<PAGE> 1
U.S. Securities And Exchange Commission
Washington, D.C. 20549
--------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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 of registrant as specified in its charter)
DELAWARE 77-0115161
-------- ----------
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
4900 HOPYARD RD. SUITE 210, PLEASANTON, CALIFORNIA 94588
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
TELEPHONE: (510) 468-7600
-------------------------
(Registrant's telephone number)
_____________________________________________________
Indicate by check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 ( )
The number of shares outstanding of the issuer's Common Stock, par value $.0008
per share, at December 31, 1996 was 3,236,368 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, (DERIVED FROM
1996 AUDITED FINANCIAL
(UNAUDITED) STATEMENTS)
----------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 301,500 436,200
Trade receivables, net 7,497,800 6,415,500
Inventories 6,196,100 5,504,400
Deferred income taxes 587,000 587,000
Prepaid expenses and other current assets 529,600 584,500
---------- ----------
Total current assets 15,112,000 13,527,600
Property and equipment, net 3,825,000 2,762,900
Intangible and other assets 5,819,400 5,913,100
---------- ----------
$24,756,400 22,203,600
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accrued expenses $ 1,882,900 1,901,300
Accounts payable 2,608,200 1,636,300
Current portion of long-term debt and
bank borrowings 2,709,900 2,022,400
Income taxes payable 457,200 384,900
Other 79,600 92,900
--------- ---------
Total current liabilities 7,737,800 6,037,800
Long-term debt, excluding current portion 1,218,500 729,500
Deferred income taxes 160,700 160,700
--------- ---------
Total liabilities 9,117,000 6,928,000
Stockholders' equity:
Common stock 2,600 2,600
Additional paid-in capital 12,656,600 12,594,000
Retained earnings 2,980,200 2,679,000
----------- ----------
Total stockholders' equity 15,639,400 15,275,600
Commitments and contingencies
$24,756,400 22,203,600
========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
2
<PAGE> 3
INVIVO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 9,500,800 7,865,200 17,393,200 15,707,100
Cost of goods sold 4,988,600 3,787,600 8,919,100 7,679,600
--------- --------- ---------- ----------
Gross profit 4,512,200 4,077,600 8,474,100 8,027,500
Operating expenses:
Selling, general
and administrative 3,386,600 2,250,800 6,719,900 4,435,400
Research and experimental 607,900 504,800 1,201,700 972,500
--------- --------- --------- ---------
Total operating expenses 3,994,500 2,755,600 7,921,600 5,407,900
Income from operations 517,700 1,322,000 552,500 2,619,600
Other income (expense):
Interest expense (67,800) (41,800) (121,000) (100,800)
Other, net 1,700 24,300 24,800 28,300
--------- --------- --------- ---------
Income before income taxes 451,600 1,304,500 456,300 2,547,100
Income tax expense 153,600 443,500 155,100 866,000
------- --------- ------- ---------
Net income $ 298,000 861,000 301,200 1,681,100
======= ======= ======= =========
Net income per common share $ .09 .25 .09 .49
=== === === ===
Weighted average common
shares outstanding 3,460,955 3,467,398 3,439,163 3,463,864
========= ========= ========= =========
</TABLE>
See accompanying note to consolidated financial statements.
3
<PAGE> 4
INVIVO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 301,200 1,681,100
Adjustments to reconcile net income to
cash (used in) provided by operating activities:
Depreciation and amortization 338,200 273,600
Change in operating assets and liabilities:
Trade receivables (1,082,300) (86,200)
Inventories (691,700) (88,000)
Prepaid expenses and other current assets 54,900 (18,600)
Accrued expenses (18,400) (330,200)
Accounts payable 971,900 194,200
Income taxes payable 72,300 221,300
Other current liabilities (13,300) (36,000)
------ -------
Net cash (used in) provided by operating activities (67,200) 1,811,200
------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,325,200) (336,100)
Intangible asset acquired (35,000) -
Proceeds from notes receivable 53,600 -
--------- -------
Net cash used by investing activities (1,306,600) (336,100)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 62,600 51,000
Bank borrowings 1,176,500 550,000
Principal payments under acquisition notes
payable, long term debt and other - (2,263,000)
--------- ---------
Net cash provided by (used in) financing activities 1,239,100 (1,662,000)
--------- ---------
Net decrease in cash and cash equivalents (134,700) (186,900)
Cash and cash equivalents at beginning of period 436,200 321,600
------- -------
Cash and cash equivalents at end of period $ 301,500 134,700
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 92,800 463,000
====== =======
Interest $ 121,000 100,800
======= =======
</TABLE>
See accompanying note to consolidated financial statements.
4
<PAGE> 5
INVIVO CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated balance sheet as of December 31, 1996 and the related
consolidated statements of income for the three and six month periods ended
December 31, 1996 and 1995; and the consolidated statements of cash flows for
the six month periods ended December 31, 1996 and 1995 are unaudited. The
consolidated financial statements reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position and results of
operations as of the end of and for the periods indicated. Interim results are
not necessarily indicative of results for a full year.
The financial statements and note are presented as permitted by Form
10-Q, and do not contain certain information included in the Company's annual
financial statements and notes.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995
Sales
Sales for the second quarter ended December 31, 1996 were $9,500,800,
an increase of 20.8% over sales of $7,865,200 for the same period of fiscal
1996. The increase was primarily due to sales of the "Millennia", a new
portable multi-parameter vital signs monitor introduced by the Company's
patient safety monitoring business in the first quarter of fiscal 1997. Sales
were also positively affected by sales growth at the Company's oxygen
monitoring business. Sales for the six month period increased 10.7% to
$17,393,200 compared with $15,707,100 in the same period last year. The sales
increase for the six month period was due to the second quarter increase as
sales were essentially unchanged in the first quarter of fiscal 1997.
Gross Profit
The gross profit margin declined for the three and six month periods
ended December 31, 1996 to 47.5% and 48.7% from 51.8% and 51.1%, respectively,
in the prior fiscal periods. The decline was primarily due to additional
production costs associated with the resolution of certain product issues
encountered in the initial production runs of the "Millennia" monitor.
Increased sales at the Company's oxygen monitoring business also contributed to
the decline as that business has inherently lower gross margins than the
Company's other businesses.
Operating Expenses
Selling, general and administrative expenses for the three and six
month periods ended December 31, 1996 increased 50.5% or $1,135,800 and 51.5%
or $2,284,500, respectively, over the previous fiscal periods. Selling, general
and administrative expenses were 35.6% and 38.6% of sales for the three and six
month periods ended December 31, 1996 compared with 28.6% and 28.2%,
respectively, for the same periods fiscal 1996. The increase in these
expenditures in aggregate and as a percentage of sales was due to a significant
increase in the Company's direct sales force and sales and marketing
infrastructure in connection with the introduction of its new "Millennia" vital
signs monitor. The Company intends to continue to increase aggregate selling,
general and administrative expenses in the upcoming quarters of fiscal 1997 in
relation to prior year periods particularly as sales commissions are paid on
the sales of the "Millennia" as well as costs of supporting its expanded sales
and marketing infrastructure. The Company expects that selling, general and
administrative expenses as a percentage of sales will trend towards historic
levels over time.
Research and experimental expenses were 6.4% and 6.9% of sales for the
three and six month periods ended December 31, 1996 compared to 6.4% and 6.2%
for the same periods in fiscal 1996. The increase in aggregate research and
experimental expenses for the three and six month periods ended December 31,
1996 was due to higher research and experimental expenditures on behalf of the
patient safety monitoring business as the Company continues its efforts in
developing and enhancing its new multi-parameter vital signs monitor and other
vital signs monitoring products.
6
<PAGE> 7
Other Income and Expense
Interest expense of $121,000 in the first six months of fiscal 1997
compared with $100,800 in the first six months of fiscal 1996 reflected the
increased outstandings on the Company's revolving bank line of credit along
with a construction loan on the Company's recently expanded patient safety
monitoring facility.
Provision for Income Taxes
The effective tax rate for the first six months of fiscal 1997
remained at approximately 34.0%.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1996 decreased to $7,374,200 compared
with $7,489,800 at June 30, 1996. Cash and cash equivalents at December 31, 1996
were $301,500 compared with $436,200 at June 30, 1996. Net cash used in
operating activities was $67,200 for the six months ended December 31, 1996
compared with $1,811,200 provided by operations for the six months ended
December 31, 1995. This decrease was the result of the decline in net income and
negative changes in operating assets and liabilities particularly inventories
and accounts receivable at the patient safety monitoring business. Capital
expenditures were $1,325,200 for the six months ended December 31, 1996 compared
to $336,100 for the first six months of fiscal 1996. The increase was primarily
due to the significant increase in sales demonstration equipment for the
expanded direct sales force at the patient safety monitoring business along with
the expansion of the patient safety monitoring facility in Orlando, Florida.
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 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 $1,176,500 in the first six months of fiscal
1997. The Company's revolving bank line of credit is collateralized by the
Company's accounts receivable, inventory, and equipment. On December 1, 1996,
the Company renewed the $4,000,000 bank line of credit to December 1, 1997. At
December 31, 1996, $2,650,000 was outstanding on the line of credit. In
September of 1996, the Company obtained construction financing of approximately
$900,000 to finance the expansion of its patient safety monitoring facility in
Orlando, Florida. Construction was completed in February of 1997.
7
<PAGE> 8
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.
In April, 1996 the Company's Invivo Research subsidiary received FDA
approval to market its new portable multi-parameter vital signs monitor. The
Company believes this product will enable 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. Therefore, revenue and earnings growth
for the Company's upcoming third quarter as compared to the second quarter
ended December 31, 1996 will largely depend on the revenue contribution made by
the Millennia.
The success of the Millennia 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 forecast by the
Company are: economic conditions affecting the healthcare industry and general
economy; successful integration of the expanded direct sales force; successful
implementation of the product marketing strategy; competitive factors, such as
competitor's new products and pricing pressures; and manufacturing
effectiveness, efficiency and capacity.
8
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
None.
ITEM 2: CHANGES IN SECURITIES:
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES:
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
At the Annual Meeting of Stockholders of the Company held on
December 11, 1996 the Stockholders:
1. Elected all of the nominees for Director for the ensuing
year as follows:
<TABLE>
<CAPTION>
Name For Against Abstain
---- --- ------- -------
<S> <C> <C> <C>
Ernest Goggio 2,873,235 0 89,915
James Hawkins 2,873,235 0 89,915
George Sarlo 2,872,535 0 90,615
Paul Kutler 2,870,235 0 92,915
</TABLE>
2. Amended the Company's 1994 Stock Option Plan to increase by
200,000 the number of shares covered by the Plan with the
number of shares voting in favor of the amendment being
1,906,949; the number of shares voted against being 377,850;
and the number of abstentions being 14,775.
3. Ratified the selection of KPMG Peat Marwick LLP as
independent public auditors for the Company, with the number of
shares voted in favor of the ratification being 2,949,750; the
number of shares voted against being 1,325; and the number of
abstentions being 12,075.
ITEM 5: OTHER INFORMATION:
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index included herein on page 10.
(b) Reports on Form 8-K:
None.
9
<PAGE> 10
INVIVO CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10.14 Credit Agreement dated December 1, 1996 by and between
Invivo Corporation and Wells Fargo Bank.
11.1 Statement of computation of net income per share
27.0 Financial Data Schedule
10
<PAGE> 11
SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INVIVO CORPORATION
<TABLE>
<S> <C>
Date: February 14 , 1997 By: /s/ John F. Glenn
JOHN F. GLENN
Vice President-Finance
and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
</TABLE>
11
<PAGE> 1
EXHIBIT 10.14
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of December 1, 1996, by and between
INVIVO CORPORATION, a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described
below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed
to provide the Credits to Borrower on the terms and conditions contained
herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to continue to make advances to Borrower from
time to time up to and including December 1, 1997, not to exceed at any time
the aggregate principal amount of Four Million Dollars ($4,000,000.00) ("Line
of Credit"), the proceeds of which shall be used for working capital.
Borrower's obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note substantially in the form of Exhibit A attached
hereto ("Line of Credit Note"), all terms of which are incorporated herein by
this reference.
(b) Letter of Credit Subfeature. As a subfeature under the Line
of Credit, Bank agrees from time to time during the term thereof to issue
commercial and standby letters of credit for the account of Borrower (each, a
"Letter of Credit" and collectively, "Letters of Credit"); provided however,
that the form and substance of each Letter of Credit shall be subject to
approval by Bank, in its sole discretion; and provided further, that the
aggregate undrawn amount of all outstanding Letters of Credit shall not at any
time exceed Two Hundred Thousand Dollars
<PAGE> 2
($200,000.00). Each Letter of Credit shall be issued for a term as designated
by Borrower; provided however, that no Letter of Credit shall have an
expiration date subsequent to the maturity date of the Line of Credit. The
undrawn amount of all Letters of Credit shall be reserved under the Line of
Credit and shall not be available for borrowings thereunder. Each Letter of
Credit shall be subject to the additional terms and conditions of the Letter of
Credit Agreement and related documents, if any, required by Bank in connection
with the issuance thereof (each, a "Letter of Credit Agreement" and
collectively, "Letter of Credit Agreements"). Each draft paid by Bank under a
Letter of Credit shall be deemed an advance under the Line of Credit and shall
be repaid by Borrower in accordance with the terms and conditions of this
Agreement applicable to such advances; provided however, that if advances under
the Line of Credit are not available, for any reason, at the time any draft is
paid by Bank, then Borrower shall immediately pay to Bank the full amount of
such draft, together with interest thereon from the date such amount is paid by
Bank to the date such amount is fully repaid by Borrower, at the rate of
interest applicable to advances under the Line of Credit. In such event
Borrower agrees that Bank, in its sole discretion, may debit any demand deposit
account maintained by Borrower with Bank for the amount of any such draft.
(c) Borrowing and Repayment. Borrower may from time to time
during the term of the Line of Credit borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations, terms
and conditions contained herein or in the Line of Credit Note; provided
however, that the total outstanding borrowings under the Line of Credit shall
not at any time exceed the maximum principal amount available thereunder, as
set forth above.
SECTION 1.2. TERM LOAN.
(a) Term Loan. Bank has made a loan to Borrower in the original
principal amount of One Million Three Hundred Thousand Dollars ($1,300,000.00)
("Term Loan"), on which the outstanding principal balance as of the date hereof
is $54,166.82. Borrower's obligation to repay the Term Loan is evidenced by a
promissory note substantially in the form of Exhibit B attached hereto ("Term
Note"), all terms of which are incorporated herein by this reference. Subject
to the terms and conditions of this
<PAGE> 3
Agreement, Bank hereby confirms that the Term Loan remains in full force and
effect. Any reference in the Term Note to any prior loan agreement between
Bank and Borrower shall be deemed a reference to this Agreement.
(b) Repayment. The principal amount of the Term Loan shall
continue to be repaid in accordance with the provisions of the Term Note.
(c) Prepayment. Borrower may prepay principal on the Term Loan
solely in accordance with the provisions of the Term Note.
SECTION 1.3. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of
Credit and the Term Loan shall bear interest at the rate of interest set
forth in the Line of Credit Note and the Term Note.
(b) Computation and Payment. Interest shall be computed on the
basis of a 360-day year, actual days elapsed. Interest shall be payable
at the times and place set forth in the Line of Credit Note and the Term
Note (collectively, the "Notes").
(c) Unused Commitment Fee. Borrower shall pay to Bank a fee
equal to one-eighth percent (0.125%) per annum (computed on the basis of a
360-day year, actual days elapsed) on the average daily unused amount of the
Line of Credit, which fee shall be calculated on a fiscal quarter basis by Bank
and shall be due and payable by Borrower in arrears.
(d) Letter of Credit Fees. Borrower shall pay to Bank (i) fees
upon the issuance of the Letter of Credit equal to two percent (2.0%) per annum
(computer on the basis of a 360-day year, actual days elapsed) of the face
amount thereof, and (ii) upon the payment or negotiation by Bank of each draft
under the Letter of Credit, and (iii) upon the occurrence of any other activity
with respect to the Letter of Credit (including without limitation, the
transfer, amendment or cancellation of the Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all principal, interest and fees due under each
<PAGE> 4
Credit by charging Borrower's demand deposit account number 4159-384890 with
Bank, or any other demand deposit account maintained by Borrower with Bank, for
the full amount thereof. Should there be insufficient funds in any such demand
deposit account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower.
SECTION 1.5. COLLATERAL.
As security for all indebtedness of Borrower to Bank, Borrower hereby
grants to Bank security interests of first priority in all Borrower's accounts
receivable and other rights to payment, general intangible, inventory and
equipment.
As additional security for all indebtedness of Borrower to Bank ,
Borrower shall cause G.C. Industries, Inc., Linear Laboratories Corporation,
Lumidor Safety Corporation, Sierra Precision, Invivo Research, Inc. and Tactile
Robotic Systems, Inc. to grant to Bank security interests of first priority in
all accounts receivable and other rights to payment, general intangibles,
inventory and equipment. All of the foregoing shall be evidenced by and subject
to the terms of such security agreements, financing statements, deeds of trust
and other documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand
for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and recording fees and
costs of appraisals, audits and title insurance.
SECTION 1.6. GUARANTIES. All indebtedness of Borrower to Bank
shall be guaranteed by G.C. Industries, Inc., Linear Laboratories Corporation,
Lumidor Safety Corporation, Sierra Precision, Invivo Research, Inc. and Tactile
Robotic Systems, Inc. in the principal amount of Four Million Ten Thousand
Dollars ($4,010,000.00), as evidenced by and subject to the terms of guaranties
in form and substance satisfactory to Bank.
<PAGE> 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly
organized and existing and in good standing under the laws of the State of
Delaware, and is qualified or licensed to do business (and is in good standing
as a foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the
Notes, and each other document, contract and instrument required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance
by Borrower of each of the Loan Documents do not violate any provision of any
law or regulation, or contravene any provision of the Articles of Incorporation
or By-Laws of Borrower, or result in any breach of or default under any
contract, obligation, indenture or other instrument to which Borrower is a
party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
<PAGE> 6
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated September 30, 1996, a true copy of which has been
delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower, (b) discloses
all liabilities of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, franchises and licenses required and rights to
all trademarks, trade names, patents, and fictitious names, if any, necessary
to enable it to conduct the business in which it is now engaged in compliance
with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time ("ERISA");
Borrower has not violated any provision of any defined employee pension benefit
plan (as defined in ERISA) maintained or contributed to by Borrower (each, a
"Plan"); no Reportable Event as defined in ERISA has occurred and is continuing
with respect to any Plan initiated by Borrower; Borrower has met its minimum
funding requirements under ERISA with respect to each Plan; and each Plan will
be able to fulfill
<PAGE> 7
its benefit obligations as they come due in accordance with the Plan documents
and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by
Borrower to Bank in writing prior to the date hereof, Borrower is in compliance
in all material respects with all applicable Federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, the Federal Toxic Substances Control Act and the
California Health and Safety Code, as any of the same may be amended, modified
or supplemented from time to time. None of the operations of Borrower is the
subject of any Federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of
any toxic or hazardous waste or substance into the environment. Borrower has
no material contingent liability in connection with any release of any toxic or
hazardous waste or substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to grant any of the Credits is subject to the fulfillment to
Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
<PAGE> 8
(b) Documentation. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporate Borrowing Resolution.
(iii) Certificates of Incumbency.
(iv) Continuing Guaranties.
(v) Continuing Security Agreement:Rights to Payment
and Inventory.
(vi) Security Agreement:Equipment.
(vii) UCC Financing Statements.
(viii) Corporate Resolution:Continuing Guaranty.
(ix) Third Party Security Agreement:Rights to Payments & Inventory.
(x) Third Party Security Agreement:Equipment.
(xi) Corporate Resolution:Third Party Collateral.
(xii) Continuing Standby and Commercial Letter of Credit Agreement.
(xiii) Such other documents as Bank may require under any other
Section of this Agreement.
(c) Financial Condition. There shall have been no material
adverse change, as determined by Bank, in the financial condition or business
of Borrower or any guarantor hereunder, nor any material decline, as determined
by Bank, in the market value of any collateral required hereunder or a
substantial or material portion of the assets of Borrower or any such
guarantor.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The
obligation of Bank to make each extension of credit requested by Borrower
hereunder shall be subject to the fulfillment to Bank's satisfaction of each of
the following conditions:
(a) Compliance. The representations and warranties contained
herein and in each of the other Loan Documents shall be true on and as of the
date of the signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto,
<PAGE> 9
with the same effect as though such representations and warranties had been
made on and as of each such date, and on each such date, no Event of Default as
defined herein, and no condition, event or act which with the giving of notice
or the passage of time or both would constitute such an Event of Default, shall
have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional
documents which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at the
times and place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and
records in accordance with generally accepted accounting principles
consistently applied, and permit any representative of Bank, at any reasonable
time, to inspect, audit and examine such books and records, to make copies of
the same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year, an
unqualified, audited, consolidating, and consolidated financial statement and
10K of Borrower, prepared by an independent certified public accountant
acceptable to Bank, to
<PAGE> 10
include balance sheet, income statement, statement of cash flow and all
footnotes;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a consolidating and consolidated financial statement and 10-Q report
of Borrower, prepared by Borrower, to include balance sheet and income
statement;
(c) from time to time such other information as Bank may
reasonably request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and franchises necessary
for the conduct of its business; and comply with the provisions of all
documents pursuant to which Borrower is organized and/or which govern
Borrower's continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to Borrower
and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of
the types and in amounts customarily carried in lines of business similar to
that of Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary
to Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when
due any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation Federal and state income taxes and state
and local property taxes and assessments, except such (a) as Borrower may in
good faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision, to Bank's
<PAGE> 11
satisfaction, for eventual payment thereof in the event Borrower is obligated
to make such payment.
SECTION 4.8. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to the
extent modified by the definitions herein):
(a) Working Capital not at any time less than $5,500,000.00, with
"Working Capital" defined as total current assets minus total current
liabilities.
(b) Tangible Net Worth not at any time less than $7,500,000.00,
with "Tangible Net Worth" defined as the aggregate of total stockholders'
equity plus subordinated debt less any intangible assets.
(c) Total Liabilities divided by Tangible Net Worth not at any
time greater than 2.0 to 1.0, with "Total Liabilities" defined as the aggregate
of current liabilities and non-current liabilities less subordinated debt, and
with "Tangible Net Worth" as defined above.
(d) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less than $1.00
on a quarterly basis, determined as of each fiscal quarter end.
(e) EBITDA Coverage Ratio not less than 1.5 to 1.0 as of each
fiscal year end, with "EBITDA" defined as net profit before tax plus interest
expense (net of capitalized interest expense), depreciation expense and
amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA
divided by the aggregate of total interest expense plus the prior period
current maturity of long-term debt and the prior period current maturity of
subordinated debt.
SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than
five (5) days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or the
passage of
<PAGE> 12
time or both would constitute an Event of Default; (b) any change in the name
or the organizational structure of Borrower; (c) the occurrence and nature of
any Reportable Event or Prohibited Transaction, each as defined in ERISA, or
any funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit
to exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
and (b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof except debt from First Union Bank for the purpose of
financing the expansion of that certain manufacturing facility owned by Invivo
Research, Inc. (a Invivo Corporation Subsidiary) located in Orlando, Florida.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into
or consolidate with any other entity; make any substantial change in the nature
of Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or
<PAGE> 13
otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security
for, any liabilities or obligations of any other person or entity, except any
of the foregoing in favor of Bank.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or
advances to or investments in any person or entity, except any of the foregoing
existing as of, and disclosed to Bank prior to, the date hereof.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend
or distribution either in cash, stock or any other property on Borrower's stock
now or hereafter outstanding, nor redeem, retire, repurchase or otherwise
acquire any shares of any class of Borrower's stock now or hereafter
outstanding.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit
to exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor of
Bank or which is existing as of, and disclosed to Bank in writing prior to, the
date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest,
fees or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any
other party under this Agreement or any other
<PAGE> 14
Loan Document shall prove to be incorrect, false or misleading in any material
respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation,
or any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower or any
guarantor hereunder has incurred any debt or other liability to any person or
entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower or
any guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any guarantor hereunder; or the entry of a judgment
against Borrower or any guarantor hereunder.
(f) Borrower or any guarantor hereunder shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment
for the benefit of creditors; Borrower or any guarantor hereunder shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or Federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or Federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any guarantor
<PAGE> 15
hereunder, or Borrower or any such guarantor shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or such guarantor shall be adjudicated a bankrupt, or an
order for relief shall be entered against Borrower or any Guarantor by any
court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or Federal law relating to bankruptcy, reorganization or other
relief for debtors.
(g) There shall exist or occur any event or condition which Bank
in good faith believes impairs, or is substantially likely to impair, the
prospect of payment or performance by Borrower of its obligations under any of
the Loan Documents.
(h) The dissolution or liquidation of Borrower; or Borrower or any
such guarantor, or any of its directors, stockholders or members, shall take
action seeking to effect the dissolution or liquidation of Borrower or such
guarantor.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of
Default: (a) all indebtedness of Borrower under each of the Loan Documents,
any term thereof to the contrary notwithstanding, shall at Bank's option and
without notice become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by
Borrower; (b) the obligation, if any, of Bank to extend any further credit
under any of the Loan Documents shall immediately cease and terminate; and (c)
Bank shall have all rights, powers and remedies available under each of the
Loan Documents, or accorded by law, including without limitation the right to
resort to any or all security for any of the Credits and to exercise any or all
of the rights of a beneficiary or secured party pursuant to applicable law.
All rights, powers and remedies of Bank may be exercised at any time by Bank
and from time to time after the occurrence of an Event of Default, are
cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
<PAGE> 16
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of
Bank in exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy; nor shall
any single or partial exercise of any such right, power or remedy preclude,
waive or otherwise affect any other or further exercise thereof or the exercise
of any other right, power or remedy. Any waiver, permit, consent or approval
of any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in such
writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to each party at the following
address:
BORROWER: INVIVO CORPORATION
4900 Hopyard Road
Pleasanton, CA 94588
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
EAST BAY REGIONAL COMMERCIAL BANKING OFFICE
ONE KAISER PLAZA, SUITE 850
OAKLAND, CA 94612
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall
pay to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel),
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents,
<PAGE> 17
and (c) the prosecution or defense of any action in any way related to any of
the Loan Documents, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to Borrower.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the heirs, executors, administrators,
legal representatives, successors and assigns of the parties; provided however,
that Borrower may not assign or transfer its interest hereunder without Bank's
prior written consent. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Bank's rights and benefits under each of the Loan Documents. In connection
therewith, Bank may disclose all documents and information which Bank now has
or may hereafter acquire relating to any of the Credits, Borrower or its
business, any guarantor hereunder or the business of such guarantor, or any
collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
other Loan Documents constitute the entire agreement between Borrower and Bank
with respect to the Credits and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only by a written instrument
executed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made
and entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of the
Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the
<PAGE> 18
remainder of such provision or any remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall constitute
one and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall
be resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, any of the Loan
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms
<PAGE> 19
hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to
any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed
to be a waiver by any party that is a bank of the protections afforded to it
under 12 U.S.C. '91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators
must be active members of the California State Bar or retired judges of the
state or federal judiciary of California, with expertise in the substantive
laws applicable to the subject matter of the Dispute. Arbitrators are
empowered to resolve Disputes by summary rulings in response to motions filed
prior to the final arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the state of California,
(ii) may grant any remedy or relief that a court of the state of California
could order or grant within the scope hereof and such ancillary relief as is
necessary to make effective any award, and (iii) shall have the power to award
recovery of all costs and fees, to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law. Any Dispute in which the amount in controversy is
$5,000,000 or less shall be decided by a single arbitrator who shall not render
an award of greater than $5,000,000 (including damages, costs, fees and
expenses). By submission to a single arbitrator, each party
<PAGE> 20
expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be decided
by majority vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have
the power to make any award which is not supported by substantial evidence or
which is based on legal error, (ii) an award shall not be binding upon the
parties unless the findings of fact are supported by substantial evidence and
the conclusions of law are not erroneous under the substantive law of the state
of California, and (iii) the parties shall have in addition to the grounds
referred to in the Federal Arbitration Act for vacating, modifying or
correcting an award the right to judicial review of (A) whether the findings of
fact rendered by the arbitrators are supported by substantial evidence, and (B)
whether the conclusions of law are erroneous under the substantive law of the
state of California. Judgment confirming an award in such a proceeding may be
entered only if a court determines the award is supported by substantial
evidence and not based on legal error under the substantive law of the state of
California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration
if the Dispute concerns indebtedness secured directly or indirectly, in whole
or in part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule statute
of California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to
a referee in
<PAGE> 21
accordance with California Code of Civil Procedure Section 638 et seq., and
this general reference agreement is intended to be specifically enforceable in
accordance with said Section 638. A referee with the qualifications required
herein for arbitrators shall be selected pursuant to the AAA's selection
procedures. Judgment upon the decision rendered by a referee shall be entered
in the court in which such proceeding was commenced in accordance with
California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan Documents or
any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
WELLS FARGO BANK,
INVIVO CORPORATION NATIONAL ASSOCIATION
By: __________________________ By: ______________________
Rick Freeman
Title:________________________ Vice President
By: __________________________
Title:________________________
<PAGE> 1
EXHIBIT 11.1
INVIVO CORPORATION STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 298,000 861,000 301,200 1,681,100
======= ======= ======= =========
Computation of weighted
common and common equivalent
shares outstanding:
Common stock 3,235,516 3,214,624 3,232,719 3,209,078
Common stock
equivalents 225,439 252,774 206,444 254,786
----------- --------- --------- ---------
Weighted common and common
equivalent shares 3,460,955 3,467,398 3,439,163 3,463,864
========= ========= ========= =========
Net income per common share $ .09 .25 .09 .49
=== ==== === ===
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
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