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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended JUNE 30, 1996
OR
_________Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________
Commission file number 0-15963
INVIVO CORPORATION
(Exact name as specified in its charter)
DELAWARE 77-0115161
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4900 HOPYARD RD. #210 PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 510-468-7600
Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $24,315,400 (computed on the
basis of the closing sale price of a share of Common Stock on September 18, 1996
as reported by the Nasdaq Stock Market).
There were 3,233,993 shares of the registrant's Common Stock, $.0008 par value,
outstanding on September 18, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A not later that 120 days after the end of the fiscal year (June
30, 1996) are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Invivo Corporation (formerly SafetyTek Corporation) and subsidiaries (the
"Company") are engaged in the design, manufacture and marketing of sensor-based
instruments for the medical devices, safety and industrial process control
markets.
Through its medical devices subsidiary Invivo Research, the Company offers a
line of patient safety monitors capable of continuous measurement of multiple
vital signs in the medical care environment. The Company believes that Invivo
Research has the only multi-parameter monitor line of products approved by the
United States Food and Drug Administration ("FDA") for use during magnetic
resonance imaging, or MRI. Opportunities exist in this market both for
retrofitting MRI equipment not presently equipped with monitoring devices and
for supplementing the capabilities of new systems being sold to health care
providers.
In April, 1996 the Company's Invivo Research subsidiary received FDA approval to
market its new "Millennia" portable multi-parameter vital signs monitor. The
Company believes this product positions it to expand from its current MRI
monitoring market niche into the much larger mainstream patient monitoring
market. Invivo Research also recently introduced a new non-invasive blood
pressure monitor utilizing digital signal proccessing for fast and consistent
measurements and an inexpensive multiparameter vital signs monitor designed
specifically for the low-end international market.
Invivo Research markets it products primarily to end users through its own
direct sales force. In addition, it has original equipment manufacturer ("OEM")
or similar relationships with General Electric, Siemens Medical Systems, Philips
Medical Systems and Hitachi.
The Company's line of safety products includes monitors used to detect harmful
levels of toxic and other gasses in the workplace and other environments. These
monitors are offered through its Lumidor Safety Products subsidiary. The
Company's other safety products include a line of oxygen monitoring equipment,
pressure gauges and related devices and calibration equipment that sets and
verifies the accuracy of gas monitors.
Prior to 1990, the Company's primary concentration was in the industrial process
control business. Its products for this market consist of pressure sensors and
non-contact infrared temperature measuring devices.
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PRODUCTS
MEDICAL DEVICES
The Company's patient safety monitors are capable of continuous and simultaneous
measurement of multiple physiological vital signs, and are used in operating
rooms, emergency rooms, critical care units, post-anesthesia care units and
recovery rooms, intensive care units, radiology units, and labor and delivery
rooms. The Company's multi-parameter physiologic patient monitors provide
monitoring for invasive and non-invasive blood pressure, blood oxygen
saturation, temperature, heart rate, respiration, and electrocardiograph (ECG)
and are especially suited for most anesthesia applications and general purpose
monitoring settings in the hospital.
The Company has pioneered multi-parameter vital signs monitoring equipment for
patient safety during magnetic resonance imaging (MRI). MRI is a relatively
recent diagnostic tool that uses electromagnetic fields and radio frequency to
perform non-invasive imaging. Since direct viewing and access to the patient is
limited during MRI, accurate methods for patient monitoring are desirable to
ensure the safety of the patient. The Company's MRI monitoring system is
designed for true MRI compatibility. The proper operation of the monitoring
system in the MRI environment requires special design features that 1) prevent
degradation of the diagnostic MRI quality and 2) eliminate interference in the
monitor's signal and wave form capabilities by radio frequencies and magnetic
fields. The Company's MRI monitoring system provides continuous monitoring of
ECG, respiration, heart rate, blood oxygen saturation, non-invasive blood
pressure and end-tidal CO2.
The Company's "Millennia" portable patient monitor is a compact and
comprehensive multi-parameter vital signs monitor which weighs under 15 pounds
and provides flexibility for both space and transport. The "Millennia" is
capable of displaying 6 waveforms and 23 associated numeric values on its active
matrix color display. Its standard features include battery operation, dual
channel recorder and a PCMCIA card for extended memory and programming
capabilities. The Company also offers the "Centurion" central station monitoring
system that allows communication from configured "Millennia" monitors to a
central display station. The system displays the monitoring of up to eight
patients simultaneously on a main monitoring screen that provides for rapid
interpretation of the vital signs information.
The Company also recently introduced a new non-invasive blood pressure monitor
utilizing digital signal proccessing for fast and consistent measurements and an
inexpensive multi-parameter vital signs monitor designed specifically for the
low-end international market. The Company's other monitors include a stand alone
pulse oximetry unit as well as dual parameter unit that monitors blood pressure
and oxygen saturation. The Company also manufactures and markets a portable,
hand held oxygen saturation monitor which offers a low-cost, transportable
monitoring unit for pulse oximetry.
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SAFETY
The Company's gas detection and monitoring instruments consist of single gas and
multi-gas monitors that are offered in both portable and stationary models. Gas
detection monitors are used for worker safety when toxic gasses or low levels of
oxygen are suspected. Portable units are carried or worn by the user and are
equipped with audible and visual alarms to warn that a potential danger exists.
Typical applications for these units are in industrial or other settings where
the user expects to move about, including underground spaces housing telephone
cables and waste water sewers, mines and large factories. Stationary gas area
monitors are used in smaller, confined spaces when chemicals or gasses are being
used or stored. Typical applications for these monitors are oil refineries,
chemical plants and semiconductor fabrication facilities. Invivo's gas detection
and monitoring instruments feature either digital or analog technology. Single
gas monitors are manufactured to measure any one of a variety of gasses such as
hydrogen sulfide, carbon monoxide, nitrous oxide, oxygen or butadiene. Multi-gas
monitors will simultaneously measure and monitor four different gasses, which
typically consist of oxygen, carbon monoxide, hydrogen sulfide and one toxic
gas.
The Company's "MicroMax", is a pocket-sized, microprocessor based, portable
multi-gas monitor. The Company believes the monitor competes favorably on size,
technical features and price.
The Company's gas calibrators are based upon teflon permeation tube technology
that allows them to produce samples of approximately 200 different types of
gasses at various flow rates. The primary application for such products is for
the calibration of air pollution monitoring systems, gas chromatographs and gas
detectors. The customer base for these instruments is made up of OEMs and end
users such as refineries, chemical plants, utilities and hospitals.
Invivo's oxygen monitoring products measure the oxygen levels in air cylinders
used by individuals in oxygen-deprived situations. These products consist of a
direct drive pressure gauge and hose assembly. The primary applications for this
equipment are in life support systems for fire fighters and hazardous material
clean-up workers. This equipment is also used in measuring oxygen levels in
scuba divers' tanks.
INDUSTRIAL PROCESS CONTROL
The Company's industrial sensor and instrumentation products consist of pressure
sensors and infrared non-contact temperature measuring devices.
The Company's pressure sensing devices are sold primarily to plastic extrusion
equipment manufacturers which utilize this equipment in their production
processes. Pressure sensors are also used by the food, beverage, synthetic fiber
and pharmaceutical industries to enable manufacturers in these industries to
measure the pressure of processing ingredients.
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The infrared non-contact temperature measuring products are used in a wide
variety of industrial process control applications. These applications include
the fabrication of semiconductors, the manufacturing of metals and glass, and
miscellaneous curing processes.
PRODUCT REVENUES
The percentage of the Company's revenues contributed by its medical device line
of products was 50%, 52 % and 49%, respectively, for fiscal years 1994, 1995,
and 1996. The percentage of the Company's revenues contributed by its safety
line of products was 36%, 36% and 39%, respectively, for fiscal years 1994,
1995, and 1996.
MARKETS AND SALES
The Company's patient safety monitoring products are sold in the United States
through Invivo Research's direct sales force. Sales throughout the rest of the
world are handled through distributors, assisted by the Company's international
sales personnel. Invivo Research recently hired its first direct salesperson in
Europe to oversee its European distribution network. In connection with the
introduction of the new "Millennia" vital signs monitor, the Company has
expanded and plans to further expand Invivo Research's direct domestic sales
force.
The Company's patient safety monitoring products are sold primarily to hospitals
and to a lesser degree to clinical health care facilities and OEM customers.
The Company markets its gas detection, gas calibration and oxygen monitoring
products mostly through distributors and its own sales personnel. These products
are sold primarily to municipalities, utilities, telephone companies, oil
refineries, manufacturers and OEMs, as well as distributors. During the last two
fiscal years, the Company increased the number of distributors and selectively
replaced certain former distributors of its gas detection products.
The Company's industrial sensor and instrumentation products are sold primarily
through a network of independent sales representatives.
The Company provides service and repair to purchasers of its products under
warranty, and thereafter on a contract basis.
Foreign sales represented 15%, 15% and 20% of the Company's total sales in
fiscal 1994, 1995, and 1996. The Company is actively trying to expand its
international presence, especially in the patient safety monitoring business.
The Company's backlog of unfilled purchase orders for all its products was
approximately $3,290,246 as of June 30, 1996, compared to approximately
$4,005,000 as of June 30, 1995 and approximately $4,667,000 as of June 30, 1994.
The Company expects to ship in fiscal 1997 all of the June 30, 1996 backlog.
Because of customer changes in delivery schedules and cancellation of orders,
the Company's backlog
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as of any particular date may not be representative of the Company's actual
sales for any succeeding fiscal period. Historically, order cancellations have
not been significant. The Company's businesses are not inherently seasonal,
although for some of the Company's businesses orders and shipments in the
Company's first and second quarters have been historically lower than in the
third and fourth quarters.
MANUFACTURING AND ASSEMBLY
Virtually all of the Company's products are assembled by the Company at its
facilities in California and Florida from components and subassemblies
manufactured by others to Company specifications. The materials and supplies
used to produce the Company's products are generally obtained from a wide
variety of suppliers, and the Company has not experienced any significant
shortages. Although certain materials used in the manufacture of certain patient
safety monitoring and gas monitoring devices are readily available from only a
few suppliers, the Company does not anticipate any significant difficulties in
obtaining any of these materials in the foreseeable future. The Company does not
believe its business requires a disproportionate amount of working capital
relative to the amount of its sales as compared to other manufacturers of
comparable size.
COMPETITION
The medical device lines in which the Company competes include MRI and non-MRI
products. The Company is unaware of other significant competitors in the United
States for its MRI monitors. It believes that the limited size of this market
and the expense and time required to secure FDA approval of, and to otherwise
bring to market, a competitive product are disincentives to potential
competition. Nonetheless, there can be no assurance that MRI manufacturers or
other medical device manufacturers will not seek to enter this market. The
non-MRI patient safety monitoring market in which the Company competes is highly
competitive, including primarily companies that are much larger than the Company
with significantly greater financial resources. The Company believes its
recently introduced "Millennia" monitor competes favorably with those of the
major competitors in terms of features and price.
The markets for the Company's other products are, in general, characterized by a
limited number of competitors; however, these markets are highly competitive.
Although the Company believes that each of its products compares favorably with
those of its competitors on the basis of one or more competitive features, the
Company represents a relatively small factor in each market in which it
competes. Many of the Company's competitors are subsidiaries or divisions of
major corporations that have substantially greater financial resources and name
recognition than does the Company. The Company competes on the basis of product
reliability, quality, technical features, performance, responsiveness, service
and price, with the relative importance of each factor depending on the market
for the particular product.
In the Company's patient safety monitoring business, price has become an
especially important factor in hospital purchasing patterns as a
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result of cost containment pressures on the health care industry. To the extent
that healthcare reform measures negatively affect the financial condition of
hospitals and thereby reduce their capital purchases, the Company expects price
to continue to play a large part as a basis of competition. The Company
believes, however, that because its products are relatively low-cost capital
items, it is less subject to the effects of hospital budgetary constraints than
are suppliers of more costly capital equipment.
Although the Company has not had occasion to determine the aggregate number of
competitors in any given product line, it estimates there are generally five to
ten competitors in each product line.
RESEARCH AND EXPERIMENTAL
During fiscal years 1994, 1995, and 1996 the Company's research and experimental
expenses were approximately $1,548,800, $1,841,200, and $2,095,400,
respectively. The increase in these expenses in fiscal 1996 was principally due
to research and experimental expenditures on behalf of the patient safety
monitoring business.
The Company believes that its ability to compete effectively in the markets it
serves, as well as to grow, will depend in part upon its ability to develop new
products and improve existing ones.
PATENTS
Although a number of patents have been issued to the Company and its
subsidiaries, the Company believes its competitive position is more dependent on
the technical competence, creative skills and marketing ability of its personnel
than on its patents.
GOVERNMENTAL REGULATION
The patient safety monitoring devices manufactured and marketed by the Company
are subject to regulation by the United States Food and Drug Association ("FDA")
and, in some instances, corresponding state and foreign governmental agencies.
The Company's manufacturing facilities and the manufacture of its products are
subject to FDA regulations regarding registration of manufacturing facilities,
compliance with FDA "Good Manufacturing Practices" and the reporting of adverse
events. FDA regulations known as "Good Manufacturing Practices" provide
standards for medical device manufacturers with respect to manufacturing
processes, facilities and record-keeping. The Company is subject to periodic
on-site inspection for compliance with such regulations. The FDA may also
conduct investigations and evaluations of the Company's products at its own
initiative or in response to customer complaints or reports of malfunctions. If
the FDA believes that its regulations have been violated, it has extensive
enforcement authority including the power to seize, embargo or restrain entry of
products from the market and to prohibit the operation of manufacturing
facilities until the noted deficiencies are corrected to their satisfaction. The
Company believes it is in compliance with applicable FDA regulations.
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The Company's current products were cleared for marketing in the United States
through the FDA's Section 510(k) premarket notification process. The 510(k)
premarket notification process is available where the new product being
submitted to the FDA can be compared to a pre-existing commercially available
product that performs similar functions (a "substantially equivalent product").
If a product does not meet the eligibility requirements for the 510(k) process,
then it must be submitted, instead, under the more time consuming and costly
premarket approval procedure (PMA).
The Company seeks, where appropriate, to comply with the certification and
safety standards of various organizations such as Underwriters' Laboratories,
the Canadian Standards Association and the various safety and test regulations
of the European Community.
The manufacture and testing of its safety and medical device products requires
the Company to handle and store small quantities of a wide variety of chemicals,
some of which are highly toxic. Certain of these chemicals pose a serious threat
to workers and others who may come in contact with them if improperly used or
handled. Most municipalities, including those in which the Company is presently
located, now require that the proposed storage and use of dangerous chemicals
receive local approval. State air quality boards, or similar agencies, must also
approve the venting, and certain other aspects of handling, of these types of
chemicals. These municipal and state agencies may, as a condition to the
granting of approvals and permits, impose certain procedural limitations on the
Company's storage and handling of these chemicals and structural requirements on
the facilities where these chemicals are stored and used. They also impose
record keeping and reporting requirements on the users of these chemicals.
The Company believes that it presently is in compliance with all material
environmental regulations applicable to it. Compliance with these requirements
has not, to date, had a material effect on the Company's capital expenditures,
earnings or competitive position. Nonetheless, environmental regulation at the
local, state and national levels is still evolving, and the possibility exists
that more stringent limitations and requirements may become applicable to the
Company.
EMPLOYEES
As of June 30, 1996, the Company had 258 employees, all of whom were full-time.
The Company is not a party to any collective bargaining agreement and has not
experienced a strike or work stoppage. The Company considers its relations with
its employees to be good.
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ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth information with respect to the real property
owned or leased by the Company and its subsidiaries which the Company considers
material to its business.
Ownership or
General Character Expiration
Location and Use of Property Date of Lease
Fremont, California 18,000 square-foot building April, 2001
used as the Company's manufacturing
and distribution facility for its
gas calibration and process
control products
Orlando, Florida 25,000 square-foot building used Owned
as the manufacturing, distribution,
and administration facility for
the Company's patient safety
monitoring products
Cucamonga, California 24,000 square-foot building used December, 1998
as the manufacturing, distribution,
and administration facility for
the Company's oxygen monitoring
products
Miramar, Florida 9,000 square-foot building used June, 1997
as the manufacturing, distribution,
and administration facility for
the Company's gas detection and
monitoring products
From time to time, the Company leases smaller facilities as its needs dictate.
The Company considers its facilities to be sufficient for its current operations
except for the patient safety monitoring business facility, which it is
currently expanding by approximately 18,000 square feet in fiscal 1997. This
additional space will be used primarily for administrative offices with some
manufacturing space also being added.
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ITEM 3. LEGAL PROCEEDINGS
In March of 1996, the Company's Invivo Research subsidiary was named as one of
two third-party defendants in a lawsuit by Southern Nevada Surgical Center in
the District Court of Clark County in the State of Nevada. The underlying action
in this matter stems from an incident involving a surgical patient at the
Southern Nevada Surgical Center. The individual filed a lawsuit against the
Surgical Center and the physicians performing the surgery. The Company
understands that a substantial settlement was made to the patient by the
defendants in that action. Southern Nevada Surgical Center is now attempting to
obtain indemnity and contribution from the manufacturer of the ventilating
machine and Invivo Research, the manufacturer of the vital signs monitor.
Discovery in this matter has not yet been completed. It is anticipated a trial
date will be set for sometime in the spring of 1997. While the Company believes
that the vital signs monitor operated properly and was properly designed for the
its intended function, the outcome of this litigation cannot be predicted with
certainty at this time.
In July of 1995, the Company's Sierra Precision subsidiary was added as one of
three defendants in a wrongful death lawsuit by the estate of an individual
originally commenced in 1994 in Hampden County Superior Court of Massachusetts.
The lawsuit arose from the death of the individual in a drowning accident while
scuba diving. The individual was allegedly equipped with, along with other
diving equipment, a submersible pressure gauge manufactured by Sierra Precision.
All three defendants have denied liability and have pleaded by way of
affirmative defense that the death was due to the diver's own negligence.
The parties are still engaged in discovery which is not scheduled to be
completed until late 1996.
In addition to the legal proceedings above, the Company is subject to other
various legal proceedings that arise in the ordinary course of business. While
the outcome of all of these proceedings cannot be predicted with certainty, the
Company believes that none of such proceedings, individually or in the
aggregate, will have a material adverse effect on the Company's business or
financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1996.
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are listed below, together with brief
accounts of their business experience and certain other information.
Name Age Position
- --------------------------- --- --------
James B. Hawkins 40 President and
Chief Executive Officer
John F. Glenn 35 Vice President, Finance
Chief Financial Officer
F. Larry Young 37 Vice President, Operations
James B. Hawkins has been President, Chief Executive Officer and a Director of
the Company since August 1985. He has served as Secretary of the Company since
July 1986.
John F. Glenn was appointed Vice President, Finance and Chief Financial Officer
of the Company in November 1990.
F. Larry Young has been Vice President, Operations of the Company since April
1990.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
(a) Market Information
The Company's Common Stock is traded on The Nasdaq Stock Market under the Nasdaq
symbol "SAFE". The following table sets forth, for the applicable quarters
indicated, the high and low closing sale prices in such market for a share of
Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
Year Ended
June 30, 1996 June 30, 1995
------------- -------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 17-1/4 11-1/2 11-3/4 7-1/2
Second Quarter 16-3/8 13-1/2 9-1/4 7
Third Quarter 15-1/2 12 11-3/4 8-5/8
Fourth Quarter 14 9-3/4 12-1/4 10-1/4
</TABLE>
(b) Holders
The number of holders of record of the Company's Common Stock at June 30, 1995
was 79. The approximate number of holders, including participants in security
position listings as of September, 1996, was 1,300.
(c) Dividends
The present policy of the Company is to retain earnings to provide funds for the
operation and expansion of its business. The Company has not paid cash dividends
on its Common Stock and does not anticipate that it will do so in the
foreseeable future. The Company is prohibited from paying dividends on its
Common Stock pursuant to its bank credit agreement.
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ITEM 6. SELECTED FINANCIAL DATA
The consolidated financial data in the following table is qualified in its
entirety by, and should be read in conjunction with, the Consolidated Financial
Statements and Notes thereto and other financial and statistical information
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share amount)
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Sales $14,065 $ 19,289 $27,801 $32,489 $31,391
Net Income(loss) (1) 1,411 (5,891) 2,881 3,348 2,472
Net Income(loss) per
common share .54 (1.90) .86 .99 .72
Weighted average common
shares outstanding 2,633 3,151 3,359 3,390 3,456
BALANCE SHEET DATA:
Working capital 10,467 4,018 5,477 6,428 7,490
Total assets 15,052 13,613 17,427 19,860 22,204
Long-term debt 233 1,907 3,367 926 730
Stockholders' equity 12,295 6,053 9,137 12,616 15,276
</TABLE>
(1) The results of fiscal 1993 include the write off of $7,385,800 in acquired
in-process research and development.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES
The Company's net sales for fiscal 1996 decreased 3.4% to $31,390,900 from
$32,489,300 in fiscal 1995. The decrease was largely the result of a decline in
sales of the Company's MRI vital signs monitors at its patient safety monitoring
business. The Company believes that the decline was primarily attributable to
the restructuring of the sales management at its patient safety monitoring
business and the loss of certain sales personnel in connection with the
Company's decision to expand and upgrade that sales force. In addition, sales of
the older non-MRI vital signs monitors were adversely affected by the recent
introduction of the Company's "Millennia" multi-parameter vital signs monitor.
The new monitor received FDA approval in April, 1996 and was introduced in July,
1996. Continued strong sales growth for the Company's "Micromax" portable
multi-gas monitor at its gas detection business partially offset the sales
declines at the patient safety monitoring business and oxygen monitoring
business in fiscal 1996.
GROSS PROFIT
Gross profit margin decreased to 49.6% in fiscal 1996 from 51.2% in fiscal 1995.
This decrease was due principally to the lower sales volume in relation to the
fixed overhead component of manufacturing costs at the Company's patient safety
monitoring business coupled with the decline in sales of the Company's MRI vital
signs monitors which have higher gross margins than non-MRI vital signs
monitors.
OPERATING EXPENSES
Selling, general and administrative expenses for fiscal 1996 increased $189,600
or 2.0% over fiscal 1995 levels. The increase in these expenditures in fiscal
1996 was primarily attributable to increased selling and marketing expenses in
anticipation of the introduction of the "Millennia" vital signs monitor.
Selling, general and administrative expenses were 30.9% of sales in fiscal 1996
compared with 29.2% for fiscal 1995. The increase in these expenditures as a
percentage of sales for fiscal 1996 was principally the result of the spreading
of fixed selling, general and administrative expenses over the lower sales
volume at the patient safety monitoring business. In connection with the
introduction of its "Millennia" vital signs monitor, the Company intends to
significantly increase selling, general and administrative expenses over the
next twelve months.
Research and experimental expenses for fiscal 1996 increased $254,200 or 13.8%
over fiscal 1995 expenditures. Research and experimental expenses were 6.7% of
sales for fiscal 1996 compared to 5.7% for fiscal 1995. The increase as a
percentage of sales as well as in aggregate research and experimental expenses
in fiscal 1996 was due to higher research and experimental expenditures on
behalf of the patient
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safety monitoring business as the Company continues its efforts in developing
and enhancing its new "Millennia" vital signs monitor and other vital signs
monitoring products.
OTHER INCOME AND EXPENSE
Interest expense increased to $175,200 in fiscal 1996 from $114,800 in fiscal
1995 reflecting higher borrowings on the Company's revolving bank line of credit
in fiscal 1996.
PROVISION FOR INCOME TAXES
The effective tax rate for fiscal 1996 was 34.0% compared with 36.3% for fiscal
1995. This reduction in the effective tax rate was principally due to an
adjustment of prior year's taxes.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES
The Company's net sales for fiscal 1995 increased 16.9% to $32,489,300 from
$27,801,100 in fiscal 1994. The increase in net sales principally resulted from
higher sales at the Company's patient safety monitoring business which continued
to benefit from increasing demand for its MRI patient monitoring system. Sales
at the Company's gas detection business also increased primarily due to the
continued sales growth of the recently introduced "MicroMax" gas monitor.
GROSS PROFIT
Gross profit margin increased slightly to 51.2% in fiscal 1995 from 50.8% in
fiscal 1994. This increase was primarily due to the higher gross margins at the
Company's patient safety monitoring business which more than offset higher
manufacturing costs at the Company's gas detection and oxygen monitoring
business.
OPERATING EXPENSES
Selling, general and administrative expenses for fiscal 1995 increased
$1,567,000 or 19.8% over fiscal 1994 expenditures. Selling, general and
administrative expenses were 29.2% of sales in fiscal 1995 compared with 28.5%
in fiscal 1994. The increase in these expenditures was largely due to costs
related to the expansion of the direct sales force at the Company's patient
safety monitoring business, increased sales commission expenses associated with
the higher sales volumes at the patient safety monitoring and gas detection
businesses and additional administrative expenses to support the sales growth at
the patient safety monitoring and gas detection businesses.
Research and experimental expenses remained stable at approximately 5.7% of
sales in fiscal 1995. The increase of $292,400 in aggregate research and
experimental expenses for fiscal 1995 was due to research and experimental
expenditures on behalf of the patient safety monitoring business as the Company
continued the development of its next generation multi-parameter vital signs
monitor and stand alone non-invasive blood pressure monitor.
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OTHER INCOME AND EXPENSE
Interest expense decreased to $114,800 in fiscal 1995 from $141,400 in fiscal
1994 reflecting lower loan balances on the Company's revolving bank line of
credit and acquisition related term loan.
PROVISION FOR INCOME TAXES
The provision for income taxes increased to $1,905,000 in fiscal 1995 from
$1,674,400 in fiscal 1994. The effective tax rate for fiscal 1995 was 36.3% (as
compared to 36.8% in fiscal 1994) with the principal difference between the
effective tax rate and the federal statutory rate of 34% due to the effect of
state income taxes, the utilization of research and experimental credits and the
benefit of a foreign sales corporation.
INFLATION
The Company does not believe that inflation had a significant impact on its
results of operations during any of the last three fiscal years.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 will be effective for fiscal years beginning after
December 15, 1995, and will require that the Company either recognize in its
financial statements costs on a fair value basis related to its employee stock
based compensation plans, such as stock option and stock purchase plans, or make
pro forma disclosures of such costs in a note to the financial statements.
The Company expects to continue to use the intrinsic value-based method of
Accounting Principles Board Opinion No. 25, as allowed for all of its employee
stock-based compensation plans. Therefore, in fiscal 1997, the Company will make
the required pro forma disclosures in a note to its consolidated financial
statements. The adoption of SFAS No. 123 is not expected to have a material
effect on the Company's consolidated results of operations or financial
position.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1996 increased to $7,489,800 compared with
$6,427,500 at June 30, 1995. Cash and cash equivalents at March 31, 1996 were
$436,200 compared with $321,600 at June 30, 1995. Net cash provided by operating
activities was $2,725,900 for fiscal 1996 compared with $2,326,700 for fiscal
1995 as the decrease in net income was more than offset by an increase in
depreciation and amortization and positive changes in operating assets and
liabilities.
In fiscal 1993, the Company purchased 80% of the outstanding common stock of
Invivo Research, Inc. The agreement provided for a contingent payment resulting
in an initial payment of $1,000,000 made on July 15, 1994 and a final payment of
$2,000,000 paid on July 15, 1995. In fiscal 1994, the Company entered into an
agreement to acquire the
16
<PAGE> 17
remaining 20% of the Invivo Research, Inc. shares. The contingent purchase price
for such shares is to be paid in one or more installments. One-fifth of the
price "vests" on each of January 1, 1996, 1997 and 1998 and two-fifths vest on
January 1, 1999. The former Invivo Research shareholders can make one election
each year beginning in 1996 to be paid any vested payment. The amount of any
payment is based on the after tax profits of Invivo Research for the calendar
year preceding the year that the payment is made, regardless of when the payment
vested, subject to a minimum share price if certain milestones are achieved. The
former Invivo Research shareholders must, generally, elect to receive a payment
in any calendar year by giving notice to the Company by March of that year and
the payment so elected is to be made on June 1 of that year. The payments are to
be made in cash, but if the shareholders require that more than one-fifth of the
payments be made in any year, the Company can elect to make the excess amount of
the payment in the form of its shares. The Company was informed in March of 1996
that the former Invivo Research shareholders would elect to be paid on their
first installment. Based on the 1995 calendar year results for Invivo Research,
payment was made on June 1, 1996, for $987,900.
Bank borrowings increased $1,800,000 in fiscal 1996 principally as a result of
contingent payments of $2,000,000 on July 15, 1995 and $987,900 on June 1, 1996
made in connection with the Invivo Research acquisition. The Company's revolving
bank line of credit and $189,600 acquisition related term loan are
collateralized by the Company's accounts receivable, inventory, and equipment.
In December 1995, the Company renewed the bank line of credit to December 1,
1996 and increased the amount available under the revolving line of credit from
$3,000,000 to $4,000,000. At June 30, 1996, $1,800,000 was outstanding on the
line of credit.
The Company believes that its cash flow from operations and amounts available
from the bank line of credit will be adequate to meet its anticipated cash needs
for working capital and capital expenditures throughout fiscal 1997. The Company
will continue to explore opportunities for the possible acquisitions of
technologies or businesses, which may require the Company to seek additional
financing.
OUTLOOK. The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may
differ materially. These forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
In April, 1996 the Company's Invivo Research subsidiary received FDA approval to
market its new "Millennia" portable multi-parameter vital signs monitor. The
Company believes this product positions it to expand from its current MRI
monitoring market niche into the much larger mainstream patient monitoring
market. The Company expects this product to have a substantial impact on future
revenue growth and that its future financial results will to a large extent
depend on the success of this product. In connection with the introduction of
the new vital signs monitor, the Company intends to significantly expand its
direct domestic sales force and increase associated marketing expenses in the
next twelve months. Based on typical sales cycles in the patient monitoring
industry, the Company does not expect to
17
<PAGE> 18
receive sizable orders for this product prior to the second quarter of fiscal
1997. Therefore, the Company's operating results for the first half of fiscal
1997 are expected to be below those of prior fiscal periods.
The success of this new product will be dependent on a variety of factors, some
of which may be beyond the control of the Company. Among the factors that could
cause actual results to differ from those anticipated by the Company are:
economic conditions affecting the healthcare industry and general economy;
successful integration of the planned expansion of the Company's direct sales
force; adoption of an appropriate marketing program for the new product;
competitive factors, such as competitor's new products and pricing pressures;
and manufacturing ramp and capacity.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements:
Page
Number
------
Independent Auditors' Report 20
Consolidated Balance Sheets - June 30, 1996
and 1995 21
Consolidated Statements of Income for
the Years Ended June 30, 1996, 1995, and 1994 22
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1996, 1995,and 1994 23
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995,and 1994 24
Notes to Consolidated Financial Statements 25-32
19
<PAGE> 20
Independent Auditors' Report
The Board of Directors and Stockholders
Invivo Corporation:
We have audited the accompanying consolidated balance sheets of Invivo
Corporation (formerly SafetyTek Corporation) and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Invivo Corporation
(formerly SafetyTek Corporation) and subsidiaries as of June 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended June 30, 1996, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Palo Alto, CA
July 30, 1996
20
<PAGE> 21
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Consolidated Balance Sheets
June 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 436,200 321,600
Trade receivables, less allowance for doubtful accounts of
$231,000 and $236,900 in 1996 and 1995, respectively 6,415,500 6,199,600
Inventories 5,504,400 5,082,400
Deferred income taxes 587,000 519,500
Prepaid expenses and other current assets 584,500 456,500
----------- ----------
Total current assets 13,527,600 12,579,600
Property and equipment, net 2,762,900 2,516,600
Intangible assets 5,595,600 4,743,800
Other assets 317,500 20,100
----------- ----------
$22,203,600 19,860,100
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,636,300 1,343,500
Accrued expenses 1,901,300 1,967,200
Current portion of long-term debt and bank borrowings 2,022,400 2,483,300
Income taxes payable 384,900 267,800
Other 92,900 90,300
----------- ----------
Total current liabilities 6,037,800 6,152,100
Long-term debt, excluding current portion 729,500 926,400
Deferred income taxes 160,700 165,500
----------- ----------
Total liabilities 6,928,000 7,244,000
Stockholders' equity:
Common stock, $.0008 par value; 5,000,000 shares
authorized; 3,225,993 and 3,200,043 shares issued
and outstanding in 1996 and 1995, respectively 2,600 2,600
Additional paid-in capital 12,594,000 12,406,500
Retained earnings 2,679,000 207,000
----------- ----------
Total stockholders' equity 15,275,600 12,616,100
Commitments and contingencies
$22,203,600 19,860,100
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Consolidated Statements of Income
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales $ 31,390,900 32,489,300 27,801,100
Cost of goods sold 15,810,900 15,843,200 13,672,400
------------ ----------- -----------
Gross profit 15,580,000 16,646,100 14,128,700
------------ ----------- -----------
Operating expenses:
Selling, general, and administrative 9,690,700 9,501,100 7,934,100
Research and experimental 2,095,400 1,841,200 1,548,800
------------ ----------- -----------
Total operating expenses 11,786,100 11,342,300 9,482,900
------------ ----------- -----------
Income from operations 3,793,900 5,303,800 4,645,800
Other income (expense):
Interest expense (175,200) (114,800) (141,400)
Other, net 126,700 64,300 51,000
------------ ----------- -----------
Income before income taxes 3,745,400 5,253,300 4,555,400
Income tax expense 1,273,400 1,905,000 1,674,400
------------ ----------- -----------
Net income $ 2,472,000 3,348,300 2,881,000
============ =========== ===========
Net income per common share $ .72 .99 .86
============ =========== ===========
Weighted average common shares outstanding 3,455,501 3,389,980 3,359,103
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
(Accumulated
Additional deficit) Total
Common stock paid-in retained stockholders'
Shares Amount capital earnings equity
<S> <C> <C> <C> <C> <C>
Balances as of June 30, 1993 3,148,343 $2,500 12,072,300 (6,022,300) 6,052,500
Proceeds from exercise of options 31,750 -- 85,200 -- 85,200
Tax benefit from exercise of options -- -- 118,000 -- 118,000
Net income -- -- -- 2,881,000 2,881,000
--------- ------ ---------- ---------- ----------
Balances as of June 30, 1994 3,180,093 2,500 12,275,500 (3,141,300) 9,136,700
Proceeds from exercise of options 19,950 100 78,600 -- 78,700
Tax benefit from exercise of options -- -- 52,400 -- 52,400
Net income -- -- -- 3,348,300 3,348,300
--------- ------ ---------- ---------- ----------
Balances as of June 30, 1995 3,200,043 2,600 12,406,500 207,000 12,616,100
Proceeds from exercise of options 25,950 -- 84,100 -- 84,100
Tax benefit from exercise of options -- -- 103,400 -- 103,400
Net income -- -- -- 2,472,000 2,472,000
--------- ------ ---------- ---------- ----------
Balances as of June 30, 1996 3,225,993 $2,600 12,594,000 2,679,000 15,275,600
========= ====== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,472,000 3,348,300 2,881,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 601,400 509,800 430,900
Loss (gain) on sale of property andequipment 31,200 (38,800) --
Changes in operating assets and liabilities:
Trade receivables (215,900) (1,490,800) (531,200)
Inventories (412,500) (530,400) (643,700)
Deferred income taxes (72,300) 106,000 101,000
Prepaid expenses and other current assets (128,000) 7,900 (240,900)
Accrued expenses (65,900) 195,500 (283,200)
Accounts payable 292,800 256,900 (71,200)
Income taxes payable 220,500 (66,000) (158,100)
Other current liabilities 2,600 28,300 (14,100)
----------- ---------- ----------
Net cash provided by operating activities 2,725,900 2,326,700 1,470,500
----------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (769,300) (764,300) (496,100)
Proceeds from sale of property and equipment 17,000 63,900 --
Intangible assets (987,900) -- --
Other assets (297,400) (25,000) (25,000)
----------- ---------- ----------
Net cash used in investing activities (2,037,600) (725,400) (521,100)
----------- ---------- ----------
Cash flows from financing activities:
Issuances of stock 84,100 78,700 85,200
Bank borrowings (repayments), net 1,800,000 (50,000) (570,000)
Principal payments under acquisition notes payable, long-term debt, and other (2,457,800) (1,524,100)
(587,900)
Net cash used in financing activities (573,700) (1,495,400) (1,072,700)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 114,600 105,900 (123,300)
Cash and cash equivalents at beginning of year 321,600 215,700 339,000
----------- ---------- ----------
Cash and cash equivalents at end of year $ 436,200 321,600 215,700
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Notes to Consolidated Financial Statements
June 30, 1996, 1995, and 1994
(1) BUSINESS AND ACCOUNTING POLICIES
The Company
Invivo Corporation (formerly SafetyTek Corporation) and subsidiaries
(the Company) are engaged in the design, manufacture, and marketing of
sensor-based instruments for health, safety, and industrial process
control applications. Subsequent to year-end, the Company changed its
name to Invivo Corporation from SafetyTek Corporation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash
equivalents are comprised primarily of U.S. Treasury securities and
money market funds.
Inventories
Inventories are stated at the lower of cost or market on a first-in,
first-out basis.
Property and Equipment
Property and equipment are stated at cost net of accumulated
depreciation and amortization. Depreciation is calculated on the
straight-line method over the estimated useful lives of the related
assets, generally three to seven years. Leasehold improvements and
assets under capital leases are amortized on the straight-line method
over the shorter of the lease term or the estimated useful life of the
related asset.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. The measurement of deferred tax assets
is reduced, if necessary, by a valuation allowance for any tax benefits
that are not expected to be realized.
25
<PAGE> 26
Intangible Assets
Intangible assets include patents and the cost in excess of amounts
otherwise assigned to net assets of businesses acquired (goodwill).
Patents are amortized on a straight-line basis over their approximate
useful lives, not to exceed 17 years. Goodwill is amortized on a
straight-line basis over 40 years. The Company assesses the
recoverability of goodwill by projecting results of operations over the
remaining useful lives of the businesses acquired. Accumulated
amortization as of June 30, 1996 and 1995 was approximately $555,200
and $419,000, respectively. Amortization expense was approximately
$136,100, $132,800, and $106,200 for 1996, 1995, and 1994,
respectively.
Net Income Per Common Share
Net income per common share is computed using the weighted average
number of shares outstanding including the dilutive effect, if any, of
common stock options outstanding.
Revenue Recognition
The Company recognizes revenue and all related costs upon shipment of
products to its customers.
Use of Estimates
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 and disclosures 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.
Impairment of Long-Lived Assets
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity by reviewed for impairment whenever
events or changes indicate that the carrying amount of an asset may not
be recoverable. Upon adoption, the Company identified no long-lived
assets or identifiable intangibles which were impaired.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 will be effective for fiscal
year beginning after December 15, 1995, and will require that the
Company either recognize in its financial statements costs on a fair
value basis related to its employee stock based compensation plans,
such as stock option and stock purchase plans, or make pro forma
disclosures of such costs in a note to the financial statements.
The Company expects to continue to use the intrinsic value-based method
of Accounting Principles Board Opinion No. 25, as allowed under SFAS
No. 123, to account for all of its employee stock-based compensation
plans. Therefore, in fiscal 1997, the Company will make the required
pro forma disclosures in a note to its consolidated financial
statements. The adoption of SFAS No. 123 is not expected to have a
material effect on the Company's consolidated results of operations or
financial position.
26
<PAGE> 27
(2) ACQUISITION OF INVIVO RESEARCH INC.
On December 31, 1992, the Company acquired 80% of the outstanding
common stock of Invivo Research Inc., a company which designs,
manufactures, and markets sensor-based patient safety devices.
In fiscal 1994, the Company entered into an agreement to acquire the
remaining 20% of the Invivo Research Inc. shares. The purchase price
for the remaining shares will be paid in five installments. An
installment of $987,900 was paid during fiscal 1996. One installment
will become payable on January 1, 1997 and 1998, and two installments
will become payable on January 1, 1999. The installment is to be paid
on June 1 of the respective year. The value of each installment will be
determined based upon a formula involving after-tax profits, subject to
a minimum share price if certain milestones are achieved. Based upon
the formula, the amount of each installment is variable from $-0- to an
amount calculated based upon the future operating results of Invivo
Research Inc. If the formula were applied based solely upon fiscal 1996
results for Invivo Research Inc. and assuming no changes through the
referenced periods, the future installment amounts would be
approximately $536,500 each. No assurance can be given that the amounts
ultimately payable will be of this magnitude as the amounts are
dependent upon the future operating results of Invivo Research Inc.
(3) INVENTORIES
A summary of inventories as of June 30 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 3,811,900 3,306,900
Work in process 1,090,700 1,288,200
Finished goods 1,053,000 862,800
----------- ----------
5,955,600 5,457,900
Less inventory reserves 451,200 375,500
----------- ----------
$ 5,504,400 5,082,400
=========== ==========
</TABLE>
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and building $1,290,100 1,290,100
Equipment 2,784,300 2,362,800
Furniture and fixtures 895,200 716,300
Vehicles 147,000 85,700
---------- ---------
5,116,600 4,454,900
Less accumulated depreciation and amortization 2,353,700 1,938,300
---------- ---------
$2,762,900 2,516,600
========== =========
</TABLE>
27
<PAGE> 28
(5) DEBT AND BANK BORROWINGS
A summary of debt and bank borrowings as of June 30 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Termloan with principal payable in monthly installments of
approximately $27,100 and interest payable monthly at prime plus
1/4%; all unpaid principal and interest is due December 31,
1996; secured by accounts receivable and inventory and equipment
$ 189,600 487,500
Term loan payable in monthly installments of $8,500, including
interest at 8-1/2%; balloon payment of $685,000 on April 15,
1998; secured by land and building 762,300 796,700
Borrowings under the $4,000,000 revolving loan, which expires and is
payable on December 31, 1996; collateralized by accounts
receivable and inventory and equipment; interest payable monthly
at prime plus 1/4% 1,800,000 --
Unsecured note payable to president of subsidiary in quarterly
principal installments of approximately $41,800 through December
31, 1995; interest payable quarterly at prime -- 125,500
Unsecured note payable to president of subsidiary; due July 15, 1995 -- 2,000,000
---------- ---------
2,751,900 3,409,700
Less current portion 2,022,400 2,483,300
---------- ---------
$ 729,500 926,400
========== =========
</TABLE>
The aggregate maturities of debt and bank borrowings for each of the
years subsequent to June 30, 1996 are as follows: 1997, $2,022,400 and
1998, $729,500.
In December 1995, the Company and its bank lender agreed to renew the
revolving loan to December 31, 1996 and increase the amount available
under the line of credit from $3,000,000 to $4,000,000. The revolving
loan requires the Company to maintain a minimum tangible net worth, a
maximum ratio of total liabilities to tangible net worth, a minimum
working capital balance, quarterly profitability, a minimum debt
service ratio, and prohibits the Company from paying dividends. As of
June 30, 1996, $2,200,000 was available under the line of credit.
In July 1996, the Company refinanced the term loan due April 15, 1998.
The new payment terms will extend through the year 2012.
28
<PAGE> 29
(6) ACCRUED EXPENSES
A summary of accrued expenses as of June 30 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accrued compensation and benefits $1,123,700 1,364,600
Other 777,600 602,600
---------- ---------
$1,901,300 1,967,200
========== =========
</TABLE>
(7) LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating
leases. The facilities' leases require the Company to pay certain
executory costs such as taxes, insurance, and maintenance. Rent expense
related to operating leases was approximately $416,900, $465,600, and
$442,100 for the years ended June 30, 1996, 1995, and 1994,
respectively.
A summary of future minimum lease payments required under noncancelable
operating leases with terms in excess of one year, net of sublease
rental income, as of June 30, 1996 follows:
Fiscal
year ending
1997 $ 371,600
1998 368,900
1999 314,600
2000 213,700
2001 155,400
----------
Future minimum lease payments $1,424,200
==========
(8) INCOME TAXES
A summary of the components of income tax expense (benefit) follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
1996:
<S> <C> <C> <C>
Federal $ 1,101,800 (56,400) 1,045,400
State 243,900 (15,900) 228,000
----------- ---------- ---------
$ 1,345,700 (72,300) 1,273,400
=========== ========== =========
1995:
Federal $ 1,529,000 62,000 1,591,000
State 270,000 44,000 314,000
----------- ---------- ---------
$ 1,799,000 106,000 1,905,000
=========== ========== =========
1994:
Federal $ 1,249,500 42,700 1,292,200
State 323,600 58,600 382,200
=========== ========== =========
$ 1,573,100 101,300 1,674,400
=========== ========== =========
</TABLE>
29
<PAGE> 30
Deferred tax benefits are attributable primarily to depreciation, accrued
expenses, and allowances.
The effects of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities as of June 30 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Deferred tax assets:
<S> <C> <C> <C>
Reserves and other accruals $ 587,000 519,500 571,400
Capital loss carryover 1,500 15,400 88,300
Accumulated depreciation -- -- 29,100
--------- -------- --------
Gross deferred tax assets 588,500 534,900 688,800
Valuation allowance (1,500) (15,400) (88,300)
--------- -------- --------
Net deferred tax assets 587,000 519,500 600,500
--------- -------- --------
Deferred tax liabilities:
Federal depreciation in excess of books (11,000) (24,000) --
Acquired intangibles from acquisitions (149,700) (141,500) (140,500)
--------- -------- --------
Gross deferred tax liabilities (160,700) (165,500) (140,500)
--------- -------- --------
Net deferred tax assets $ 426,300 354,000 460,000
========= ======== ========
</TABLE>
The net change in the valuation allowance for the year ended June 30,
1996, was a decrease of $13,900, resulting principally from the
expiration of $41,000 in capital loss carryforwards during the year
ended June 30, 1996. Management believes that it is more likely than
not that the results of future operations will generate sufficient
taxable income to realize the net deferred tax assets or that the
amounts will be recovered from previously paid taxes.
The following summarizes the differences between the income tax expense
and the amount computed by applying the 34% federal statutory corporate
rate to income before income taxes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate $ 1,273,400 1,786,100 1,548,800
State income taxes, net of federal income tax benefit, including credits 150,500 207,200 252,200
Utilization of research, experimental, and other credits -- (51,300) (37,500)
Benefit of foreign sales corporation (111,500) (123,400) (76,500)
Other, net (39,000) 86,400 (12,600)
----------- ---------- ----------
$ 1,273,400 1,905,000 1,674,400
=========== ========== ==========
</TABLE>
(9) STOCK OPTIONS
The Company has 1986 and 1994 incentive and nonqualified stock option
plans, which provide for the granting of stock options to employees
(including officers and directors) at prices not less than the fair
market value of the Company's common stock at the date of grant.
Options vest ratably
30
<PAGE> 31
over 4 years and expire in 10 years. The Company has reserved 314,400
and 200,000 shares of its common stock for issuance under the 1986 and
1994 plans, respectively.
A summary of transactions under the stock option plans follows:
<TABLE>
<CAPTION>
Options outstanding
Options ---------------------------------
available Exercise
for grant Shares price
<S> <C> <C> <C>
Balances as of June 30, 1993 18,400 296,000 $ 2.00 - 5.75
Options exercised -- (31,750) 2.00 - 5.75
----------- ----------- ---------------
Balances as of June 30, 1994 18,400 264,250 2.00 - 5.75
Options authorized 200,000 -- --
Options granted (138,800) 138,800 7.00 - 8.50
Options exercised -- (19,950) 2.00 - 5.75
----------- ----------- ---------------
Balances as of June 30, 1995 79,600 383,100 2.00 - 8.50
Options granted (12,750) 12,750 12.50 - 16.13
Options exercised -- (25,950) 2.00 - 8.50
Options canceled 5,500 (5,500) 7.00 - 8.50
----------- ----------- ---------------
Balances as of June 30, 1996 72,350 364,400 2.00 - 16.13
=========== ===========
</TABLE>
As of June 30, 1996, 234,675 options were exercisable.
(10) SALARY DEFERRAL PLAN
The Company's executive officers, together with all other eligible
employees, may participate in the Company's 401(k) Salary Deferral Plan
(the Plan). Employees become eligible upon completion of one year of
service. Each eligible employee receives a retirement benefit based
upon accumulated contributions to the Plan by the employee and the
Company plus any earnings on such contributions. The Company
contributes an amount equal to 25% of the first 4% of compensation that
the employee contributes. The Plan currently provides that participants
begin vesting in the Company's contributions after three years of
employment and are fully vested after seven years. Company
contributions to the Plan for the year ended June 30, 1996, 1995, and
1994 were $43,200, $48,100, and $38,200, respectively.
(11) LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
its business. While the ultimate results of such proceedings cannot be
predicted with certainty, management expects that these matters will
not have a material adverse effect on the Company's financial position
or results of operations.
(12) MAJOR CUSTOMERS AND CREDIT RISK
In fiscal 1996, 1995, and 1994 no individual customer accounted for
greater than 10% of the Company's revenues or trade accounts
receivable.
The Company has a customer base that is diverse geographically and by
industry. Customer credit evaluations are performed on an ongoing
basis, and collateral is generally not required for trade accounts
receivable. Management does not believe the Company has any significant
concentration of credit risk as of June 30, 1996.
31
<PAGE> 32
(13) SUPPLEMENTAL CASH FLOWS INFORMATION
Noncash investing and financing activities and supplemental cash flow
information are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C>
Note issued for contingent payment $ -- -- 3,000,000
Tax benefit associated with exercise of stock options 103,400 52,400
118,000
Cash paid:
Income taxes 1,076,700 1,884,000 1,630,300
Interest 175,300 110,300 136,500
</TABLE>
32
<PAGE> 33
SELECTED QUARTERLY FINANCIAL DATA (NOT COVERED BY REPORT OF INDEPENDENT
ACCOUNTANTS):
<TABLE>
<CAPTION>
In millions, except per share amounts 1ST QTR 2ND QTR 3RD QTR 4TH QTR
- --------------------------------------------------------------------------------
FISCAL YEAR 1996
<S> <C> <C> <C> <C>
Sales $7,842 $7,865 $7,905 $7,779
Gross Profit 3,950 4,078 4,028 3,524
Net Income 820 861 691 100
Net Income per common share 0.24 0.25 0.20 0.03
FISCAL YEAR 1995
Sales $7,587 $7,463 $8,525 $8,914
Gross Profit 3,927 3,746 4,432 4,541
Net Income 659 737 939 1,015
Net Income per common share 0.20 0.22 0.28 0.30
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in the accountants or disagreements with the Company's
accountants on accounting and financial disclosure matters in fiscal 1995.
PART III
ITEMS 10 TO 13 INCLUSIVE.
These items have been omitted in accordance with instructions to Form 10-K
Annual Report. The Registrant will file with the Commission in October 1996,
pursuant to regulation 14A, a definitive proxy statement that will involve the
election of directors.
33
<PAGE> 34
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER
------
EXHIBIT PAGE
- ------- ----
3.01 Certificate of Incorporation
of the Registrant, as amended
3.02 By-Laws of the Registrant (1)
4.01 Form of Common Stock Certificate (1)
10.01 Sensor Control Corporation 1986 Incentive
Stock Option Plan and 1986 Non-statutory
Stock Option Plan As Amended (2)
10.02 Indemnity Agreement (1)
10.03 SafetyTek 1994 Stock Option Plan (3)
10.04 Stock purchase agreement dated as of November 8,
1989 by and between Data Design Laboratories
and Sensor Control Corporation. (4)
10.05 Stock purchase agreement dated January 14, 1991
between G.C. Industries Inc. and Sensor Control
Corporation (5)
10.06 Stock purchase agreement dated June 21, 1991 by
and between Electronic Safety Products Inc. and
Sensor Control Corporation (6)
10.07 Stock purchase agreement dated December 31, 1992
by and between Invivo Research Inc. and SafetyTek
Corporation (7)
10.08 Amended and Restated Credit Agreement dated
December 21, 1995 by and between First Interstate
Bank of California and SafetyTek Corporation (10)
10.09 Real Estate Unconditional Guaranty dated January
21, 1993 by and between First Union National Bank
of Florida and SafetyTek Corporation (8)
34
<PAGE> 35
EXHIBIT
NUMBER
EXHIBIT PAGE
- ------- ----
10.10 First Amendment to Stock Purchase Agreement dated
July 1, 1993 and related Stock Pledge Agreement dated
July 1, 1993 by and between Invivo Research Inc. and
SafetyTek Corporation (9)
10.11 Lease between Lincoln-Whitehall Realty LLC
and SafetyTek Corporation for the 5696 Stewart Ave.
Fremont, CA facility (11)
10.12 Construction Loan Agreement between Invivo Research
and First Union Bank dated July 31, 1996
10.13 First Amendment to Amended and Restated Credit
Agreement between First Interstate Bank of California
and SafetyTek Corp. dated August 5, 1996
11.01 Statement regarding computation of per
share earnings
21.01 Subsidiaries of Registrant
23.01 Consent of Independent Auditors
27.01 Financial Data Schedule
FOOTNOTES DESCRIPTIONS:
(1) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 28, 1990. (File (No. 0-15963)
(2) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 28, 1991
(3) Incorporated by reference to corresponding Exhibit included with
Registrant's Form S-8 filed January 27, 1995 (File No. 33-88798)
(4) Incorporated by reference to corresponding Exhibit included with
Registrant's Registration Statement on Form S-1 filed on December 23, 1991 (File
No. 33-44623)
(5) Incorporated by reference to corresponding Exhibit included with
Registrant's Amended Registration Statement on Form S-1 filed on February 5,
1992 (File No. 33-44623)
(6) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed March 13, 1992.(File No. 0-15963)
(7) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 14, 1993. (File No. 0-15963)
35
<PAGE> 36
(8) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 24, 1993.
(File No. 0-15963)
(9) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 1, 1993.
(File No. 0-15963)
(10) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed February 9, 1996.
(File No. 0-15963)
(11) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed May 15, 1996.
(File No. 0-15963)
(b)REPORTS ON FORM 8-K
The Company was not required to file any reports on Form 8-K for the
quarter ended June 30, 1996.
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Invivo Corporation
/S/ JOHN F. GLENN
-----------------
John F. Glenn
Vice President-Finance\
Chief Financial Officer
September 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/S/ ERNEST C. GOGGIO
- --------------------
Ernest C. Goggio Chairman of the Board September 27, 1996
/S/ JAMES B. HAWKINS
- --------------------
James B. Hawkins President, Chief September 27, 1996
Executive Officer, Director
(principal executive
officer)
/S/ JOHN F. GLENN
- -----------------
John F. Glenn Chief Financial Officer September 27, 1996
(principal financial
and accounting officer)
/S/ PAUL KUTLER
- ---------------
Paul Kutler, Ph.D. Director September 27, 1996
/S/ GEORGE S. SARLO
- -------------------
George S. Sarlo Director September 27, 1996
37
<PAGE> 1
EXHIBIT 3.01
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
INVIVO CORPORATION
INTO
SAFETYTEK CORPORATION
(Pursuant to Section 253 of the General
Corporation Law of Delaware)
SafetyTek Corporation, a Delaware corporation (the "Corporation"), does
hereby certify:
FIRST: That the Corporation is incorporated pursuant to the General
Corporation Law of the State of Delaware.
SECOND: That the Corporation owns all of the outstanding shares of the
capital stock of Invivo Corporation, a Delaware corporation.
THIRD: That the Corporation, by the following resolutions of its Board
of Directors, duly adopted on the ____day of July, 1996, determined to merge
into itself Invivo Corporation on the conditions set forth in such resolutions:
NOW, THEREFORE, BE IT RESOLVED, that the officers of this corporation,
and each of them, be and hereby are authorized and directed to make, execute and
acknowledge a Certificate of Ownership and Merger setting forth a copy of these
resolutions to merge said Invivo Cooperation into this corporation and to assume
said subsidiary's liabilities and obligations and the date of adoption thereof
and to file the same in the office of the Secretary of State of Delaware and a
certified copy thereof in the Office of the Recorder of Deeds of Kent County;
and
RESOLVED FURTHER, that effective upon the filing of the Certificate of
Ownership and Merger with the Secretary of State of Delaware, SafetyTek
Corporation shall merge into itself its wholly-owned subsidiary, Invivo
Corporation and assume all of said subsidiary's liabilities and obligations; and
RESOLVED FURTHER, that pursuant to Section 253(b) of the General
Corporation Law of the State of Delaware, SafetyTek Corporation shall change its
name to Invivo Corporation and that Article 1 of the Certificate of
Incorporation of SafetyTek Corporation shall automatically be amended, upon and
by virtue of the filing of the Certificate of Ownership and Merger, to read as
follows:
"The name of this corporation is Invivo Corporation"; and
<PAGE> 2
RESOLVED FURTHER, that the officers of this corporation be, and each of
them hereby is, authorized and directed in the name of and on behalf of this
corporation to execute and deliver any and all agreements, contracts, notice,
instruments, powers of attorney and other documents, and to do or cause to be
done all acts or things necessary or desirable to carry out the purposes and
intent of the foregoing resolutions, and that any actions take by such officers
in connection therewith be, and hereby are, authorized, ratified, confirmed and
approved as the acts of this corporation.
IN WITNESS WHEREOF, said SafetyTek Corporation has caused its corporate
seal to be affixed and this certificate to be signed by [James B. Hawkins] , its
President, and Secretary, this _____day of July 1996.
SAFETYTEK CORPORATION
By:__________________________
James B. Hawkins, President
ATTEST:
By:_____________________________
James B. Hawkins, Secretary
<PAGE> 3
CERTIFICATE OF INCORPORATION
OF
INVIVO CORPORATION
ARTICLE I
The name of this Corporation Is Invivo Corporation
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 15 East North Street, in the city of Dover, County of Kent, and
the name of its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The name and address of the incorporator of the Corporation is:
Steven F. Lewis
c/o Howard, Rice Nemerovski,
Canady, Falk & Rabkin
A Professional Corporation
Three Embarcadero Center, Seventh Floor
San Francisco, California 94111-4065
ARTICLE IV
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
ARTICLE V
This Corporation is to have perpetual existence.
ARTICLE VI
This Corporation is authorized to issue One Hundred (100) shares of
common stock, par value $0.001 per share.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statue,
the Board of Directors is expressly authorized to adopt, amend or repeal from
time to time any of all of the Bylaws of this Corporation.
ARTICLE VIII
<PAGE> 4
The number of directors which shall constitute the whole Board of
Directors of this Corporation shall be as specified in the Bylaws of this
Corporation, subject to the provisions of ARTICLE VIII and this ARTICLE VIII.
ARTICLE IX
A director of this Corporation shall not be personally liable to this
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to this Corporation 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 General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Neither the amendment nor repeal of this ARTICLE
IX, nor the adoption of any provision of the Certificate of Incorporation or
Bylaws or of any statute inconsistent with this ARTICLE IX, shall eliminate or
reduce the effect of this ARTICLE IX in respect of any acts or omissions
occurring, or any causes of action, suits or claims that, but for this ARTICLE
IX, would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
ARTICLE X
This Corporation reserves the right at any time and from time to time
to amend, alter, change or repeal any provision contained herein, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed by law, and
all rights, preferences, and privileges of whatsoever nature conferred upon
shareholders, directors, or any other person whomsoever by or pursuant to the
Certificate of Incorporation in its present from or as hereafter amended are
granted, subject to the rights reserved in this ARTICLE X.
ARTICLE XI
Meetings of stockholders may be held outside the State of Delaware, if
the Bylaws so provide. The books of this Corporation may be kept (subject to any
provision of law) outside of the State of Delaware. Elections of directors need
not be by ballot unless the Bylaws of this Corporation shall so provide.
THE UNDERSIGNED, being the incorporator herein above named, for the
purpose of forming a corporation to do business within and without the State of
Delaware, and in pursuance of the Delaware General Corporation Law, does hereby
make and file thus this Certificate of Incorporation.
Dated: July 3, 1996
____________________________________
Steven F. Lewis, Sole Incorporator
<PAGE> 1
EXHIBIT 10.12
CONSTRUCTION LOAN AGREEMENT
THIS AGREEMENT, made and entered into July 31, 1996, by and
between INVIVO RESEARCH, INC., whose address, for purposes of this Agreement, is
12601 Research Parkway, Orlando, Florida 32826 (hereinafter called "Owner"), and
FIRST UNION NATIONAL BANK OF FLORIDA, a national banking corporation whose
address, for purposes of this Agreement, is Post Office Box 1000, Orlando,
Florida 32802 (hereinafter called "Lender").
W I T N E S S E T H:
Owner has applied to Lender for a loan to aid in the
construction of an addition to the office/warehouse facility on Owner's real
property. Lender has agreed to make this Construction Loan to Owner, and Owner
has agreed to accept such loan on the terms and conditions hereinafter set
forth. Simultaneously with the execution of this Construction Loan Agreement and
as a part of the same transaction, Owner has executed and delivered to Lender a
note in the principal sum of NINE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($950,000.00), a Mortgage securing the said Note and encumbering certain real
property of Owner, more particularly described hereinbelow, and constituting a
first lien thereon, a Security Agreement, Financing Statements and other Loan
Documents intended to represent, perfect and secure the Construction Loan.
NOW, THEREFORE, in consideration of the execution and
simultaneous delivery of the Loan Documents and of the mutual and separate
agreements, conditions, covenants, representations and warranties of the parties
hereto, it is agreed, covenanted, represented and warranted by and between the
parties as follows:
ARTICLE 1
DEFINITIONS
1.01 As used in this Construction Loan Agreement, the following terms
shall have the meanings indicated opposite each of them:
Property: See attached Exhibit "A".
<PAGE> 2
Mortgage: The mortgage deed of even date herewith
encumbering the Property, given by Owner to
Lender to secure the Note.
Note: The Consolidated Real Estate Promissory Note
of even date herewith given by the Owner to
the Lender in the original principal amount
of $1,709,204.44.
Construction Loan: The loan contemplated by this Construction
Loan Agreement.
Loan Documents: The Note, the Mortgage, the Construction
Loan Agreement, the Security Agreement,
Financing Statements, and all other
documents referred to in this Construction
Loan Agreement.
Plans: The final plans and specifications for
construction of the Improvements prepared by
Owner's Architect and heretofore approved by
Lender and all amendments and modifications
thereto made with the approval of the
Lender.
Improvements: The Improvements described in the Plans and
in the Application for the Construction
Loan. Without limiting the foregoing, the
term "Improvements" shall include all
landscaping, walls, drives, approaches,
sidewalks, curbs, paving, and all chattels,
furniture, furnishings, fixtures and
equipment described in the Plans or
described in the application for the
Construction Loan, and all building
materials, machinery, appliances and
equipment to be incorporated in or affixed
to the Improvements described in the Plans.
Owner's Contractor: Asgaard-Juergensen, Inc.
Owner's Architect:
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE OWNER
2.01 The Owner is indefeasibly seized of the Property in fee simple and
has full power and lawful right to convey and mortgage the same. The Property is
free and clear of all encumbrances except current taxes which are not yet due
and payable.
2.02 No materials of any kind have been placed on the Property, and no
labor has been performed thereon incident to the Improvements within the next
preceding ninety (90) days; there are no unpaid bills for labor, materials,
supplies or services furnished upon the Property; and no Notice of Commencement
or claim of lien affecting the Property or the Improvements has been filed in
the Public Records of the County in which the Property is located, and no such
Notice of Commencement or claim of lien will be so filed prior to the recording
of the Mortgage.
2.03 The Plans shall not be deemed to be complete unless they shall
include detailed provisions for convenient ways of access by either foot or
vehicle to all proposed buildings included in the Improvements and also all
necessary paving of private ways, curbs, sidewalks, gutters, landscaping,
easements and utility connections, and all equipment necessary for the operation
of the Improvements as a completed project. The master set of Plans shall be
<PAGE> 3
deposited with the Lender and, when so deposited, shall govern all matters that
may arise with respect thereto. Before being so deposited, the Plans will be
subject to approval by the Lender, and, to the extent required by applicable law
or any effective restrictive covenant, by all governmental authorities and the
beneficiary of any such covenant, respectively. Owner shall secure all such
approvals.
2.04 All utilities services necessary and adequate for the construction
of the Improvements and the operation thereof for their intended purpose are
available for the use of Owner at the boundaries of the Property, including
water supply, storm and sanitary sewer facilities, electric, and telephone
facilities, and evidence thereof satisfactory to Lender shall be submitted to
Lender before closing of the Loan. Applicable zoning regulations will permit the
construction and use of the Improvements for an addition to office facility, and
evidence thereof satisfactory to Lender shall be submitted to Lender before
closing of the Loan.
2.05 Representations made by the Owner in financial statements
furnished to the Lender in connection with application for the Construction
Loan, and all representations made in such application, are true as of the date
hereof.
2.06 All necessary licenses and permits have been obtained to permit
the completion of the Improvements.
2.07 All labor and materials contracted for or in connection with the
construction of the Improvements shall be used and employed solely on the
Property and in said construction, and only in accordance with the Plans.
2.08 The monies disbursed under this Agreement shall constitute a trust
fund and shall be used solely for the payment of Owner's costs and for no other
purpose unless another use is specifically provided for in this Construction
Loan Agreement, or consented to in writing by Lender.
2.09 Each of the representations and warranties set forth in this
Article will be true on the date of each advance hereunder and the acceptance of
any advance hereunder by
<PAGE> 4
Owner shall be deemed to be a reaffirmation of each of said representations and
warranties.
ARTICLE 3
OWNER'S COVENANTS
The Owner covenants and agrees with Lender as follows:
3.01 The Owner will cause to be furnished to the Lender at Owner's
expense, forthwith and prior to the disbursement of any funds hereunder, a
policy of title insurance covering the Property in the aggregate sum of the
Mortgage, in a company acceptable to Lender. Said policy shall show the party
named as Owner to be vested with a valid insurable fee simple title, free and
clear of all exceptions and encumbrances whatsoever except the Mortgage, current
taxes not yet due and payable, and covenants and restrictions without right of
reverter or forfeiture of title in case of violation thereof, and which do not
prohibit or limit construction or operation of the Improvements, and shall
insure the Lender and its nominee or assigns that the Mortgage is a valid first
lien on the Property subject only to the exceptions expressly permitted in this
Agreement. Such title insurance policy shall be effective from the time of the
recording of the Mortgage.
3.02 The Owner shall, forthwith and prior to the disbursement of any
funds hereunder, furnish to Lender at Owner's expense a current print of survey
showing the Property to be free from encroachments and encumbrances, which
survey shall meet all the requirements of the title insurer to enable the title
insurer to eliminate any exception for survey matters from the title insurance
policy. At request of Lender, Owner shall furnish a supplemental survey or
surveys showing all foundations of the Improvements to be in place, properly
located on the Property and not in violation of any covenant or restriction or
zoning ordinance affecting the Property. Upon completion of the Improvements,
Owner shall furnish to Lender at least two prints of survey showing the
Improvements to be complete and properly located on the Property. Such surveys
shall be made by a civil engineer or surveyor acceptable to the Lender and shall
be paid for by Owner. All required surveys shall be certified to the Lender and
the title insurance company insuring the lien of the Mortgage.
3.03 Owner shall furnish and pay the premiums for fire and extended
coverage insurance (including Builder's Risk Insurance) and insurance against
such other
<PAGE> 5
hazards as may be required by Lender, in a company or companies acceptable to
the Lender, for the full insurable value of the Improvements, and covering the
same, said policies to be in amount and form acceptable to Lender. Loss under
such insurance policies shall be payable first to the Lender to the extent of
its interest or lien, and shall not be cancellable without at least ten (10)
days' written notice by insurer to Lender. Owner shall also furnish, at Owner's
expense, general comprehensive liability insurance required by Lender.
3.04 Owner shall construct the Improvements on the Property in a true,
thorough, workmanlike and substantial manner and in accordance with the Plans.
Owner shall provide, at Owner's cost, all manner of materials, labor,
scaffolding, implements and cartage of every description for the complete
construction of the Improvements. Owner shall not make any changes in the Plans
or deviate therefrom except with the written consent of the Lender.
3.05 Owner shall take all necessary steps to assure that construction
and installation of the Improvements shall commence not later than thirty (30)
days from the date of this Agreement, shall proceed continuously and diligently,
and shall be completed within nine (9) months from the date hereof.
3.06 Owner shall furnish, before each advance herein agreed to be made
and on completion of construction, all receipted bills, certificates,
affidavits, releases of lien and other documents which may be required by the
lien laws of the State of Florida, or which may be required by the Lender or the
title insurance company providing the title insurance coverage described in
Section 3.01, as evidence of full payment for all labor and materials incident
to the construction of the Improvements for which prior advances of Loan
proceeds have been requested and made, and the Owner will, at the same time,
furnish partial releases from all persons receiving payment from the Loan
proceeds for the amount of payments received. Prior to the final payment of the
remaining Loan proceeds to or for the account of the Owner, the Owner shall
furnish satisfactory proof of payment of all accounts and claims for labor,
material and services furnished in connection with the Improvements.
3.07 If the Owner at any time prior to the completion of the project
abandons the same or ceases work thereon for a period of more than twenty (20)
days or fails to complete the improvements substantially in accordance with the
Plans, except as to changes
<PAGE> 6
approved as herein provided by the Lender or makes changes in the Plans without
first securing written approval of the Lender or otherwise fails to comply with
the terms hereof, any such failure shall be a default hereunder, at the option
of the Lender, and the Lender may terminate this Agreement, or the Lender, at
its option, at any time thereafter may enter into possession of the premises and
perform any and all work and labor necessary to complete Improvements
substantially according to Plans and employ watchmen to protect the premises
from injury; all sums so expended by the Lender to be deemed paid to Owner and
secured by the Mortgage. For this purpose, the Owner hereby constitutes and
appoints the Lender as true and lawful attorney-in-fact with full power of
substitution in the premises, to complete the project in the name of the Owner,
and hereby empowers said attorney or attorneys as follows: to use any funds of
the Owner, including any balance which may be held in escrow and any funds which
may remain unadvanced under the Mortgage, for the purpose of completing the
Improvements in the manner called for by the Plans; to make such additions and
changes or corrections in the Plans as shall be necessary or desirable to
complete the Improvements in substantially the manner contemplated by the Plans;
to employ such contractors, subcontractors and agents, architects and inspectors
as shall be required for said purposes; to pay, settle or compromise all
existing bills and claims which may be liens against the Property, or as may be
necessary or desirable for the completion of the job, or for clearance of title;
to execute all applications and certificates in the name of the Owner which may
be required by any of the contract documents; and to do any and every act which
the Owner might do in its own behalf. It is further understood and agreed that
this power of attorney shall be deemed to be a power coupled with an interest
and cannot be revoked. The above-mentioned attorney shall also have the power to
prosecute and defend all actions or proceedings in connection with the
construction of the Improvements on the Property and to take such action and
require such performance as said attorney deems necessary. The Owner hereby
assigns and quit-claims to the Lender all sums advanced under the Mortgage and
on sums due in escrow, conditioned upon the use of said sums in trust for the
completion of the Improvements, such assignment to become effective only in case
of the Owner's default.
3.08 Owner will not convey or encumber the Property in any way without
the
<PAGE> 7
consent of the Lender (except for the Mortgage and all advances made and to be
made hereunder), nor shall Owner assign any rights under this Construction Loan
Agreement or any part of any advance to be made hereunder.
3.09 Owner will permit Lender and its representatives to enter upon the
Property, inspect the Improvements and all materials to be used in the
construction thereof, and to examine all detailed plans and shop drawings which
are or may be kept at the construction site, and all books and records of Owner
relating to the Property, and will cooperate with the Lender and Lender's
representatives to enable it to perform its functions hereunder. It is expressly
agreed that any inspections made by Lender or its representatives shall be made
solely for the protection and benefit of the Lender, and the Owner shall not be
entitled to claim any loss or damage either against the Lender or its
representatives for failure to properly discharge their duties to Lender.
3.10 Owner agrees that it will correct any work performed and replace
any material that does not substantially comply with the Plans. In the event of
any dispute between Owner and Lender with respect to the interpretation and
meaning of the Plans, the same shall be determined by Lender and the decision of
Lender shall be final and conclusive on the parties.
3.11 Construction Loan Interest, excluding prepaid interest, shall be
charged on the amounts disbursed from the date of disbursement and shall be
payable monthly on the 15th day of each month without demand, commencing on the
15th day of the month following the first disbursement of funds hereunder. All
such interest may be disbursed by Lender to itself from the proceeds of the
Loan, or alternatively, Lender may charge any bank account of Owner maintained
by Owner with the Lender.
3.12 Owner covenants, warrants and agrees that it will provide from its
own funds without secondary financing involving any mortgage or other lien
against the Property (except the Mortgage), such amounts as may be necessary to
pay for all costs of the Improvements which are in excess of the disbursements
required to be made by Lender hereunder, and Lender shall not be required to
make any disbursement hereunder if the undisbursed proceeds of this Loan shall
be less than the amount necessary to pay for the completion of the Improvements.
If, for any reason, the undisbursed Loan proceeds shall be at any time
<PAGE> 8
insufficient for such purpose, Owner will, within fifteen (15) days after
written request by Lender, deposit the deficiency with the Lender, and such
deposit shall be first disbursed in the manner provided in Schedule "A" hereof
before any further disbursements of the proceeds of this Loan shall be made. The
judgment and determination of Lender as to the amount necessary to pay for the
completion of the Improvements shall be final and conclusive.
3.13 To the end that the agreements of the Owner set forth herein and
in the Loan Documents shall be effectively and fully performed and the intent
and purpose of this Construction Loan Agreement fulfilled, Owner agrees to
execute all such other and further instruments as may reasonably be required by
Lender from time to time in order to carry out the provisions of protecting,
maintaining or enforcing Lender's security for the Construction Loan.
3.14 All right, title and interest of the Owner in any facilities or
property intended to be used in connection with the Improvements shall be
assigned by Owner to the Lender as additional collateral to secure the Note
until such time as the Note shall have been paid in full.
3.15 Owner agrees to pay all costs, including reasonable attorneys'
fees, incurred by the Lender in connection with preparation of the Loan
Documents and in the enforcement thereof and in connection with the review of
any other documents submitted to Lender for its approval in accordance with the
provisions hereof, and the Lender is authorized to disburse such costs and
expenses from the Loan proceeds.
3.16 Owner shall maintain its primary depository account relationship
with Lender.
3.17 Owner will not make or suffer a material change of ownership that
effectively changes control of Owner from SafetyTek Corporation.
3.18 Owner will not permit the entry of any monetary judgment or
assessment, the filling of any tax lien, or the issuance of any writ of
garnishment or attachment against any property of or debts due Owner.
3.19 Owner will annually provide to Lender company-prepared financial
statements reflecting operations, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules.
<PAGE> 9
ARTICLE 4
ADVANCES DURING CONSTRUCTION
4.01 Lender will disburse and Owner will accept the proceeds of the
Construction Loan in the manner and at the time set forth in Schedule "A"
annexed hereto and by this reference made a part hereof.
4.02 To the extent feasible, Owner shall request Loan Advances only
once each month. Each such request shall be made in writing and submitted
directly to Lender's Construction Loan Administration Department, 214 North
Hogan Street, Jacksonville, Florida 32202 (1-800-774-3862). Lender shall not be
required to make any such advance until at least five (5) business days after
the receipt of request therefor. Funds shall be disbursed in accordance with
this Construction Loan Agreement directly to the Owner or, at the option of the
Lender, such funds may be disbursed by checks payable to the Owner and to any
other person, firm or corporation to whom Owner is indebted for work done on the
Property, or, at its option, Lender may make such disbursements directly to
Owner's contractors, or to any subcontractor or sub-subcontractor, laborer or
materialman who may have performed work on or furnished material to the
Property, and the execution of this Construction Loan Agreement by the Owner
shall and hereby does constitute an irrevocable direction and authorization to
so advance the funds.
4.03 Lender may, at its option, disburse funds to Owner whether under
the terms of this Construction Loan Agreement such disbursement is required or
not. Part or the whole of any advance may be disbursed before or after it
becomes due if the Lender deems it advisable to do so. All such advances shall
be deemed to have been made pursuant to this Construction Loan Agreement and not
in modification thereof.
4.04 Lender may disburse to itself any sums payable to Lender by Owner
on account of interest, costs, charges, fees, brokerage commissions or other
expenses including fees of Lender's attorneys, with like effect as if the same
had been made to Owner. Until such time as
<PAGE> 10
the full amount of the Loan has been disbursed, Lender is hereby authorized to
disburse to itself on the 15th day of each month the amount of the interest
payable on the Note or hereunder.
4.05 Except as is hereinabove provided, disbursements of proceeds of
the Loan will be made only as justified in the sole opinion of the Lender by the
progress of construction.
ARTICLE 5
CONDITIONS TO ADVANCES
All advances or parts of advances will be made subject to the following
conditions as to each advance (each of which Owner covenants to fulfill):
5.01 That Owner has fully complied with all of the provisions of the
Loan Documents and is entitled to such advance, it being understood that the
making of any advance or part thereof when Owner is not so entitled will not
constitute waiver of such compliance.
5.02 That the terms and conditions of the Loan Documents have been
complied with and there is then no existing default thereunder.
5.03 That the Mortgage is a valid first lien for the full amount then
and theretofore advanced and a good and insurable title to the Property is
vested in the Owner free and clear of all encumbrances except as herein
otherwise provided.
5.04 That the Improvements have been constructed in strict accordance
with the Plans, and the construction thereof and materials used therein are
satisfactory to Lender.
5.05 That the Lender has been furnished with a written certificate of
the Owner as to whether or not the Owner or its agent has been served with any
written notice that a lien may be claimed for any amounts unpaid for materials
furnished or labor performed by any person, firm or corporation furnishing
materials or performing labor of any kind in the construction of any
Improvements. If such notices to the Owner have been served on the Owner, the
notices served shall be listed on the certificate and copies thereof shall be
furnished to the Lender.
5.06 That the Owner has procured (if required by Lender) verified
mechanics' lien waivers and receipted bills showing payment of all parties who
have furnished materials or performed labor of any kind entering into the
construction or installation of any of the Improvements.
<PAGE> 11
5.07 That the Owner has furnished to the Lender evidence satisfactory
to the Lender that the undisbursed proceeds of this Loan will be sufficient to
pay the cost of completing the Improvements as required by the Loan Documents.
5.08 That the said Improvements are not being constructed in violation
of any covenants or restrictions or zoning ordinances affecting the Property,
and evidence thereof, including copies of all such covenants, restrictions and
zoning ordinances, satisfactory to Lender, has been furnished to Lender.
5.09 That (when required by the Lender) the Lender shall have received
an endorsement with respect to the title insurance policy theretofore delivered,
indicating that since the last preceding advance there has been no change in the
state of title to the Property and no survey exceptions not theretofore approved
by Lender, which endorsement shall have the effect of increasing the coverage of
said policy by an amount equal to the advance then being made unless the policy
by its terms provides for such additional coverage without such endorsement.
5.10 That Owner has furnished to Lender a copy of all building permits
issued and applicable to any existing or future construction on the Property.
5.11 That Owner has furnished to Lender a construction schedule
including an estimate, satisfactory to Lender, as to the date and amount of each
proposed draw of construction funds to completion of the Improvements.
5.12 That Owner has furnished to Lender, as the same are acquired, all
soil and compaction tests for the land underlying the Improvements together with
a statement from a soil engineer acceptable to Lender certifying that the land
upon which the Improvements are to be constructed will adequately support the
Improvements.
5.13 That Owner has furnished to Lender, at no cost to Lender, in
connection with each request for an advance, the certificate of Lender's
inspector that such advance, in the amount requested, is properly to be made by
Lender hereunder.
<PAGE> 12
ARTICLE 6
AGREEMENTS RELATING TO CONTRACTORS
6.01 The rights of all contractors, subcontractors, sub-subcontractors
and materialmen performing any work in connection with the Improvements, or
furnishing any services, labor or materials thereto, shall be subordinate and
inferior to the Mortgage. Lender shall not be liable to any materialmen,
contractor, subcontractor or sub-subcontractor, laborer or others for goods or
services furnished or delivered by them in or upon the Property or employed in
the Improvements.
6.02 Owner hereby assigns to Lender, effective only in the event of
default by Owner under the Loan Documents, all rights of Owner under its
contract or contracts with Owner's Contractor and subcontractors and under its
contract with Owner's Architect, and Lender shall have the option after default,
in addition to any rights and remedies Lender may have, to exercise its rights
under this assignment. Nothing herein shall be construed to require Lender to
exercise any rights under this Section.
ARTICLE 7
DEFAULTS
7.01 If the Owner fails to perform according to the terms of this
Construction Loan Agreement, or if Owner's contractor or subcontractors fail to
perform according to the terms of their contracts with Owner, or if Owner shall
cause or permit conditions to arise so that performance would be rendered unduly
difficult or hazardous for the Lender, or if the Owner shall fail, neglect or
refuse to perform either or any of Owner's promises or agreements hereunder or
breach any promise, covenant, warranty or agreement made in the Loan Documents,
or if it shall appear that the Improvements are being constructed in violation
of any covenants or restrictions or zoning ordinances affecting the Property, or
if it becomes apparent that the Owner and Owner's contractors will not complete
the Improvements within the time specified herein, or if the Owner shall become
insolvent, or if there is filed a
<PAGE> 13
voluntary or involuntary petition in bankruptcy of the Owner, or an assignment
for the benefit of creditors is made by the Owner, then and in either such event
the Owner shall be considered in default hereunder and the Lender may, at its
option, without prejudice to any other right or remedy Lender may have as a
matter of law, either:
(a) Withhold further disbursements hereunder; or
(b) At its option, declare all sums evidenced by the Note and
secured by the Mortgage, and all sums due hereunder, to be immediately
due and payable, and unless same are paid on demand, may foreclose the
Mortgage; or
(c) Enter upon and take possession of said Property and assume
full charge of the construction of the Improvements as the agent of the
Owner and Owner's contractors may complete, or enter into a contract
with another to complete, the Improvements.
The Owner agrees to pay the Lender, on demand, all costs and expenses of
completion of the Improvements, including all sums disbursed by the Lender
incident to said completion and a reasonable charge by the Lender for its
services incident thereto and reasonable attorney's fees incurred by the Lender
incident to said default and the completion of said construction, or incident to
the enforcement of any provisions hereof, and all such sums, even though they
may, when added to the monies advanced and disbursed under this Construction
Loan Agreement, exceed the amount of the Note, shall be secured by the lien of
the Mortgage as though the same were a part of the debt originally described in
and secured thereby. If said sums are not paid by the Owner immediately on
demand, the Lender may declare all such sums, and all other sums secured by the
Mortgage, immediately due and payable and may proceed to foreclose the same.
7.02 The times provided for Owner's performance of its covenants and
agreements hereunder are of the essence of this Agreement.
ARTICLE 8
NOTICES
8.01 For the purpose of any notice or demand here under, the address of
the Owner
<PAGE> 14
is as set forth on Page 1. Notice or demand shall be deemed to be given and made
when delivered to Owner, or when deposited in the United States mail, postage
prepaid, addressed to Owner at the address given on Page 1.
ARTICLE 9
MISCELLANEOUS
9.01 Nothing herein shall be construed to waive or diminish any right
or security of the Lender under said Note or Mortgage. It is the purpose and
intent hereof to provide safeguards, protections and rights for the Lender in
addition to those provided in said Note and Mortgage and to better secure said
Mortgage.
9.02 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their heirs, legal representatives, successors and
assigns. The Owner may be released from obligations and agreements hereunder
only by written instrument of the Lender specifically providing for such
release.
9.03 Owner agrees that Lender during the period of the construction of
the Improvements shall have the right to erect and maintain on the Property a
sign in form, size and location, satisfactory to Lender, indicating the
financing of the construction by Lender.
9.04 Owner and Lender agree that all matters relating to this
Construction Loan Agreement and the Loan Documents shall be governed by the laws
of the State of Florida.
9.05 The Owner has paid a service and commitment fee of FOUR THOUSAND
SEVEN HUNDRED FIFTY AND NO/100 DOLLARS ($4,750.00) as consideration for the
Lender's commitment to make this construction loan at the rate and upon the
terms stated in this Agreement, and in further consideration of the services to
be furnished and expenses incurred by the Lender in connection with the
construction of Improvements contemplated by this Agreement.
9.06 Notwithstanding other terms and provisions of this Agreement,
nothing herein contained shall ever be construed to require the Owner to pay
interest in an amount exceeding the maximum amount allowed by law.
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this instrument in manner
and form sufficient to bind them as of the day and year first above written.
Signed, sealed and delivered in the presence of:
________________________________ INVIVO RESEARCH, INC.
Name:___________________________
By:_____________________________
________________________________ Name:___________________________
Name:___________________________ Title:__________________________
OWNER
________________________________ FIRST UNION NATIONAL BANK OF
Name:___________________________ FLORIDA
By:_____________________________
________________________________ Name:___________________________
Name:___________________________ Title:__________________________
LENDER
SCHEDULE "A"
LOAN ADVANCES
Subject to the provisions elsewhere in this Construction Loan Agreement
contained and to further particular provisions, if any, set forth in this
Schedule "A", the proceeds of the construction loan contemplated herein shall be
disbursed at the times, in the amounts, and in the manner hereinafter set forth,
to wit:
1. Initial Disbursement: Simultaneously with the execution and
delivery of this Construction Loan Agreement, the Note, Mortgage and
other Loan Documents, there shall be disbursed to or on behalf of Owner
the sum of $25,208.64 of the loan proceeds as an Initial Disbursement
hereunder for the purpose of paying the costs incident to the closing
of the loan transaction contemplated hereunder, and paying or
reimbursing Owner for construction and development costs related to the
Property and Improvements incurred prior to the date of such Initial
Disbursement.
<PAGE> 16
2. Construction Disbursements: The balance of the Construction
loan proceeds remaining to be disbursed subsequent to the Initial
Disbursement; i.e., $924,791.36 hereinafter called "Construction
Disbursements", shall be disbursed during the progress of the
construction of the Improvements only on the terms and conditions
hereinafter provided. Said Construction Disbursements shall be made on
the basis of written requests therefor submitted by Owner to Lender in
the form and with such supporting documentation as are herein
specified, to wit:
(a) Each request for a Construction Disbursement
shall be in the form of a request from Owner for the
disbursement by Lender of a stated amount of the Construction
Loan Proceeds which will be sufficient to reimburse Owner for
costs actually expended by Owner prior to the date of such
request for Construction Disbursement and to pay for Owner's
Costs which are due and payable on the date of such request.
(b) Each request for Construction Disbursement shall
be, at the option of Lender, accompanied by receipted invoices
(or other evidence of payment satisfactory to Lender) for all
of Owner's costs which have been paid prior to the request for
disbursement, and shall be accompanied by invoices not
receipted covering Owner's Costs which are then due and
payable but which have not been paid.
(c) Each request for Construction Disbursement shall
also be accompanied by a certification on the part of Owner,
Owner's Contractor and Lender's Inspector, if any, stating
that all labor and materials for which disbursement is being
requested have, in fact, been used in the construction of the
contemplated Improvements and the work for which disbursement
is being requested has, in fact, been accomplished in
accordance with the plans and in a good and workmanlike
manner; that all certifications, inspections and approvals
which may be necessary or customary at such stage of
construction have been received; and that Owner is entitled to
the Construction Disbursement requested.
<PAGE> 17
(d) Each request for Construction Disbursement shall
set forth in percentage terms that portion of the total
construction work to be completed pursuant to this
Construction Loan Agreement and in accordance with the Plans
which have in fact been completed as of the date of such
request, and such percentage of completion shall be certified
by Owner, Owner's Contractor and Lender's Inspector, if any.
(e) Each request for Construction Disbursement shall
also include a certification by Owner that all bills for
labor, materials and services then incurred and payable in
connection with the construction of the Improvements have been
paid or will be paid from the Construction Disbursement being
requested and that all prior Construction Disbursements have
been expended by Owner only in connection with the
Construction of the Improvements on the Property contemplated
herein.
(f) Each request for a Construction Disbursement
shall likewise be accompanied and supported by such other
documents, certifications or assurances as Lender may from
time to time, in its sole discretion, deem necessary. During
the course of construction, the Owner, Owner's Contractor and
the Lender's Inspector, if any, shall certify monthly that
percentage of the total work to be completed in accordance
with the Plans which has actually been completed at the time
of such certification. Provided that the Lender has received a
written request for disbursement in the form and with such
supporting documentation as required above, the Lender shall
disburse to the Owner (or in the discretion of the Lender,
jointly to the Owner and Owner's Contractor) such portion of
said Construction Disbursements as is equal to that percentage
thereof which is the same percentage as the said certified
percentage of the work completed, less ten percent (10%) of
said amount and less all amounts of said Construction
Disbursements previously disbursed.
It is expressly provided, however, that notwithstanding the amount of a
Construction Disbursement requested or the amount of costs paid by Owner or the
certification of the
<PAGE> 18
percentage of completed Construction, at no time shall the Lender be obligated
to disburse funds in excess of the amounts recommended by its Inspector. The
determination by the Lender of the amount of Owner's Costs and the percentage of
completion which properly form the predicate for any Construction Disbursement
shall be final and conclusive.
3. Final Disbursement: Lender will disburse to the Owner all
undisbursed loan proceeds upon the following conditions: the completion of all
of the Improvements contemplated by this Agreement to the satisfaction of the
Lender; certification by Owner's Architect and Lender's Inspector that the
Improvements have been completed in accordance with the Plans; and the issuance
of a permanent Certificate of Occupancy or such other permits and certificates
as shall be required for the contemplated operation of the mortgaged premises as
an addition to office facility by all governmental authorities having
jurisdiction over the mortgaged property and the Improvements; and the Owner's
delivery to Lender of proof satisfactory to Lender that all bills for labor and
materials for the construction of the Improvements have been paid in full
together with such properly executed affidavits and lien waivers in connection
with said construction as the Lender or its attorneys may require; and when
Lender is otherwise satisfied that Owner has fulfilled any previously
unfulfilled terms, conditions or requirements of Lender's commitment letter.
INITIALED FOR IDENTIFICATION:
OWNER:______________________________
LENDER:_____________________________
<PAGE> 19
SCHEDULE "B"
DISBURSEMENT SCHEDULE
A. Foundation Draw (20%)
1. Footer, stem well, rough plumbing, and any other embedded
items are properly installed.
2. Completion of subfloor or concrete slab.
3. Soil poisoning with certification.
4. Appropriate governmental agency approval posted on job site.
5. Inspection is made after the slab has been poured.
6. Foundation survey.
7. Recorded copy of Notice of Commencement.
B. Rough-in Draw (30%)
1. Roof is dried-in (one layer of paper tacked down).
2. All interior framing complete.
3. All wiring roughed-in and plumbing topped-out with
governmental inspections posted on the job site.
4. Tubs are set in place.
5. Shower base is framed and paper in place.
6. HVAC rough-in complete, with governmental inspections posted
on the job site.
C. Trim Draw (30%)
1. All roofing, including shingles, complete.
2. All exterior carpentry work, fascia, soffits are complete.
3. All windows installed.
4. All exterior doors installed with hardware.
5. Outside is prime painted and caulked.
6. Rough grading for drainage is done.
7. All sheetrock/plaster is hung, finished, prime painted, and
ceiling sprayed.
8. All interior trim is complete.
9. All cabinets are set.
10. All interior tile work is complete.
11. All interior doors are ready for hanging.
12. Governmental approval of hookup to water and sewage system.
D. Final Draw (20%)
1. House should be complete according to original plans and
material specifications. Any exceptions must be approved by
the Bank.
2. Any landscaping required must be complete, unless prearranged
with the Bank.
3. Area must be cleared of all construction debris.
4. Final survey.
5. Certificate of Occupancy.
6. Final lien waivers.
<PAGE> 1
EXHIBIT 10.13
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is entered into as of August 5, 1996, by an among SAFETYTEK
CORPORATION, a Delaware corporation (herein referred to as the "Borrower");
LUMIDOR SAFETY CORPORATION, G.C. INDUSTRIES, GAMMA INSTRUMENTS, INC., LINEAR
LABORATORIES CORPORATION, SIERRA PRECISION AND INVIVO RESEARCH, INC., jointly
and severally, (Herein referred to, jointly and severally , as the
"Guarantors"); and WELLS FARGO BANK, NATIONAL ASSOCIATION, successor-by-merger
to FIRST INTERSTATE BANK OF CALIFORNIA, a California banking corporation (herein
referred to as the "Bank).
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Amended and Restated Credit Agreement between
Borrower and Bank dated as of December 21, 1995, as amended from time to time
("Amended and Restated Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Amended and Restated Credit Agreement between
Borrower and Bank dated as of December 21, 1995, as amended from time to time
("Amended and Restated Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Amended and Restated Credit Agreement and have
agreed to amend the Amended and Restated Credit Agreement to reflect said
changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Amended and
Restated Credit Agreement shall be amended as follows:
1. Section 6.01. (a)(v) is hereby deleted in its entirety,
without substitution.
2. the following is hereby added to the Amended and Restated
Credit Agreement as Section 6.02.(f)(vi):
"and (vi) debt from First Union Bank for the purpose of
financing the expansion of that certain manufacturing facility owned by Invivo
Research, Inc. (a SafetyTek subsidiary) located in Orlando, Florida."
3. Except as specifically provided herein, all terms and
conditions of the Amended and Restated Credit Agreement remain in full force and
effect, without waiver or modification. All terms defined
<PAGE> 2
in the Amended and Restated Credit Agreement shall have the same meaning when
used in this Amendment. This Amendment and the Amended and Restated Credit
Agreement shall be read together, as one document.
4. Borrower hereby remakes all representation and warranties
contained in the Amended and Restated Credit Agreement and reaffirms all
covenants set forth therein. Borrower further certifies that as of the date of
this Amendment there exists no Event of Default as defined in the amended and
Restated Credit Agreement, nor any condition, act or event which with the giving
of notice or the passage of time or both would constitute any such Event of
Default.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
SAFETYTEK CORPORATION WELLS FARGO BANK,
NATIONAL ASSOCIATION,
successor-by-merger to FIRST
INTERSTATE BANK OF CALIFORNIA
By:_________________________________ By:___________________________
James B. Hawkins Rick Freeman
President & CEO Vice President
By:__________________________________
John F. Glenn
Vice President - Finance and CFO
GUARANTOR: GUARANTOR:
LUMIDOR SAFETY CORPORATION G.C. INDUSTRIES
By:___________________________________ By:___________________________
James B. Hawkins James B. Hawkins
President President
GUARANTOR: GUARANTOR:
LINEAR LABORATORIES SIERRA PRECISION
CORPORATION
By:___________________________________ By:___________________________
James B. Hawkins James B. Hawkins
Secretary Secretary
<PAGE> 1
EXHIBIT 11.01
INVIVO CORPORATION
STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income $2,472,000 3,348,300 2,881,000
========== ========== ==========
Computation of weighted
average common shares and
equivalents outstanding:
Common shares issued 3,216,362 3,186,290 3,163,349
and outstanding
Common stock equivalents 239,139 203,690 195,754
---------- ---------- ----------
Weighted average common
shares and equivalents
outstanding 3,455,501 3,389,980 3,359,103
========== ========== ==========
Net income per common share $ .72 .99 .86
========== ========== ==========
</TABLE>
<PAGE> 1
INVIVO CORPORATION
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
Linear Laboratories Corporation
Sierra Precision
G.C. Industries Inc.
Lumidor Safety Corporation
Invivo Research Inc.
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Invivo Corporation:
We consent to incorporation by reference in the registration statement (No.
33-88798) on Form S-8 of Invivo Corporation (formerly SafetyTek Corporation) of
our report dated July 30, 1996, relating to the consolidated balance sheets of
Invivo Corporation and subsidiaries as of June 30, 1996, and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended June 30, 1996, which
report appears in the June 30, 1996, annual report on Form 10-K of Invivo
Corporation.
KPMG PEAT MARWICK LLP
Palo Alto, California
September 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 436
<SECURITIES> 0
<RECEIVABLES> 6,647
<ALLOWANCES> 231
<INVENTORY> 5,504
<CURRENT-ASSETS> 13,528
<PP&E> 5,117
<DEPRECIATION> 2,354
<TOTAL-ASSETS> 22,204
<CURRENT-LIABILITIES> 6,038
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 15,273
<TOTAL-LIABILITY-AND-EQUITY> 22,204
<SALES> 31,391
<TOTAL-REVENUES> 31,391
<CGS> 15,811
<TOTAL-COSTS> 15,811
<OTHER-EXPENSES> 11,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175
<INCOME-PRETAX> 3,745
<INCOME-TAX> 1,273
<INCOME-CONTINUING> 2,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,472
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
