibit the Company from paying cash dividends. Proceeds of loans under the
first line of credit may be used for general corporate purposes and proceeds of
loans under the second line of credit must be used to finance goods intended for
export.
F-17
<PAGE>
INVISION TECHNOLOGIES
DETECTION TECHNOLOGIES FOR A SAFER WORLD
CTX 5000 SCANNING PROCESS
[Image of a transparent suitcase with a green block in it followed by a
transparent suitcase with a green block and three sticks of dynamite in it on
conveyer belt with the first suitcase entering the pre-scanner]
BAG #1 ENTERS THE CTX 5000 AND IS SCANNED BY THE X-RAY PRE-SCANNER.
[Image of the first suitcase in the CT slice plane]
THE CTX 5000 SYSTEM'S COMPUTER UTILIZES THE PRE-SCANNER DATA TO DETERMINE CT
SLICE LOCATION.
[Image of the first suitcase in CT slice plane and the second suitcase in the
pre-scanner]
THE CTX 5000 USES A SOURCE OF X-RAYS ROTATING AROUND AN OBJECT TO CREATE
TWO-DIMENSIONAL IMAGES OF THE DENSITY DISTRIBUTION OF THE OBJECT'S CROSS-SECTION
(SLICE).
[Image of the first suitcase cleared and released and the second suitcase
entering the CT portion of the CTX 5000]
THE DATA GATHERED FROM THE SLICES ARE USED TO MEASURE THE PHYSICAL
CHARACTERISTICS OF OBJECTS. ONCE MEASURED, EACH CHARACTERISTIC IS AUTOMATICALLY
COMPARED TO A DATABASE OF EXPLOSIVES CHARACTERISTICS.
[Image of the second suitcase in CT slice plane]
IF AN OBJECT IS DETERMINED TO CONTAIN THE CHARACTERISTICS OF AN EXPLOSIVE,
ADDITIONAL SLICES OF THE OBJECT ARE COLLECTED IN ORDER TO ANALYZE THE QUANTITY
OF THE THREAT.
[Image of the second suitcase remaining in the CT portion of the CTX 5000]
AT THIS STAGE, THREATS WHICH CANNOT BE CLEARED AUTOMATICALLY BY THE CTX 5000 ARE
SUBMITTED TO AN OPERATOR ALONG WITH ALL OF THE SUPPORTING DATA FOR THREAT
RESOLUTION.
<PAGE>
[INVISION LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts are estimates except for
the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.................................................. $ 18,242
NASD filing fee................................................... 6,430
Nasdaq National Market application fee............................ 49,414
Blue sky qualification fees and expenses.......................... 10,000
Printing and engraving expenses................................... 135,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 100,000
Transfer agent and registrar fees................................. 10,000
Miscellaneous..................................................... 95,914
---------
Total......................................................... $ 675,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and agents to the fullest extent
permitted by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement, will provide for indemnification by the Underwriters and their
controlling persons, on the one hand, and of the Registrant and its controlling
persons on the other hand, for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1994, the Registrant has sold and issued the following
unregistered securities:
(1) In January 1994 the Company issued 50,505 shares of Series C
Preferred Stock to FI.M.A.I. in exchange for the cancellation by FI.M.A.I.
of indebtedness totalling $1,000,000.
(2) In June 1995, the Company issued 56,818 shares of Series D
Preferred Stock to ElectroParts and 170,454 shares of Series D Preferred
Stock to HARAX in exchange for the cancellation of exclusive manufacturing
and distribution rights in Europe.
II-1
<PAGE>
(3) In June 1994, the Company issued 917,015 shares of Series D
Preferred Stock to an aggregate of 11 investors at a purchase price of $3.74
per share or an aggregate purchase price of $3,429,636.
(4) In May 1995, the Company issued 741,502 shares of Series D
Preferred Stock to an aggregate of 10 investors at a purchase price of $3.74
per share or an aggregate purchase price of $2,773,217.
(5) On October 13, 1994, the Company issued 3,818 shares of Series D
Preferred Stock to Louis Turpen pursuant to a termination agreement with Mr.
Turpen.
(6) On November 11, 1994, the Company issued 5,455 shares of Series D
Preferred Stock to Lucio Lanza pursuant to a termination agreement with Mr.
Lanza.
(7) On June 10, 1995 the Company issued 13,368 shares of Series D
Preferred Stock to Dr. Sergio Magistri in exchange for the cancellation by
Dr. Magistri of $50,000 in indebtedness.
(8) In August 1995, the Company issued 33,636 shares of Series D
Preferred Stock to ElectroParts Holding, S.A. at a purchase price of $3.74
per share or an aggregate purchase price of $125,800.
(9) On December 28, 1995, the Company issued a warrant to Anaconda to
purchase an aggregate of 259,090 shares of Common Stock, 227,272 of which
were exerciseable at a price of $8.80 per share (454,544 shares at $4.40 per
share on a post-split basis) and 31,818 of which were exercisable at a price
of $11.00 per share (63,636 shares at $5.50 per share on a post-split
basis).
(10) On December 29, 1995 the Company issued 90,909 shares of Series E
Preferred Stock to Kay's Corporation at a price of $9.90 per share.
(11) In April 1996, Anaconda transferred a portion of the warrant
originally issued to Anaconda in December 1995, to LEO Holdings, Inc. The
Company canceled the original warrant issued to Anaconda in the amount of
259,090 shares and issued two new warrants to Anaconda and LEO Holdings for
239,659 shares (479,318 post-split shares) and 19,431 shares (38,862
post-split shares), respectively. Both Anaconda and LEO Holdings exercised
their respective warrant in August 1996.
(12) On November 12, 1996, the Company issued 183,750 shares of Common
Stock to EG&G International, Ltd. at a price of $10.88 per share.
(13) On July 1, 1996, the Company issued 4,546 shares of Common Stock to
Scot Land in consideration of a three-way release among himself, the Company
and the Italimprese Group.
(14) On December 31, 1996, the Company issued 32,000 shares of Common
Stock to Fredrick L. Roder in consideration of all of the outstanding common
voting stock of Imatron Federal Systems, Inc.
The sales and issuances of securities described in paragraphs 1 through 14
above were made to "Accredited Investors" as such term is defined under Rule 501
of the Securities Act and were therefore deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and Rule 506 of the
Securities Act.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
3.2+ Bylaws of Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2+ Representative's Warrant Agreement.
5.1 Opinion of Cooley Godward LLP.
10.1+ Technology License Agreement, dated as of September 11, 1990, by and between the Registrant and
Imatron, Inc.
10.2+ Stockholders Agreement for the Formation of the Registrant, dated as of August 13, 1990, between
Imatron and FI.M.A.I and Amendment, dated as of September 7, 1990, as amended by the Termination
Agreement, dated as of December 9, 1992 among the Registrant, FI.M.A.I and Imatron.
10.3+ Lease, dated as of May 20, 1992, as amended May 4, 1995, between the Registrant and BVY Group.
10.4+ Registrant's Equity Incentive Plan, dated March 9, 1996.
10.5+ Registrant's 1996 Employee Stock Purchase Plan, dated March 9, 1996.
10.6+ Warrant to Purchase Stock pursuant to the Bridge Loan Financing Agreement, dated as of December 28,
1995, by and between the Registrant and Anacondona Partners, L.P.
10.7+ Standby Financing Agreement, dated as of July 26, 1991, by and between the Company and FI.M.A.I.
10.8 Shareholders Agreement, dated as of April 10, 1997, among the Registrant, Quantum Magnetics, Inc. and
the other parties thereto.
10.10+ Investor Rights Agreement, dated as of December 29, 1995, by and between the Registrant and Kay's
Corporation.
10.12* Lease, dated as of February 11, 1997, between the Registrant and WHLNF Real Estate L.P.
10.13* Purchase Agreement, dated as of December 24, 1996, between the Registrant and the U.S. Federal Aviation
Administration.
10.15* Stock Purchase Agreement, dated as of November 12, 1996, between the Registrant and EG&G International,
Ltd.
10.16* Stock Purchase Agreement, dated as of December 31, 1996, between the Registrant and Fredrick L. Roder.
10.16.1 Amendment to Stock Purchase Agreement, dated as of April 3, 1997, between the Registrant and Fredrick
L. Roder.
10.17* Loan and Security Agreement, dated as of February 20, 1997, between the Registrant and Silicon Valley
Bank.
10.18* Revolving Promissory Note, dated February 20, 1997, between the Registrant and Silicon Valley Bank.
10.19* Export-Import Bank Loan and Security Agreement, dated as of February 20, 1997, between the Registrant
and Silicon Valley Bank.
10.20* Intellectual Property Security Agreement, dated as of February 20, 1997, between the Registration and
Silicon Valley Bank.
10.21* Key Employee Agreement, dated April 21, 1994, between the Registrant and Curtis P. DiSibio.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.22* Key Employee Agreement, dated April 22, 1994, between the Registrant and Sergio Magistri, and amendment
thereto, dated October 16, 1995.
10.23* Key Employee Agreement, dated March 1, 1996, between the Registrant and David M. Pillor.
10.24* Key Employee Agreement, dated April 21, 1994, between the Registrant and Benno Stebler.
11.1 Statement regarding calculation of net income (loss) per share.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1* Power of Attorney.
27 Financial Data Schedule.
</TABLE>
- ------------------------
(+) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-380) or amendments thereto and incorporated herein by reference.
* Previously filed.
(b) Financial schedules are omitted because they are not required, are not
applicable or the information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act, the information omitted from the form of
prospectus filed as part of the registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared effective, and
(2) for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Foster City, County of San Mateo, State of California, on the 18th day of April
1997.
INVISION TECHNOLOGIES, INC.
By: /s/ SERGIO MAGISTRI
-----------------------------------------
Sergio Magistri
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ SERGIO MAGISTRI President, Chief Executive April 18, 1996
- ------------------------------ Officer and Director
Sergio Magistri (Principal Executive
Officer)
/s/ CURTIS P. DISIBIO Vice President and Chief April 18, 1997
- ------------------------------ Financial Officer
Curtis P. DiSibio (Principal Financial and
Accounting Officer)
* Director April 18, 1997
- ------------------------------
Douglas P. Boyd
* Director April 18, 1997
- ------------------------------
Giovanni Lanzara
* Director April 18, 1997
- ------------------------------
Bruno Trezza
* /s/ SERGIO MAGISTRI
- -------------------------------
Sergio Magistri
ATTORNEY-IN-FACT
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of the Registrant.
3.2+ Bylaws of Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2+ Representative's Warrant Agreement.
5.1 Opinion of Cooley Godward LLP.
10.1+ Technology License Agreement, dated as of September 11, 1990, by and between the Registrant and
Imatron, Inc.
10.2+ Stockholders Agreement for the Formation of the Registrant, dated as of August 13, 1990, between
Imatron and FI.M.A.I and Amendment, dated as of September 7, 1990, as amended by the Termination
Agreement, dated as of December 9, 1992 among the Registrant, FI.M.A.I and Imatron.
10.3+ Lease, dated as of May 20, 1992, as amended May 4, 1995, between the Registrant and BVY Group.
10.4+ Registrant's Equity Incentive Plan, dated March 9, 1996.
10.5+ Registrant's 1996 Employee Stock Purchase Plan, dated March 9, 1996.
10.6+ Warrant to Purchase Stock pursuant to the Bridge Loan Financing Agreement, dated as of December 28,
1995, by and between the Registrant and Anaconda Partners, L.P.
10.7+ Standby Financing Agreement, dated as of July 26, 1991, by and between the Company and FI.M.A.I.
10.8 Shareholders Agreement, dated as of April 10, 1997, among the Registrant, Quantum Magnetics, Inc. and
the other parties thereto.
10.10+ Investor Rights Agreement, dated as of December 29, 1995, by and between the Registrant and Kay's
Corporation.
10.12* Lease, dated as of February 11, 1997, between the Registrant and WHLNF Real Estate L.P.
10.13* Purchase Agreement, dated as of December 24, 1996, between the Registrant and the U.S. Federal Aviation
Administration.
10.15* Stock Purchase Agreement, dated as of November 12, 1996, between the Registrant and EG&G International,
Ltd.
10.16* Stock Purchase Agreement, dated as of December 31, 1996, between the Registrant and Fredrick L. Roder.
10.16.1 Amendment to Stock Purchase Agreement, dated as of April 3, 1997, between the Registrant and Fredrick
L. Roder.
10.17* Loan and Security Agreement, dated as of February 20, 1997, between the Registrant and Silicon Valley
Bank.
10.18* Revolving Promissory Note, dated February 20, 1997, between the Registrant and Silicon Valley Bank.
10.19* Export-Import Bank Loan and Security Agreement, dated as of February 20, 1997, between the Registrant
and Silicon Valley Bank.
10.20* Intellectual Property Security Agreement, dated as of February 20, 1997, between the Registration and
Silicon Valley Bank.
10.21* Key Employee Agreement, dated April 21, 1994, between the Registrant and Curtis P. DiSibio.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.22* Key Employee Agreement, dated April 22, 1994, between the Registrant and Sergio Magistri, and amendment
thereto, dated October 16, 1995.
10.23* Key Employee Agreement, dated March 1, 1996, between the Registrant and David M. Pillor.
10.24* Key Employee Agreement, dated April 21, 1994, between the Registrant and Benno Stebler.
11.1 Statement regarding calculation of net income (loss) per share.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1* Power of Attorney.
27 Financial Data Schedule.
</TABLE>
- ------------------------
(+) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-380) or amendments thereto and incorporated herein by reference.
* Previously filed
<PAGE>
Exhibit 1.1
3,125,000 SHARES(1)
INVISION TECHNOLOGIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
May __, 1997
ROBERTSON, STEPHENS & COMPANY LLC
PRUDENTIAL SECURITIES INCORPORATED
SCHRODER WERTHEIM & CO.
DONALD & CO. SECURITIES, INC.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
InVision Technologies, Inc., a Delaware corporation (the "Company"),
and certain stockholders of the Company named in Schedule B hereto (hereafter
called the "Selling Stockholders") address you as the Representatives of
each of the persons, firms and corporations listed in Schedule A hereto
(herein collectively called the "Underwriters") and hereby confirm their
respective agreements with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,875,000 shares of its authorized and unissued Common Stock, par value $.001
per share, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 1,250,000 shares
of the Company's authorized and outstanding Common Stock, par value $.001 per
share, to the several Underwriters. The 1,875,000 shares of Common Stock,
par value $.001 per share, of the Company to be sold by the Company are
hereinafter called the "Company Shares" and the 1,250,000 shares of Common
Stock, par value $.001 per share, to be sold by the Selling Stockholders are
hereinafter called the "Selling Stockholder Shares." The Company Shares
and the Selling Stockholder Shares are hereinafter collectively referred to
as the "Firm Shares." The Company also proposes to grant to the
Underwriters an option to purchase up to 468,750 additional shares of the
Company's Common Stock, par value $.001 per share, as provided in Section 7
hereof. The shares covered by such option are hereinafter referred to as the
"Option Shares." As used in this Agreement, the term "Shares" shall
include the Firm Shares and the Option Shares. All shares of Common Stock,
par value $.001 per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby, including the Shares, are
hereinafter referred to as "Common Stock."
- -----------------------------
(1) Plus an option to purchase up to 468,750 additional shares from the Company
to cover over-allotments, if any.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING STOCKHOLDERS.
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Stockholder that:
(a) A registration statement on Form S-1 (File No. 333-23413)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Act and has been filed
with the Commission; such amendments to such registration statement, such
amended prospectuses subject to completion and such abbreviated registration
statements pursuant to Rule 462(b) of the Rules and Regulations as may have
been required prior to the date hereof have been similarly prepared and filed
with the Commission; and the Company will file such additional amendments to
such registration statement, such amended prospectuses subject to completion
and such abbreviated registration statements as may hereafter be required.
Copies of such registration statements and amendments, including all exhibits
and exhibits incorporated by reference therein, each related prospectus
subject to completion (the "Preliminary Prospectuses"), and any abbreviated
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations, have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare
and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) (i) pursuant to subparagraph
(1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final
form of prospectus) or, (ii) if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of
the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules
and Regulations. If the registration statement relating to the Shares has
not been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if Robertson, Stephens & Company
LLC, on behalf of the several Underwriters, shall agree to the utilization of
Rule 434 of the Rules and Regulations, the information required to be
included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became
or becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files
a term sheet pursuant to Rule 434 of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such
amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement
shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations); PROVIDED, HOWEVER, that if in reliance
on Rule 434 of the Rules and Regulations and with the consent of Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, the Company
shall have provided to the Underwriters a term sheet pursuant to Rule 434(b)
or (c), as applicable, prior to the time that a confirmation is sent or given
for purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall
mean the "prospectus subject to completion" (as defined in Rule 434(g) of
the Rules and Regulations) last provided to the Underwriters by the Company
and circulated by the Underwriters to all prospective purchasers of the
Shares
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<PAGE>
(including the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 434(d) of the Rules and
Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters
for such use. If in reliance on Rule 434 of the Rules and Regulations and
with the consent of Robertson, Stephens & Company LLC, on behalf of the
several Underwriters, the Company shall have provided to the Underwriters a
term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement. Any reference
to the Registration Statement shall be deemed to refer to and include the
exhibits incorporated by reference therein, as of the date of the
Registration Statement. As used in this Agreement, the term "Incorporated
Documents" mean the exhibits which at the time are incorporated by reference
in the Registration Statement, the Prospectus or any amendment or supplement
thereto.
(b) The Commission has not issued any order preventing or
suspending the use of the Registration Statement (including any Preliminary
Prospectus contained therein) or the Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and at the time the Registration Statement became or becomes,
as the case may be, effective and at all times subsequent thereto up to and
on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to
the requirements of the Act and the Rules and Regulations, (ii) the
Registration Statement, and any amendments or supplements thereto, did not
and will not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties contained in this subparagraph (b) shall apply
to information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter specifically for use in the preparation
thereof.
(c) The Company has prepared and timely filed with the
Commission all reports, notices and other documents required to be filed
under, and such documents when filed conformed in all material respects with,
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations thereunder. The Company's annual report to
shareholders on Form 10-K (including the consolidated financial statements
and related notes thereto) and proxy statement (together with all other
reports, notices and documents filed by the Company under the Exchange Act
and rules and regulations thereunder, the "1934 Act Documents") have been
prepared in accordance with the Exchange Act and the rules and regulations
thereunder and the financial statements and related notes thereto have been
prepared in accordance with generally accepted accounting principals. The
Registration Statement, the Prospectus and the 1934 Act Documents, when filed
(or if an amendment with respect to any such document was filed, when such
amendment was filed) did not contain any untrue statement of material facts
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and no such further amendment
will contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
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<PAGE>
(d) Each of the Company and its subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company owns all of
the outstanding capital stock of its subsidiary free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; each of
the Company and its subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiary considered as one enterprise (a "Material Adverse Effect");
no proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power
and authority or qualification; each of the Company and its subsidiary is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all
of which are valid and in full force and effect; neither the Company nor its
subsidiary is in violation of its respective charter or bylaws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness, or in any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which the
Company or its subsidiary is a party or by which it or its subsidiary or
their respective properties may be bound which violation or default would
have a Material Adverse Effect; and neither the Company nor its subsidiary is
in material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or its subsidiary
or over their respective properties of which it has knowledge. The Company
does not own or control, directly or indirectly, any corporation, association
or other entity other than Imatron Federal Systems, Inc.
(e) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by public policy or general equitable principles; the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under, (i) any bond,
debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument to which the Company or its subsidiary is a
party or by which it or its subsidiary or their respective properties may be
bound, (ii) the charter or bylaws of the Company or its subsidiary, or (iii)
any law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or its subsidiary or over their respective
properties. No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or its subsidiary or over their
respective properties is required for the execution and delivery of this
Agreement and the consummation by the Company or its subsidiary of the
transactions herein contemplated, except such as may be required under the
Act, the Exchange Act (if applicable) or under state or other securities or
Blue Sky laws, all of which requirements have been satisfied in all material
respects.
(f) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company,
its subsidiary or any of their respective officers or any of their respective
properties, assets or rights before any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
its subsidiary or over their respective officers or properties or otherwise
which (i) might result in a Material Adverse Effect, (ii) might
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<PAGE>
prevent consummation of the transactions contemplated hereby or (iii) is
required to be disclosed in the Registration Statement or Prospectus and is
not so disclosed; and there are no agreements, contracts, leases or documents
of the Company or its subsidiary of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
of the Commission thereunder, which have not been accurately described in all
material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement.
(g) All outstanding shares of capital stock of the Company
(including the Selling Stockholder Shares) have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock
of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus
(and such statements correctly state the substance of the instruments
defining the capitalization of the Company); the Company Shares and the
Option Shares to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right
of first refusal or other similar right of stockholders exists with respect
to any of the Company Shares or Option Shares to be purchased from the
Company hereunder or the issuance and sale thereof other than those that have
been expressly waived prior to the date hereof and those that will
automatically expire upon the consummation of the transactions contemplated
on the Closing Date. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for
the issuance and sale or transfer of the Shares except as may be required
under the Act, the Exchange Act or under state or other securities or Blue
Sky laws. All issued and outstanding shares of capital stock of the
subsidiary of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and were not issued in violation of or
subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest. Except as
disclosed in the Prospectus and the financial statements of the Company, and
related notes thereto included in the Prospectus, neither the Company nor its
subsidiary has outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(h) Price Waterhouse LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of December 31, 1996, December 31, 1995 and December 31, 1994, all
of which Financial Statements have been filed with the Commission as a part
of the Registration Statement, and are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, forming part of the Registration Statement and
Prospectus, fairly present the financial position and the results of
operations of the Company at the respective dates and for the respective
periods to which they apply; and all audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited consolidated financial information, filed with the Commission
as part of the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The financial
and statistical data set forth in the Registration Statement under the
captions "Prospectus Summary--Summary
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<PAGE>
Consolidated Financial Data," "Selected Consolidated Financial Data" and
"Capitalization" present fairly the information set forth therein and have
been compiled on a basis consistent with the audited financial statements
contained in the Registration Statement. No other financial statements or
schedules are required to be included in the Registration Statement.
(i) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has
not been (i) any Material Adverse Effect, or any development that could
reasonably be expected to result in a Material Adverse Effect, (ii) any
transaction that is material to the Company and its subsidiary considered as
one enterprise, except transactions entered into in the ordinary course of
business, (iii) any obligation or liability, direct or contingent, that is
material to the Company and its subsidiary considered as one enterprise,
incurred by the Company or its subsidiary, except obligations incurred in the
ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company or its subsidiary that is material to
the Company and its subsidiary considered as one enterprise, (v) any dividend
or distribution of any kind declared, paid or made on the capital stock of
the Company or its subsidiary, or (vi) any loss or damage (whether or not
insured) to the property of the Company or its subsidiary which has been
sustained or will have been sustained which has a Material Adverse Effect.
(j) Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, (i) each of the Company and its
subsidiary has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus as owned by it, free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a Material Adverse
Effect, (ii) the agreements to which the Company or its subsidiary is a party
described in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company and its subsidiary (as applicable), except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by public policy or general equitable
principles and, to the best of the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (iii) each of the Company and its subsidiary has
valid and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by public policy or general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted.
(k) The Company and its subsidiary have timely filed all
necessary federal, state and foreign income and franchise tax returns and
have paid all taxes shown thereon as due, and there is no tax deficiency that
has been or, to the best of the Company's knowledge, might be asserted
against the Company or its subsidiary that might have a Material Adverse
Effect; and all tax liabilities are adequately provided for on the books of
the Company and its subsidiary.
(l) The Company and its subsidiary maintain insurance with
insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and
personal property owned or leased by the Company or its subsidiary against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; neither
the Company nor its subsidiary has been refused any insurance coverage sought
or applied for; and the Company has no reason to believe that it or its
subsidiary will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would
not have a Material Adverse Effect.
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<PAGE>
(m) No labor disturbance by the employees of the Company or
its subsidiary exists or, to the best knowledge of the Company, is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, subassemblers,
manufacturers, value added resellers, subcontractors, original equipment
manufacturers, authorized dealers or international distributors that might be
expected to result in a Material Adverse Effect. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(n) Each of the Company and its subsidiary owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names, copyrights and other
similar rights which are necessary to conduct its businesses as described in
the Registration Statement (including any Preliminary Prospectus contained
therein) and Prospectus; there are no patents, registered trademarks or
copyrights expiring (based on current expiration dates) beginning on the
effective date with this Agreement, the expiration of which would have a
Material Adverse Effect; the Company has not received any notice of, and has
no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or
copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.
(o) The Common Stock is registered pursuant to Section 12(g)
of the Exchange Act and has been approved for inclusion on the Nasdaq
National Market, subject only to official notice of issuance, and the Company
has taken no action designed to, or likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act or delisting the
Common Stock from the Nasdaq National Market, nor has the Company received
any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such
registration or listing.
(p) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
(q) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option
Shares are to be purchased, as the case may be, and (ii) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(r) Neither the Company nor its subsidiary has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments required or permitted by the laws
of the United States or any jurisdiction thereof.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
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<PAGE>
(t) Each officer and director of the Company, each Selling
Stockholder and each beneficial owner of shares of Common Stock set forth on
Schedule C has agreed in writing that such person will not, for a period of
120 days from the date that the Registration Statement is declared effective
by the Commission (the "Lock-up Period"), offer to sell, contract to sell,
or otherwise sell (including, without limitation, in a short sale), dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise
than (i) as a bona fide gift or gifts, provided the donee or donees thereof
agree in writing to be bound by this restriction, (ii) if such person is an
individual, as a transfer during such persons' lifetime or on death by will
or intestacy to such person's immediate family or to a trust the
beneficiaries of which are exclusively such person and/or a member or members
of such person's immediate family, provided that the transferee or
transferees agree in writing to be bound by this restriction ("immediate
family" means spouse, lineal descendant, father, mother, brother or sister
of the transferor), (iii) as a distribution to partners or stockholders of
such person, if any, provided that the distributees thereof agree in writing
to be bound by the terms of this restriction, (iv) with the prior written
consent of Robertson, Stephens & Company LLC, or (v) the Underwriter pursuant
to this Agreement. Furthermore, such person has also agreed and consented to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by such person except in
compliance with this restriction. The Company has provided to counsel for
the Underwriters a complete and accurate list of all securityholders of the
Company and the number and type of securities held by each securityholder.
The Company has provided to counsel for the Underwriters true, accurate and
complete copies of all of the agreements pursuant to which its officers,
directors and stockholders have agreed to such or similar restrictions (the
"Lock-up Agreements") presently in effect or effected hereby. The Company
hereby represents and warrants that it will not release any of its officers,
directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of
Robertson, Stephens & Company LLC.
(u) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, other than where the failure to
so comply would not have a Material Adverse Effect, (ii) the Company has
received no notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus, and (iii) no
property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601,
ET SEQ.), or otherwise designated as a contaminated site under applicable
state or local law.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that its and its
subsidiary's (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(w) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as are required to be disclosed and are so disclosed in
the Registration Statement and the Prospectus. The transactions,
arrangements, agreements and understandings set forth in the Registration
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<PAGE>
Statement and Prospectus under the heading "Certain Transactions" are the
only transactions, arrangements, agreements and understandings required to be
disclosed therein.
(x) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
(y) The Company has not had any disagreements, during its two
most recent fiscal years or any subsequent interim period, with an
independent accountant who was previously engaged as the principal accountant
to audit the Company's financial statements and on whom the principal
accountant expressed reliance in its report (either of whom resigned,
indicated that it declined to stand for re-election after the completion of
the current audit, or was dismissed), on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement(s) would required disclosure in the Registration Statement
of any information described in Item 304(a)(1)(iv) or Item 304(b) of
Regulation S-K and there have not been any reportable events (as defined in
Item 304(a)(1)(v) of Regulation S-K) that would require disclosure in the
Registration Statement of any information describe din Item 304(a)(1)(v) or
Item 304(b) of Regulation S-K.
II. Each Selling Stockholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter and the Company
that:
(a) Such Selling Stockholder now has (other than with respect
to shares issuable pursuant to options to be exercised in connection with the
offering as disclosed in the Prospectus) and on the Closing Date will have,
valid marketable title to the Shares to be sold by such Selling Stockholder,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than pursuant to this Agreement; and upon delivery
of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to
the Shares purchased by it from such Selling Stockholder, free and clear of
any pledge, lien, security interest pertaining to such Selling Stockholder or
such Selling Stockholder's property, encumbrance, claim or equitable
interest, including any liability for estate or inheritance taxes, or any
liability to or claims of any creditor, devisee, legatee or beneficiary of
such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing each of Dr. Sergio Magistri, Curt DiSibio and Robert L. Jones as
attorneys-in-fact (collectively, the "Attorneys" and individually, an
"Attorney") and a Custody Agreement (the "Custody Agreement") with
Continental Stock Transfer & Trust Company, as custodian (the "Custodian");
each of the Power of Attorney and the Custody Agreement constitutes a valid
and binding agreement on the part of such Selling Stockholder, enforceable in
accordance with its terms, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles; and each of such Attorneys, acting alone, is
authorized to execute and deliver this Agreement and the Custody Agreement
and the certificate referred to in Section 6(g) hereof on behalf of such
Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Selling Stockholder Shares to be
sold by such Selling Stockholder under this Agreement and to duly endorse (in
blank or otherwise) the certificate or certificates representing such Shares
or a stock power or powers with respect thereto, to accept payment therefor,
and otherwise to act on behalf of such Selling Stockholder in connection with
this Agreement.
(c) All consents, approvals, authorizations and orders
required for the execution and delivery by such Selling Stockholder of the
Power of Attorney and the Custody Agreement, the execution and delivery by or
on behalf of such Selling Stockholder of this Agreement and the sale and
delivery of the
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Selling Stockholder Shares to be sold by such Selling Stockholder under this
Agreement (other than, at the time of the execution hereof (if the
Registration Statement has not yet been declared effective by the
Commission), the issuance of the order of the Commission declaring the
Registration Statement effective and such consents, approvals, authorizations
or orders as may be necessary under state or other securities or Blue Sky
laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Stockholder has full legal right, power and authority to enter into and
perform its obligations under this Agreement and such Power of Attorney and
Custody Agreement, and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such Selling Stockholder or with respect to which such
Selling Stockholder has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) if such
Selling Stockholder is an individual, as a transfer during such Selling
Stockholder's lifetime or on death by will or intestacy to such person's
immediate family or to a trust, the beneficiaries of which are exclusively
such Selling Stockholder's immediate family, provided that the transferee or
transferees agree in writing to be bound by this restriction ("immediate
family" means spouse, lineal descendant, father, mother, brother or sister
of the transferor), (iii) as a distribution to partners or stockholders of
such Selling Stockholder, if any, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, (iv) with the
prior written consent of Robertson, Stephens & Company LLC, or (v) to the
Underwriters pursuant to this Agreement. The foregoing restriction is
expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than
the Selling Stockholder. Such prohibited hedging or other transactions would
including, without limitation, any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Such Selling Stockholder also agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Stockholder except in
compliance with this restriction.
(e) Certificates in negotiable form for all Shares to be sold
by such Selling Stockholder under this Agreement, together with a stock power
or powers duly endorsed in blank by such Selling Stockholder, have been
placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and
binding agreement of such Selling Stockholder, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by public policy or
general equitable principles; and the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
breach or violation of any of the material terms and provisions of or
constitute a default under any material bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument
to which such Selling Stockholder is a party or by which such Selling
Stockholder, or any Selling Stockholder Shares to be sold by such Selling
Stockholder hereunder, may be bound or, to the best of such Selling
Stockholders' knowledge, result in any material violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court,
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government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Stockholder or over the properties of such
Selling Stockholder, or, if such Selling Stockholder is other than a natural
person, result in any violation of any provisions of the charter, bylaws or
other organizational documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such
Selling Stockholder in such Selling Stockholder's Power of Attorney or set
forth in the Registration Statement and the Prospectus is, and at the time
the Registration Statement became or becomes, as the case may be, effective
and at all times subsequent thereto up to and on the Closing Date, was or
will be, true, correct and complete, and does not, and at the time the
Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined), will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and
will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date, and will advise one of its Attorneys and Robertson, Stephens &
Company LLC prior to the Closing Date if any statement to be made on behalf
of such Selling Stockholder in the certificate contemplated by Section 6(g)
would be inaccurate if made as of the Closing Date.
(k) Such Selling Stockholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of
first refusal or other similar right to purchase any of the Shares that are
to be sold by the Company or any of the other Selling Stockholders to the
Underwriters pursuant to this Agreement; such Selling Stockholder does not
have, or has waived prior to the date hereof, any registration right or other
similar right to participate in the offering made by the Prospectus, other
than such rights of participation as have been satisfied by the participation
of such Selling Stockholder in the transactions to which this Agreement
relates in accordance with the terms of this Agreement; and such Selling
Stockholder does not own any warrants, options or similar rights to acquire,
and does not have any right or arrangement to acquire, any capital stock,
rights, warrants, options or other securities from the Company, other than
those described in the Registration Statement and the Prospectus.
(l) Such Selling Stockholder is not aware (without having
conducted any investigation or inquiry) that any of the representations and
warranties of the Company set forth in Section 2.I. above is untrue or
inaccurate in any material respect.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and the Selling
Stockholders agree to sell to the Underwriters, and each Underwriter agrees,
severally and not jointly, to purchase from the Company and the Selling
Stockholders, respectively, at a purchase price of $[_____] per share, the
respective number of Company Shares and Selling Stockholder Shares set forth
opposite the names of the Company and the Selling Stockholders in Schedule B
hereto. The obligation of each Underwriter to the Company and to each
Selling Stockholder shall be to purchase from the Company or such Selling
Stockholder that number of Company Shares or Selling Stockholder Shares, as
the case may be, which (as nearly as
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practicable, as determined by you) is in the same proportion to the number of
Company Shares or Selling Stockholder Shares, as the case may be, set forth
opposite the name of the Company or such Selling Stockholder in Schedule B
hereto as the number of Firm Shares which is set forth opposite the name of
such Underwriter in Schedule A hereto (subject to adjustment as provided in
Section 10) is to the total number of Firm Shares to be purchased by all the
Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder
Shares have been placed in custody (for delivery under this Agreement) under
the Custody Agreement and Power of Attorney. Each Selling Stockholder agrees
that the certificates for the Selling Stockholder Shares of such Selling
Stockholder so held in custody are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Selling
Stockholder for such custody, including the Custody Agreement and Power of
Attorney is to that extent irrevocable and that the obligations of such
Selling Stockholder hereunder shall not be terminated by the act of such
Selling Stockholder or by operation of law, whether by the death or
incapacity of such Selling Stockholder or the occurrence of any other event,
except as specifically provided herein or in the Custody Agreement and Power
of Attorney. If any Selling Stockholder should die or be incapacitated, or
if any other such event should occur, before the delivery of the certificates
for the Selling Stockholder Shares hereunder, the Selling Stockholder Shares
to be sold by such Selling Stockholder shall, except as specifically provided
herein or in the Custody Agreement and Power of Attorney, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made
against payment of the purchase price therefor by the several Underwriters by
wire transfer is same day funds, payable to the order of the Company with
regard to the Shares being purchased from the Company, and to the order of
the Custodian for the respective accounts of the Selling Stockholders with
regard to the Shares being purchased from such Selling Stockholders, at the
offices of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real,
Palo Alto, California 94306-2155 (or at such other place as may be agreed
upon among the Representatives, the Company and the Selling Stockholders), at
7:00 A.M., San Francisco time (a) on the third (3rd) full business day
following the first day that Shares are traded, (b) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (c) at such other time and date not later than seven (7) full
business days following the first day that Shares are traded as the
Representatives, the Company and the Selling Stockholders may determine (or
at such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery
being herein called the "Closing Date;" PROVIDED, HOWEVER, that if the
Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the
Representatives may, in their sole discretion, postpone the Closing Date
until no later than two (2) full business days following delivery of copies
of the Prospectus to the Representatives. The certificates for the Firm
Shares to be so delivered will be made available to you at such office or
such other location including, without limitation, in New York, as you may
reasonably request for checking at least one (1) full business day prior to
the Closing Date and will be in such names and denominations as you may
request, such request to be made at least two (2) full business days prior to
the Closing Date. If the Representatives so elect, delivery of the Firm
Shares may be made by credit through full fast transfer to the accounts at
The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the Closing Date for the Firm Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
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After the Registration Statement becomes effective, the several
Underwriters intend to make a secondary public offering (as such term is
described in Section 11 hereof) of the Firm Shares at a secondary public
offering price of $[_____] per share. After the secondary public offering,
the several Underwriters may, in their discretion, vary the public offering
price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), under the
last two paragraphs on page 2, concerning stabilization and passive
market-making by the Underwriters, and under the second, seventh and eighth
paragraphs under the caption "Underwriting" in any Preliminary Prospectus
and in the final form of Prospectus filed pursuant to Rule 424(b) constitutes
the only information furnished by the Underwriters to the Company for
inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; the Company will use its
best efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as
promptly as possible; the Company will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement, any
subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the
Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the
Rules and Regulations, the Company will provide evidence satisfactory to you
that the Prospectus and term sheet meeting the requirements of Rule 434(b) or
(c), as applicable, of the Rules and Regulations, have been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (7) of
Rule 424(b) of the Rules and Regulations; if for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the
time period prescribed; it will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information; promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to
the Registration Statement or Prospectus which, in the opinion of counsel for
the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have
occurred as a result of which the Prospectus or any other prospectus relating
to the Shares as then in effect would include any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; in case any Underwriter is required to deliver a prospectus
nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amend-
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ment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Act; and it will file no amendment or supplement
to the Registration Statement or Prospectus which shall not previously have
been submitted to you a reasonable time prior to the proposed filing thereof
or to which you shall reasonably object in writing, subject, however, to
compliance with the Act and the Rules and Regulations, the Exchange Act and
the rules and regulations of the Commission thereunder and the provisions of
this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions
as you may designate and to continue such qualifications in effect for so
long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements
and reports in each year as are or may be reasonably required by the laws of
such jurisdiction.
(d) The Company will furnish to you, as soon as available,
and, in the case of the Prospectus and any term sheet or abbreviated term
sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the
Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, and the Incorporated Documents
(three of which will include all exhibits) all in such quantities as you may
from time to time reasonably request. Notwithstanding the foregoing, if
Robertson, Stephens & Company LLC, on behalf of the several Underwriters,
shall agree to the utilization of Rule 434 of the Rules and Regulations, the
Company shall provide to you copies of a Preliminary Prospectus updated in
all respects through the date specified by you in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first
occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement (which will be in reasonable
detail but need not be audited) complying with the provisions of Section
11(a) of the Act and covering a twelve (12) month period beginning after the
effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof,
the Company will furnish to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal
year, and will furnish to you and the other several Underwriters hereunder,
upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity, and of cash flows of the Company for
such fiscal year, accompanied by a copy of the certificate or report thereon
of independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to stockholders,
(iv) as soon as they are available, copies of all reports and financial
statements
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furnished to or filed with the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. ("NASD"), (v) every
material press release and every material news item or article in respect of
the Company or its affairs which was generally released to stockholders or
prepared by the Company or any of its subsidiaries, if any, and (vi) any
additional information of a public nature concerning the Company or any of
its subsidiaries, if any, or its business which you may reasonably request.
During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for
any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholder to perform any agreement on their
respective parts to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters
in investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(k) During the Lock-up Period, the Company will not, without
the prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Company Shares and the Option Shares to be sold by the Company hereunder
and the Company's issuance of options or Common Stock under the Company's
presently authorized Equity Incentive Plan (the "Equity Plan") or Employee
Stock Purchase Plan (the "Purchase Plan," collectively with the Equity
Plan, the "Stock Plans").
5. EXPENSES.
(a) The Company and the Selling Stockholders agree with each
Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of
the Registration Statement (including financial statements, schedules
and exhibits), Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; the copying of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and the Custody Agreement and Power of
Attorney, and any instruments related to any of the foregoing; the
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issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus and
the Incorporated Documents, and any amendments or supplements to any
of the foregoing; NASD filing fees and the cost of qualifying the
Shares under the laws of such jurisdictions as you may designate
(including filing fees and reasonable fees and disbursements of
Underwriters' Counsel in connection with such NASD filings and Blue
Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholders in connection with the
performance of their obligations hereunder. Any additional expenses
incurred as a result of the sale of the Shares by the Selling
Stockholders will be borne collectively by the Company and the Selling
Stockholders. The provisions of this Section 5(a)(i) are intended to
relieve the Underwriters from the payment of the expenses and costs
which the Selling Stockholders and the Company hereby agree to pay,
but shall not affect any agreement which the Selling Stockholders and
the Company may make, or may have made, for the sharing of any of such
expenses and costs. Such agreements shall not impair the obligations
of the Company and the Selling Stockholders hereunder to the several
Underwriters.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(a) hereof, it will reimburse
the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) listed from time to time in The Wall Street
Journal which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the
"Prime Rate"). Any such interim reimbursement payments which are
not made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of
such request.
(iii) In addition to their other obligations under
Section 8(b) hereof, each Selling Stockholder agrees that, as an
interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding described in Section 8(b)
hereof relating to such Selling Stockholder, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of such Selling Stockholder's obligation
to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Selling
Stockholders, together with interest, compounded daily, determined on
the basis of the Prime Rate. Any such interim reimbursement payments
which are not made to the Underwriters
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within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Stockholder on a monthly basis for all reasonable
legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the Underwriters' obligation to reimburse the Company
and each such Selling Stockholder for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Company and each such Selling
Stockholder shall promptly return such payment to the Underwriters together
with interest, compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made to the Company and
each such Selling Stockholder within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis
on which such amounts shall be apportioned among the reimbursing parties,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does
not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to
do so. Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to
expenses which is created by the provisions of Section 8(e) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case
may be, of the representations and warranties of the Company and the Selling
Stockholders herein, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective
not later than 2:00 P.M., San Francisco time, on the date following the date
of this Agreement, or such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company, any Selling Stockholder or any Underwriter,
threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, including, without limitation, the form of
Registration Statement and the Prospectus, and the registration,
authorization, issue, sale and delivery of the Shares, shall have been
reasonably satisfactory to
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Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them
to pass upon the matters referred to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date: (i) there shall not have been any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiary considered
as one enterprise from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus; and (ii)
there shall not have occurred any downgrading, nor shall any notice have been
given of any intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Act.
(d) The Company's Common Stock shall have been approved for
inclusion on the Nasdaq National Market.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are purchased, as the case may be, the
following opinion of counsel for the Company, dated the Closing Date or such
later date on which Option Shares are purchased addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) The Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company and each subsidiary is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. To such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
Imatron Federal Systems, Inc.;
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, the issued
and outstanding shares of capital stock of the Company (including the
Selling Stockholder Shares) have been duly and validly issued and are
fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws;
(v) All issued and outstanding shares of capital
stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject
to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right and are owned by the Company free
and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest;
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(vi) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be
duly and validly issued and fully paid and nonassessable, and to such
counsel's knowledge will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right of stockholders;
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver
to the Underwriters the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by public
policy or general equitable principles;
(ix) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act;
(x) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the financial
statements (including supporting schedules) and financial data derived
therefrom as to which such counsel need express no opinion), as of the
effective date of the Registration Statement, complied as to form in
all material respects with the requirements of the Act and the
applicable Rules and Regulations;
(xi) The information in the Prospectus under the
caption "Risk Factors--Shares Eligible for Future Sale," "Certain
Transactions," "Description of Capital Stock" and "Shares Eligible
for Future Sale," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions;
(xii) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and of
Rule 144 under the Act, the Aviation Security Act, the FAA Final
Criteria for Certification of EDS, sections of the Delaware General
Corporation Law and Regulation M under the Securities and Exchange Act
of 1934 are fair summaries of the provisions referred to in the
Registration Statement and Prospectus and fairly present the
information required to be presented by the Act and the applicable
Rules and Regulations;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement which are not described or referred to
therein or filed as required;
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(xiv) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in
any violation of the Company's charter or bylaws or (b) to such
counsel's knowledge, result in a material breach or violation of any
of the terms and provisions of, or constitute a default under, any
material bond, debenture, note or other evidence of indebtedness, or
under any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument
to which the Company is a party or by which its properties are bound,
or any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having jurisdiction
over the Company, or over any of their properties or operations;
(xv) No consent, approval, authorization or order of
or qualification with any court, government or governmental agency or
body having jurisdiction over the Company, or over any of their
properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated,
except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters;
(xvi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the
Company or its subsidiary of a character required to be disclosed in
the Registration Statement or the Prospectus by the Act or the Rules
and Regulations, other than those described therein;
(xvii) To such counsel's knowledge, neither the
Company nor its subsidiary is presently (a) in material violation of
its respective charter or bylaws, or (b) in material breach of any
applicable statute, rule or regulation known to such counsel or, to
such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or
its subsidiary, or over any of their properties or operations; and
(xviii) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of
securities of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities
because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights;
(xix) The Power of Attorney and Custody Agreement
of each individual who is a Selling Stockholder (an "Individual
Selling Stockholder") has been duly executed and delivered by or on
behalf of such Individual Selling Stockholder; and the Power of
Attorney and Custody Agreement of each Individual Selling Stockholder
constitutes the valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
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reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by public policy or general
equitable principles;
(xx) This Agreement has been duly executed and
delivered by or on behalf of each Individual Selling Stockholder; and
(xxi) Upon the delivery of and payment for the
Shares as contemplated in this Agreement, the Shares to be sold by the
Individual Selling Stockholders will have been transferred to the
Underwriters free and clear of any adverse claim, assuming the
Underwriters have purchased such Shares from the Individual Selling
Stockholders in good faith and without notice of adverse claims.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters
were discussed, and although they have not independently verified the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention of such
counsel which leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on
the Closing Date and on any later date on which Option Shares are to be
purchased, the Registration Statement and any amendment or supplement
thereto, when such documents became effective or were filed with the
Commission (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom,
as to which such counsel need express no comment) contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
or at the Closing Date or any later date on which the Option Shares are to be
purchased, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the State of California
and Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company or the Selling
Stockholders, and of government officials, in which case their opinion is to
state that they are so relying and that they have no knowledge of any
material misstatement or inaccuracy in any such opinion, representation or
certificate. Copies of any opinion, representation or certificate so relied
upon shall be delivered to you, as Representatives of the Underwriters, and
to Underwriters' Counsel.
(f) You shall have received on the Closing Date the following
opinion of counsel from each of the Selling Stockholders which are not
individuals, dated the Closing Date and addressed to the Underwriters and
with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) The Power of Attorney and Custody Agreement of
each Selling Stockholder not an individual (a "Non-Individual Selling
Stockholder") has been duly executed and delivered by or on behalf of
such Non-Individual Selling Stockholder; and the Power of Attorney and
Custody Agreement of each Non-Individual Selling Stockholder
constitutes the valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by public policy or general
equitable principles;
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(ii) Each of the Non-Individual Selling Stockholders
has full right, power and authority to enter into and to perform its
obligations under this Agreement and to sell, transfer, assign and
deliver the Shares to be sold by such Non-Individual Selling
Stockholder hereunder;
(iii) This Agreement has been duly executed and
delivered by or on behalf of each Non-Individual Selling Stockholder;
and
(iv) Upon the delivery of and payment for the Shares
as contemplated in this Agreement, the Shares to be sold by each of
the Non-Individual Selling Stockholders will have been transferred to
the Underwriters free and clear of any adverse claim, assuming the
Underwriters have purchased such Shares from the Non-Individual
Selling Stockholders in good faith and without notice of adverse
claims.
(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(h) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from Price Waterhouse LLP addressed to the Company and the
Underwriters, dated the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within
the meaning of the Act and the applicable published Rules and Regulations and
based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5)
business days prior to the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original Letter
are accurate as of the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, and (ii) setting forth any revisions
and additions to the statements and conclusions set forth in the Original
Letter which are necessary to reflect any changes in the facts described in
the Original Letter since the date of such letter, or to reflect the
availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or
otherwise), earnings, operations or business of the Company and its
subsidiary considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus. The Original Letter from Price Waterhouse
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
December 31, 1996 and related consolidated statements of operations,
stockholders' equity, and cash flows for the twelve (12) months ended
December 31, 1996, (iii) state that Price Waterhouse LLP has performed the
procedure set out in Statement on Auditing Standards No. 71 ("SAS 71") for
a review of interim financial information and providing the report of Price
Waterhouse LLP as described in SAS 71 on the financial statements for the
quarter ended March 31, 1997, and (iv) address other matters agreed upon by
Price Waterhouse LLP and you. In addition, you shall have received from
Price Waterhouse LLP a letter addressed to the Company and made available to
you for the use of the Underwriters stating that their review of the
Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of their examination of the Company's
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consolidated financial statements as of March 31, 1997, did not disclose any
weaknesses in internal controls that they considered to be material
weaknesses.
(i) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company on behalf
of the Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of
such certificate, (A) the Registration Statement and the Prospectus,
and any amendments or supplements thereto contained all material
information required to be included therein by the Act and the Rules
and Regulations and in all material respects conformed to the
requirements of the Act and the Rules and Regulations, (B) the
Registration Statement, and any amendment or supplement thereto, did
not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (C) the
Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and,
(D) since the effective date of the Registration Statement there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus and
except as otherwise disclosed in the Prospectus, there has not been
(a) any material adverse change, or any development that could
reasonably be expected to result in a material adverse change, in the
condition (financial or otherwise), earnings, operations, or business
of the Company and its subsidiary considered as one enterprise,
(b) any transaction that is material to the Company and its subsidiary
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation or liability, direct
or contingent, that is material to the Company and its subsidiary
considered as one enterprise, incurred by the Company or its
subsidiary, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding
indebtedness of the Company or its subsidiary that is material to the
Company and its subsidiary considered as one enterprise, (e) any
dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or its subsidiary, or (f) any loss or
damage (whether or not insured) to the property of the Company or its
subsidiary which has been sustained or will have been sustained which
has a material adverse effect on
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the condition (financial or otherwise), earnings, operations, or
business of the Company and its subsidiary considered as one
enterprise.
(j) You shall be satisfied that, and you shall have received
a certificate, dated the Closing Date, from the Attorneys for each Selling
Stockholder to the effect that, as of the Closing Date, they have not been
informed that:
(i) The representations and warranties made by such
Selling Stockholder herein are not true or correct in any material
respect on the Closing Date; or
(ii) Such Selling Stockholder has not complied with any
obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Stockholder at or
prior to the Closing Date.
(k) The Company shall have obtained and delivered to you an
agreement from each officer and director of the Company, each Selling
Stockholder and each beneficial owner of Common Stock set forth on Schedule C
in writing prior to the date hereof that such person will not, during the
Lock-up Period, effect a Disposition of any Securities now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona
fide gift or gifts, provided the donee or donees thereof agree in writing to
be bound by this restriction, (ii) if such person is an individual, as a
transfer during such persons' lifetime or on death by will or intestacy to
such person's immediate family or to a trust the beneficiaries of which are
exclusively such person and/or a member or members of such person's immediate
family, provided that the transferee or transferees agree in writing to be
bound by this restriction ("immediate family" means spouse, lineal
descendants, father, mother, brother and sister of the transferor), (iii) as
a distribution to partners or stockholders of such person, if any, provided
that the distributees thereof agree in writing to be bound by the terms of
this restriction, (iv) with the prior written consent of Robertson, Stephens
& Company LLC, or (v) to the Underwriter pursuant to this Agreement.
Furthermore, such person will have also agreed and consented to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction.
(l) The Company and the Selling Stockholders shall have
furnished to you such further certificates and documents as you shall
reasonably request (including certificates of officers of the Company and the
Selling Stockholders as to the accuracy of the representations and warranties
of the Company and the Selling Stockholders herein, as to the performance by
the Company and the Selling Stockholders of their respective obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling
Stockholders will furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants to the several Underwriters, for the
purpose of covering over-allotments in connection with the distribution and
sale of the Firm Shares only, a nontransferable option to purchase up to an
aggregate of 468,750 Option Shares at the purchase price per share for the
Firm Shares set forth in Section 3 hereof. Such option may be exercised by
the Representatives on behalf of the several Underwriters on only one (1)
occasion in whole or in part during
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the period of thirty (30) days after the date on which the Firm Shares are
initially offered to the public, by giving written notice to the Company.
The number of Option Shares to be purchased by each Underwriter upon the
exercise of such option shall be the proportion set forth on Schedule B,
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer in same-day funds,
payable to the order of the Company. Such delivery and payment shall take
place at the offices of Cooley Godward LLP, Five Palo Alto Square, 3000 El
Camino Real, Palo Alto, California 94306-2155 or at such other place as may
be agreed upon among the Representatives and the Company (i) on the Closing
Date, if written notice of the exercise of such option is received by the
Company at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business
day following the date the Company receives written notice of the exercise of
such option, if such notice is received by the Company less than two (2) full
business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for
checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the
Option Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve
any such Underwriter or Underwriters of any of its or their obligations
hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment
and delivery for such Option Shares) to the accuracy of and compliance with
the representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence
the accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the
Company and the Selling Stockholders or the compliance with any of the
conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD),
under the Act, the Exchange Act or otherwise, for losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty,
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agreement or covenant of the Company herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and agree to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any such amendment or supplement thereto, in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof and, PROVIDED FURTHER,
that the indemnity agreement provided in this Section 8(a) with respect to
any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any losses, claims, damages, liabilities or
actions based upon any untrue statement or alleged untrue statement of
material fact or omission or alleged omission to state therein a material
fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time required
by the Act and the Rules and Regulations, unless such failure is the result
of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter
may become subject (including, without limitation, in its capacity as an
Underwriter or as a "qualified independent underwriter" within the meaning
of Schedule E or the Bylaws of the NASD) under the Act, the Exchange Act or
otherwise, for losses, claims, damages or liabilities, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of such Selling Stockholder herein contained, (ii) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company or such Underwriter by such
Selling Stockholder, directly or through such Selling Stockholder's
representatives, specifically for use in the preparation thereof, and agrees
to reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity
agreement provided in this Section 8(b) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had
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<PAGE>
not been sent or given to such person within the time required by the Act and
the Rules and Regulations, unless such failure is the result of noncompliance
by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Underwriter within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Stockholder against
any losses, claims, damages or liabilities, joint or several, to which the
Company or such Selling Stockholder may become subject under the Act or
otherwise, specifically for costs and expenses )including reasonable
attorney's fees) losses, claims, damages or liabilities, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof, and agrees to
reimburse the Company and each such Selling Stockholder for any legal or
other expenses reasonably incurred by the Company and each such Selling
Stockholder in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer
of the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notified the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER,
that if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available
to the indemnifying party, the indemnified party or parties shall have the
right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently
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<PAGE>
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with appropriate local
counsel) approved by the indemnifying party representing all the indemnified
parties under Section 8(a), 8(b) or 8(c) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved
the terms of such settlement; PROVIDED that such consent shall not be
unreasonably withheld. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnification could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution
in any action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this Section 8
provides for indemnification in such case, all the parties hereto shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that, except as set forth in Section 8(f) hereof, the Underwriters severally
and not jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the public offering price,
and the Company and the Selling Stockholders are responsible for the
remaining portion, PROVIDED, HOWEVER, that (i) no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by such Underwriter in excess of the
amount of damages which such Underwriter has otherwise required to pay, and
(ii) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(e) shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if any,
who controls the Underwriters or the Company or any Selling Stockholder
within the meaning of the Act or the Exchange Act and each officer of the
Company who signed the Registration Statement and each director of the
Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the aggregate public offering price of the
Selling Stockholder Shares sold by such Selling Stockholder to the
Underwriters minus the amount of the underwriting discount paid thereon to
the Underwriters by such Selling Stockholder. The Company and such Selling
Stockholders may agree, as among themselves and without limiting the rights
of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
(g) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons and are fully informed regarding the
provisions hereof including, without limitation, the provisions of this
Section 8. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required
by the Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the
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<PAGE>
Underwriters herein or in certificates delivered pursuant hereto, and the
indemnity and contribution agreements contained in Section 8 hereof shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter or any controlling person within the
meaning of the Act or the Exchange Act, or by or on behalf of the Company or
any Selling Stockholder, or any of their officers, directors or controlling
persons within the meaning of the Act or the Exchange Act, and shall survive
the delivery of the Shares to the several Underwriters hereunder or
termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such
Firm Shares in accordance with the terms hereof, and if the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters so agreed
but failed to purchase does not exceed 10% of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to take up and pay for exceeds 10% of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them)
the Firm Shares which the defaulting Underwriter or Underwriters so agreed
but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing
Date shall be postponed for twenty-four (24) hours to allow the several
Underwriters the privilege of substituting within twenty-four (24) hours
(including non-business hours) another underwriter or underwriters (which may
include any nondefaulting Underwriter) satisfactory to the Company. If no
such underwriter or underwriters shall have been substituted as aforesaid by
such postponed Closing Date, the Closing Date may, at the option of the
Company, be postponed for a further twenty-four (24) hours, if necessary, to
allow the Company the privilege of finding another underwriter or
underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If
it shall be arranged for the remaining Underwriters or substituted
underwriter or underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section 10, (i) the Company
shall have the right to postpone the time of delivery for a period of not
more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements
to the Prospectus which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining
Underwriters and substituted underwriter or underwriters shall be taken as
the basis of their underwriting obligation. If the remaining Underwriters
shall not take up and pay for all such Firm Shares so agreed to be purchased
by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or
shall not elect to seek another underwriter or underwriters for such Firm
Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in
Sections 5 and 8 hereof) nor shall any Underwriter (other than an Underwriter
who shall have failed, otherwise than for some reason permitted under this
Agreement, to purchase the number of Firm Shares agreed by such Underwriter
to be purchased hereunder, which Underwriter shall remain liable to the
Company, the Selling Stockholders and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company or any Selling
Stockholder (except to the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
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<PAGE>
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the public offering
shall mean the time of the release by you, for publication, of the first
newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or
the Company, may prevent this Agreement from becoming effective without
liability of any party to any other party, except as provided in Sections
4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time at or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the
case may be, (i) if the Company or any Selling Stockholder shall have failed,
refused or been unable to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled is not fulfilled, including (without limitation, any
change in the condition (financial or otherwise), earnings, operations, or
business of the Company and its subsidiary considered as one enterprise from
that set forth in the Registration Statement or Prospectus) which, in your
sole judgment, is material and adverse to the Company, (ii) if the Company
shall have breached the representations and warranties set forth in Sections
2(I)(a), (b), (c) or (i) or if the same should become untrue in any material
respect, or (iii) if additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange
or in the over the counter market by the NASD, or trading in securities
generally shall have been suspended on either such exchange or in the over
the counter market by the NASD, or if a banking moratorium shall have been
declared by federal, New York or California authorities, or (iv) if the
Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as to interfere materially with
the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured, or (v) if there shall have
been a material adverse change in the general political or economic
conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery
of the Shares, or (vi) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration
by the United States of a national emergency which, in the reasonable opinion
of the Representatives, makes it impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. In the
event of termination pursuant to subparagraph (i) or (ii) above, the Company
shall remain obligated to pay costs and expenses pursuant to Sections 4(i), 5
and 8 hereof. Any termination pursuant to any of subparagraphs (ii) through
(vi) above shall be without liability of any party to any other party except
as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement
from becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to InVision Technologies, Inc., 3420
East Third Avenue, Foster City,
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<PAGE>
California 94404, telecopier number (415) 578-0930, Attention: Dr. Sergio
Magistri, Chief Executive Officer, with a copy to Robert L. Jones, Cooley
Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California 94306, telecopier number (415) 857-0663; if sent to one or more of
the Selling Stockholders, such notice shall be sent mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter)
to Dr. Sergio Magistri or Curt DiSibio, as Attorney-in-Fact for the Selling
Stockholders, at InVision Technologies, Inc., 3420 East Third Avenue, Foster
City, California 94404, telecopier number (415) 578-0930.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and the Selling
Stockholders and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person or corporation, other than the parties
hereto and their respective executors, administrators, successors and
assigns, and the controlling persons within the meaning of the Act or the
Exchange Act, officers and directors referred to in Section 8 hereof, any
legal or equitable right, remedy or claim in respect of this Agreement or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of
the parties hereto and their respective executors, administrators, successors
and assigns and said controlling persons and said officers and directors, and
for the benefit of no other person or corporation. No purchaser of any of
the Shares from any Underwriter shall be construed a successor or assign by
reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each of the several Underwriters,
and the Company and the Selling Stockholders shall be entitled to act and
rely upon any statement, request, notice or agreement made or given by you
jointly or by Robertson, Stephens & Company LLC on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling
Stockholders and the several Underwriters.
Very truly yours,
INVISION TECHNOLOGIES, INC.
By
---------------------------------------
SELLING STOCKHOLDERS
By
---------------------------------------
Attorney-in-Fact for the Selling
Stockholders named in Schedule B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
PRUDENTIAL SECURITIES INCORPORATED
SCHRODER WERTHEIM & CO.
DONALD & CO. SECURITIES INC.
On their behalf and on behalf of each of
the several Underwriters named in
Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By
---------------------------------------
Authorized Signatory
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<PAGE>
SCHEDULE A
Number of
Firm Shares
To Be
Underwriters Purchased
- ----------------------------------------- ------------
Robertson, Stephens & Company LLC. . . . . . . . .
Prudential Securities Incorporated
Schroder Wertheim & Co.
Donald & Co. Securities Inc. . . . . . . . . . . .
[NAMES OF OTHER UNDERWRITERS]
------------
Total . . . . . . . . . . . . . . . . . . . .
------------
------------
A-1
<PAGE>
SCHEDULE B
Number of Shares To
Company Be Sold
- ------------------- ------------------------------------
as Company Shares as Option Shares
InVision Technologies, Inc. 1,875,000 468,750
Total . . . . . . . . 1,875,000 468,750
Number of
Name of Selling Selling Stockholder Shares
Stockholder To Be Sold*
- --------------------- ----------------------------
HARAX Holding, S.A. 776,239
Eugenio Rendo 776,239
ElectroParts S.A. 130,083
Mario Rendo 130,083
HAKON Holdings, S.A. 116,808
PASTEC Holding, S.A. 106,321
EG&G International Ltd. 91,875
Dr. Sergio Magistri 10,000
Sauveur Chemouni 5,363
Frederick L. Roder 3,200
Dr. Benno Stebler 6,443
Stephen Wolff 3,668
Dr. Giovanni Lanzara 106,321
Dr. Bruno Trezza 116,808
-------
Total. . . . . . . . . . . . 251,803
-------
-------
________________________
* As part of the Firm Shares. No Selling stockholder is selling shares as
part of the Option Shares.
B-1
<PAGE>
SCHEDULE C
Stockholders Who Are To Have
Executed and Delivered Lock-Up Agreements
-----------------------------------------
C-1
<PAGE>
Exhibit 5.1
[COOLEY GODWARD LLP LETTERHEAD]
ROBERT L. JONES
415 843-5034
[email protected]
April 16, 1997
InVision Technologies, Inc.
3420 East Third Avenue
Foster City, CA 94404
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by InVision Technologies, Inc. (the "Company") of a
Registration Statement on Form S-1 on March 14, 1997 (the "Registration
Statement") with the Securities and Exchange Commission covering the offering
of up to Three Million Five Hundred Ninety Three Thousand Seven Hundred
Fifty (3,593,750) shares of the Company's Common Stock with a par value of
$0.001 (the "Shares").
In connection with this opinion, we have examined the Registration Statement,
the Company's Amended and Restated Certificate of Incorporation and Bylaws,
as amended, and such other documents, records, certificates, memoranda and
other instruments as we deem necessary as a basis for this opinion. We have
assumed the genuineness and authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof, and the due execution and delivery of all documents where due
execution and delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and the related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters"
in the Prospectus included in the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
/s/ Robert L. Jones
Robert L. Jones
<PAGE>
Exhibit 10.8
QUANTUM MAGNETICS, INC.
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (the "Agreement") is made and entered into
this 10th day of April, 1997, by and among Quantum Magnetics, Inc., a California
corporation (the Company"), those certain holders of the Company's Common
Stock listed on Exhibit A hereto (the "Key Shareholders") and the person or
entity listed on Exhibit B hereto (the "Investor").
WITNESSETH:
WHEREAS, the Key Shareholders are the beneficial owners of an aggregate
of five million seventy eight thousand three hundred seventy five (5,078,375)
shares of the capital stock of the Company; and
WHEREAS, the Company proposes to sell shares of its Series D Preferred
Stock (the "Series D Preferred Stock") to the Investor pursuant to terms of
the Series D Preferred Stock Purchase Agreement of even date herewith (the
"Purchase Agreement");
WHEREAS, in connection with the consummation of the transactions
contemplated by the Purchase Agreement (the "Financing"), the Company, the
Key Shareholders and the Investor have agreed to provide for the future
voting of their shares of the Company's capital stock as set forth below.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
VOTING
1.1 COMMON SHARES; INVESTOR SHARES.
(a) The Key Shareholders each agree to hold all shares of voting capital
stock of the Company registered in their respective names or beneficially
owned by them as of the date hereof, and any and all other securities of the
Company legally or beneficially acquired by each of the Key Shareholders
after the date hereof, (hereinafter collectively referred to as the "Key
Shareholder Shares") subject to, and to vote the Key Shareholder Shares in
accordance with, the provisions of this Agreement.
(b) The Investor agrees to hold all shares of voting capital stock of
the Company now owned or hereinafter acquired by it (including but not
limited to all shares of Common Stock issued upon conversion of the Series D
Preferred Stock) registered in its name or beneficially
1.
<PAGE>
acquired by the Investor after the date hereof (hereinafter collectively
referred to as the "Investor Shares") subject to, and to vote the Investor
Shares in accordance with, the provisions of this Agreement.
1.2 VOTING.
(a) At each election of directors in which the holders of Common Stock
and holders of Preferred Stock, voting together as a single class, are
entitled to elect directors of the Company, the Key Shareholders and the
Investor shall consult each other and shall vote their respective shares of
the Company's voting stock such that (i) two directors will be nominees of
the holders of a majority in interest of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Common Stock, voting
together as a single class on an as-if-converted basis; (ii) two directors
shall be the nominee of the holders of the Series A Preferred and Series C
Preferred voting together as a single class on an as-if-converted basis,
(iii) two directors shall be the nominee of the holders of a majority in
interest of Series B Preferred and Common Stock, voting together as a single
class on an as-if-converted basis; and (iv) one director shall be the nominee
of the holders of the Series D Preferred, voting as a separate class.
(b) Except as otherwise permitted pursuant to Section 1.2(c) hereof,
during the period beginning upon the Series D Closing (as defined in the
Purchase Agreement) and ending eight months thereafter, at any time from that
day forth in which the holders of Common Stock and holders of Preferred
Stock, voting together as a single class, are entitled to elect directors of
the Company, the Key Shareholders and Investors shall consult each other and
shall vote their respective shares of the Company's voting stock such that,
if at any time during the aforesaid eight-month period, the Company (i) seeks
out, is approached by a third party with, or otherwise receives an offer to
enter into a joint development agreement or relationship, a license or other
transfer of technology rights, or any other technology development
relationship with a third party, for the development of any explosive
detection system for use in the field of aviation security or drug detection
with a third party, (ii) seeks to increase or decrease the authorized number
of shares of the Common Stock of the Company, (iii) takes any action which
results in the creation (by reclassification or otherwise) of any new class
or series of shares having rights, preferences or privileges senior to or on
a parity with the Series D Preferred, (iv) takes any action which results in
the redemption of any shares of Common Stock (other than pursuant to employee
agreements), (v) takes any action which results in any merger, other
corporate reorganization, sale of control, or any transaction in which all or
substantially all of the assets of the Company are sold, (vi) takes any
action which results in any sale, lease, assignment, transfer or other
conveyance out of the ordinary course of business of assets of the Company or
any corporation more than 50% of whose outstanding voting stock is owned by
the Company ("Subsidiary") which involves an aggregate consideration of more
than 50% of the book value of the Corporation's consolidated assets, or any
merger, reorganization or recapitalization of the Corporation resulting in a
change in control of equity securities holding more than 50% of the voting
power of the Company's equity securities, or make any agreement or become
obligation to do so, unless the obligations of the Company under such
agreement are expressly conditioned upon the approval required hereby, the
holders of the Common Stock, Series A Preferred, Series
2.
<PAGE>
B Preferred and Series C Preferred shall vote their shares as directed by the
holders of a majority of the Series D Preferred with respect to such
transaction or, in the event that no shareholder vote is required, shall
direct their respective board representatives to vote in accordance with the
recommendation of the board representative of the Series D Preferred.
(c) The parties agree that this Shareholder Agreement shall not require
them to vote their shares or direct their representatives on the Company's
Board of Directors so as to prevent the Company from engaging in a merger,
acquisition or sale of substantially all of the assets of the Company in
which the shareholders of the Company do not own a majority of the
outstanding shares of the surviving corporation.
1.3 LEGEND.
(a) Concurrently with the execution of this Agreement, there shall be
imprinted or otherwise placed, on certificates representing the Key
Shareholder Shares and the Investor Shares the following restrictive legend
(the "Legend"):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT WHICH PLACES CERTAIN
RESTRICTIONS ON THE VOTING OF THE SHARES REPRESENTED HEREBY. ANY PERSON
ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND
SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH AGREEMENT. A COPY OF
SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF
THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO QUANTUM
MAGNETICS, INC. AT ITS PRINCIPAL PLACE OF BUSINESS."
(b) The Company agrees that, during the term of this Agreement, it
will not remove, and will not permit to be removed (upon registration of
transfer, reissuance of otherwise), the Legend from any such certificate
and will place or cause to be placed the Legend on any new certificate
issued to represent Key Shareholder Shares or Investor Shares
theretofore represented by a certificate carrying the Legend.
1.4 SUCCESSORS. The provisions of this Agreement shall be binding upon the
successors in interest to any of the Key Shareholder Shares or Investor
Shares. The Company shall not permit the transfer of any of the Shareholder
Shares or Investor Shares on its books or issue a new certificate
representing any of the Shareholder Shares or Investor Shares unless and
until the person to whom such security is to be transferred shall have
executed a written Agreement, substantially in the form of this Agreement,
pursuant to which such person becomes a party to this Agreement and agrees to
be bound by all the provisions hereof as if such person were a Key
Shareholder or Investor, as applicable.
1.5 OTHER RIGHTS. Except as provided by this Agreement, each Key
Shareholder and Investor shall exercise the full rights of a shareholder with
respect to the Key Shareholder Shares and the Investor Shares, respectively.
3.
<PAGE>
ARTICLE II
TERMINATION
2.1 This Agreement shall continue in full force and effect from the date
hereof through the earliest of the following dates, on which it shall
terminate in its entirety:
(a) the date of the closing of a firmly underwritten public offering of
the Company's Common Stock pursuant to a registration statement filed with,
and declared effective under the Securities Act of 1933, as amended; or
(b) at such time as the Investors hold less than One Hundred Thousand
(100,000) shares of Preferred Stock (as adjusted for stock splits and the
like); or
(c) ten (10) years from the date of this Agreement; or
(d) the date as of which the parties hereto terminate this Agreement by
written consent of a majority in interest of the Investors and a majority in
interest of the Key Shareholders.
ARTICLE III
MISCELLANEOUS
3.1 OWNERSHIP. Each Key Shareholder represents and warrants to the Investor
that (a) he or she now owns the Key Shareholder Shares free and clear of
liens or encumbrances, and has not, prior to or on the date of this
Agreement, executed or delivered any proxy or entered into any other voting
agreement or similar arrangement other than one which has expired or
terminated prior to the date hereof, and (b) such Key Shareholder has full
power and capacity to execute, deliver and perform this Agreement, which has
been duly executed and delivered by, and evidences the valid and binding
obligation of, such Key Shareholder enforceable in accordance with its terms.
3.2 FURTHER ACTION. If and whenever the Key Shareholder Shares are sold,
the Key Shareholders or the personal representative of the Key Shareholders
shall do all things and execute and deliver all documents and make all
transfers, and cause any transferee of the Key Shareholder Shares to do all
things and execute and deliver all documents, as may be necessary to
consummate such sale consistent with this Agreement.
3.3 SPECIFIC PERFORMANCE. The parties hereto hereby declare that it is
impossible to measure in money the damages which will accrue to a party
hereto or to their heirs, personal representatives, or assigns by reason of a
failure to perform any of the obligations under this Agreement and agree that
the terms of this Agreement shall be specifically enforceable. If any party
hereto or his heirs, personal representatives, or assigns institutes any
action or proceeding to specifically enforce the provisions hereof, any
person against whom such action or proceeding is brought hereby waives the
claim or defense therein that such party or such personal
4.
<PAGE>
representative has an adequate remedy at law, and such person shall not offer
in any such action or proceeding the claim or defense that such remedy at law
exists.
3.4 GOVERNING LAW. This Agreement, and the rights of the parties hereto,
shall be governed by and construed in accordance with the laws of the State
of California as such laws apply to agreements among California residents
made and to be performed entirely within the State of California.
3.5 AMENDMENT. This Agreement may be amended only by an instrument in
writing signed by the Company, a majority in interest of the Investors and a
majority in interest of the Key Shareholders.
3.6 SEVERABILITY. If any provision of this Agreement is held to be invalid
or unenforceable, the validity and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
3.7 SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, assigns,
administrators, executors and other legal representatives.
3.8 ADDITIONAL SHARES. In the event that subsequent to the date of this
Agreement any shares or other securities (other than any shares or securities
of another corporation issued to the Company's shareholders pursuant to a
plan of merger) are issued on, or in exchange for, any of the Key Shareholder
Shares or Investor Shares by reason of any stock dividend, stock split,
consolidation of shares, reclassification or consolidation involving the
Company, such shares or securities shall be deemed to be Key Shareholder
Shares or Investor Shares, as the case may be, for purposes of this Agreement.
3.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which
together shall constitute one and the same agreement.
3.10 WAIVER. No waivers of any breach of this Agreement extended by any
party hereto to any other party shall be construed as a waiver of any rights
or remedies of any other party hereto or with respect to any subsequent
breach.
3.11 ATTORNEY'S FEES. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party shall be
entitled to all costs and expenses of maintaining such suit or action,
including reasonable attorneys' fees.
3.12 ENTIRE AGREEMENT. This Agreement, the Purchase Agreement and the
Related Agreements (as such term is defined in the Purchase Agreement)
constitute the entire agreement of the parties concerning the matters set
forth herein, and supercede all prior and contemporaneous agreements and
understandings. In the event of a conflict between this Agreement and the
Purchase Agreement and/or the Related Agreements as to any matter set forth
herein, the terms of this Agreement shall control.
5.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Shareholders Agreement as of the date first above written.
COMPANY: INVESTOR:
QUANTUM MAGNETICS, INC. INVISION TECHNOLGIES, INC.
By: /s/ Dale Sheets By: /s/ Sergio Magistri
----------------------------- ------------------------------
Dale Sheets, President Sergio Magistri, CEO
KEY SHAREHOLDERS:
/s/ Lowell J. Burnett
- ----------------------------------------
Lowell J. Burnett
/s/ John C. Downing
- ----------------------------------------
John C. Downing, Trustee of the John C.
Downing Trust dated 5/20/94
/s/ Andrew D. Hibbs
- ----------------------------------------
Andrew D. Hibbs
/s/ Barton G. Ice
- ----------------------------------------
Barton G. Ice
/s/ Mildred Ice
- ----------------------------------------
Mildred Ice, Trustee of the Lawrence Everett
Ice Testamentary Trust, dated 12/20/82
/s/ George W. Leisz
- ----------------------------------------
George W. Leisz,
Trustee Under Trust Dated 6/24/82
6.
<PAGE>
/s/ Jacquelin R. Leisz
- ----------------------------------------
Jacquelin R. Leisz,
Trustee Under Trust Dated 6/24/82
/s/ William B. Lindgren
- ----------------------------------------
William B. Lindgren
/s/ Randall R. Lunn
- ----------------------------------------
Randall R. Lunn
Quantum Design
By: /s/ David Schultz
-----------------------------
David Schultz
Title: Chief Operating Officer
/s/ Benjamin D. Thorson
- ----------------------------------------
Benjamin D. Thorson
TVM Eurotech Limited Partnership
By: TVM Techno Venture Management Limited Partnership,
Its: General Partner
By: TVM Management Corporation,
Its: General Partner
By: /s/ Joe J. Bell
----------------------------
Title: Treasurer
----------------------------
TVM Intertech Limited Partnership
By: TVM Techno Venture Management Limited Partnership,
Its: General Partner
By: TVM Management Corporation,
Its: General Partner
By: Joe J. Bell
----------------------------
Title: Treasurer
----------------------------
7.
<PAGE>
TVM Techno Venture Enterprises No. Ii Limited Partnership
By: TVM Techno Venture Management Limited Partnership,
Its: General Partner
By: TVM Management Corporation,
Its: General Partner
By: Joe J. Bell
----------------------------
Title: Treasurer
----------------------------
TVM Techno Venture Investors No. 1 Limited Partnership
By: Joe J. Bell
----------------------------
Title: General Partner
TVM Zweite Beteilgung-Us Limited Partnership
By: TVM Techno Venture Management Limited Partnership,
Its: General Partner
By: TVM Management Corporation,
Its: General Partner
By: Joe J. Bell
----------------------------
Title: Treasurer
----------------------------
/s/ David Cox
- ----------------------------------------
David Cox
/s/ Ronald Sager
- ----------------------------------------
Ronald Sager
/s/ Michael Simmonds
- ----------------------------------------
Michael Simmonds
Signal Ventures
By: /s/ Daniel W. Derby
----------------------------
Title: Partner
----------------------------
8.
<PAGE>
EXHIBIT A
LIST OF KEY SHAREHOLDERS
<TABLE>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES OF
NAME/ADDRESS OF SERIES A PREFERRED OF SERIES B PREFERRED OF SERIES C PREFERRED COMMON STOCK
- ------------------------ --------------------- --------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Lowell J. Burnett 34,907 60,000 636,073
7740 Kenamar Court
San Diego, CA 92121
David Cox 20,000 201,566
11578 Sorrento Valley
Road
San Diego, CA 92121
John C. Downing, 166,000 50,000 20,000
Trustee of the
John C. Downing Trust
dated 5/20/94
790 Neptune Avenue
Leucadia, CA 92024
Barton G. Ice 25,000 213,611 84,400
c/o John A. Levin
Company
One Rockefeller Plaza,
25th Floor
New York, NY 10020
George W. Leisz and 16,667 35,601 20,000 35,000
Jacquelin R. Leisz
Trustees Under Trust
Dated 6-24-82
7241 Encelia Drive
La Jolla, CA 92037
William B. Lindgren 236,566
1361 Cherrytree Court
Encinitas, CA 92024
Randall R. Lunn 20,000
101 Arch Street, Suite
1950
Boston, MA 02110
Quantum Design, Inc. 869,036 125,001
11578 Sorrento Valley
Road
San Diego, CA 92121
Ronald Sager 201,566
11578 Sorrento Valley
Road
San Diego, CA 92121
</TABLE>
9.
<PAGE>
<TABLE>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES OF
NAME/ADDRESS OF SERIES A PREFERRED OF SERIES B PREFERRED OF SERIES C PREFERRED COMMON STOCK
- ------------------------ --------------------- --------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Signal Ventures 66,667 213,611 99,120
777 South Pacific Coast
Highway
Suite 107
Solana Beach, CA
92075
Michael Simmonds 235,228
11578 Sorrento Valley
Road
San Diego, CA 92121
Benjamin D. Thorson 142,088
7740 Kenamar Court
San Diego, CA 92121
TVM Eurotech Limited 186,667 60,000
Partnership
101 Arch Street, Suite
1950
Boston, MA 02110
TVM Intertech Limited 186,667 60,000
Partnership
101 Arch Street, Suite
1950
Boston, MA 02110
TVM Techno Venture 280,000 90,000
Enterprises
No. II Limited
Partnership
101 Arch Street, Suite
1950
Boston, MA 02110
TVM Techno Venture 17,333
Investors
No. 1 Limited
Partnership
101 Arch Street, Suite
1950
Boston, MA 02110
TVM Zweite 280,000 90,000
Beteilgung-US
Limited Partnership
101 Arch Street, Suite
1950
Boston, MA 02110
TOTAL 1,225,001 497,730 1,502,556 1,853,088
</TABLE>
10.
<PAGE>
EXHIBIT B
LIST OF INVESTORS
INVESTOR SERIES D PREFERRED
- -------- ------------------
InVision Technologies, Inc. 1,185,700
11.
<PAGE>
Exhibit 10.16.1
April 2, 1997
Fred Roder
9680 Britford Drive
Burke, VA 22015
Dear Fred,
Reference is made to the Stock Purchase Agreement between the Company and you
dated as of December 31, 1996 (the "Agreement") which accords certain
registration rights to you with respect to 32,000 post-split shares of common
stock of InVision Technologies, Inc. In consideration of your execution and
delivery of a certain Waiver of Registration Rights and a certain Lock-up
Agreement requested by the Company's underwriters (together, the "Overhang
Agreements") in connection with a planned underwritten public offering, the
Company agrees to amend the first sentence of section 2.1 of the agreement as
follows:
"The Purchaser shall not later than one year after the Closing Date or 120
days after the effective date of a Registration Statement under Section
2.2(b) hereof, whichever occurs first (the "Filing Date"), prepare and file
with the SEC a Registration Statement pursuant to Rule 415 (or any
appropriate similar rule that may be adopted by the SEC) under the Act
covering the Registrable Securities (the "Shelf Registration").
All other terms of the Agreement will remain the same. Copies of the above
referenced sections of the Agreement are attached for your convenience.
Please indicate your acceptance of this change by signing and returning a
copy of this letter to me by April 3, 1997. The change will become effective
without further documentation upon delivery by you of executed originals of
the Overhang Agreements.
Sincerely,
InVision Technologies, Inc.
By: /s/ CURTIS P. DISIBIO
-------------------------------
Curtis P. DiSibio
Vice President, Finance and
Administration and Chief
Financial Officer
Agreed to and accepted:
/s/ FREDRICK L. RODER
- ------------------------------
Frederick L. Roder
Date: 4/3/97
1.
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING CALCULATION OF NET INCOME (LOSS) PER SHARE (1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss).................................................... $ (3,292) $ (3,572) $ (1,215) $ 642
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding:
Common Stock....................................................... 90 5,820 148 9,179
Common Stock issuable upon exercise of options granted through
January 16, 1995 (3)............................................. -- -- -- --
Common Stock issuable upon exercise of options and warrants granted
from January 17, 1995 to April 23, 1996 (4)...................... 838 280 825 --
Common Stock issuable upon exercise of options granted subsequent
to April 23, 1996 (3)............................................ -- -- -- --
Common Stock issuable upon exercise of options and warrants........ -- -- -- 1,093
Convertible Preferred Stock issued before January 16, 1995 (5)..... 3,894 1,304 3,894 --
Convertible Preferred Stock issued after January 16, 1995 (6)...... 1,820 738 2,214 --
--------- --------- --------- ---------
Weighted average shares outstanding.................................. 6,642 8,142 7,081 10,272
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per share.......................................... $ (0.50) $ (0.44) $ (0.17) $ 0.06
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) This exhibit should be read in conjunction with Note 2 of Notes to
Consolidated Financial Statements.
(2) Share and per share data adjusted to reflect the 1-for-11 reverse stock
split which occurred in March 1996 and the 2-for-1 stock split which
occurred February 7, 1997.
(3) Stock options granted prior to January 16, 1995, or subsequent to April 23,
1996 are excluded as their effect is anti-dilutive.
(4) Stock options and warrants granted from January 17, 1995 through April 23,
1996 (using the treasury stock method and the Company's initial offering
price of $11 per share) have been included for all periods presented through
the effective date of the Company's initial public offering.
(5) Convertible preferred stock (using the if converted method) issued prior to
January 16, 1995 is included from date of issuance through its conversion on
April 23, 1996.
(6) Convertible preferred stock (using the if converted method for periods after
issuance and the treasury stock method for periods before issuance) issued
after January 16, 1995 has been included for all periods presented, through
its conversion on April 23, 1996.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 20, 1997,
relating to the consolidated financial statements of InVision Technologies,
Inc., which appears in such Prospectus. We also consent to the reference to us
under the headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data".
PRICE WATERHOUSE LLP
San Jose, California
April 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM S-1
(REGISTRATION NO. 333-23413) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 2,363 2,251
<SECURITIES> 0 0
<RECEIVABLES> 5,987 5,476
<ALLOWANCES> 0 0
<INVENTORY> 4,810 6,111
<CURRENT-ASSETS> 13,452 16,837
<PP&E> 2,845 3,104
<DEPRECIATION> 1,041 1,232
<TOTAL-ASSETS> 15,256 19,509
<CURRENT-LIABILITIES> 6,072 9,554
<BONDS> 0 0
0 0
0 0
<COMMON> 9 9
<OTHER-SE> 9,065 9,836
<TOTAL-LIABILITY-AND-EQUITY> 15,256 19,509
<SALES> 15,841 9,377
<TOTAL-REVENUES> 15,841 9,377
<CGS> 9,736 4,708
<TOTAL-COSTS> 9,736 4,708
<OTHER-EXPENSES> 8,338 3,909
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,511) (10)
<INCOME-PRETAX> (3,572) 773
<INCOME-TAX> 0 131
<INCOME-CONTINUING> (3,572) 642
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,572) 642
<EPS-PRIMARY> (0.17) 0.06
<EPS-DILUTED> 0 0
</TABLE>
