<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 SEPTEMBER 30, 1998
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 (IRS Employer Identification No.)
of incorporation)
4900 HOPYARD RD. SUITE 210, PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices) (Zip Code)
TELEPHONE: (925) 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 September 30, 1998 was 3,271,668 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 308,900 554,100
Trade receivables, net 10,640,800 10,277,000
Inventories 7,615,700 7,282,400
Deferred income taxes 1,138,000 1,138,000
Prepaid expenses and other current assets 714,800 451,400
------------- -------------
Total current assets 20,418,200 19,702,900
Property and equipment, net 4,617,000 4,441,100
Intangible assets 5,706,400 5,748,700
Other assets 294,400 302,600
------------- -------------
$ 31,036,000 30,195,300
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,052,500 3,139,100
Accrued expenses 2,723,700 2,679,700
Current portion of long-term debt and
bank borrowings 3,220,000 3,087,200
Income taxes payable 1,437,900 1,433,200
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Total current liabilities 10,434,100 10,339,200
Long-term debt, excluding current portion 1,453,800 1,479,800
Deferred income taxes 156,000 156,000
Other liabilities 52,000 52,000
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Total liabilities 12,095,900 12,027,000
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Stockholders' equity:
Common stock 2,600 2,600
Additional paid-in capital 12,921,200 12,908,700
Retained earnings 6,016,300 5,257,000
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Total stockholders' equity 18,940,100 18,168,300
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Commitments and contingencies
$ 31,036,000 30,195,300
============= =============
</TABLE>
See accompanying note to consolidated financial statements.
2
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INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Sales $ 11,500,600 9,383,700
Cost of goods sold 5,736,000 4,964,200
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Gross profit 5,764,600 4,419,500
Operating expenses:
Selling, general
and administrative 3,845,200 3,085,800
Research and experimental 690,900 610,300
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Total operating expenses 4,536,100 3,696,100
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Income from operations 1,228,500 723,400
Other income (expense):
Interest expense (82,700) (95,800)
Other, net 4,600 31,400
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Income before income taxes 1,150,400 659,000
Income tax expense 391,100 199,000
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Net income $ 759,300 460,000
============= =============
Basic net income per common share $ .23 .14
============= =============
Weighted average of common
shares outstanding (basic) 3,269,947 3,256,059
============= =============
Diluted net income per common share $ .22 .14
============= =============
Weighted average of common shares
and common share equivalents
outstanding (diluted) 3,516,389 3,371,468
============= =============
</TABLE>
See accompanying note to consolidated financial statements.
3
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INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 759,300 460,000
Adjustments to reconcile net income to
cash (used in) provided by operating activities:
Depreciation and amortization 222,500 191,900
Change in operating assets and liabilities:
Trade receivables (363,800) (749,400)
Inventories (333,300) 440,600
Prepaid expenses and other current assets (263,400) (106,300)
Accrued expenses 44,000 153,900
Accounts payable (86,600) (545,700)
Income taxes payable 4,700 507,500
Other current liabilities -- (3,100)
------------- -------------
Net cash (used in) provided by operating activities (16,600) 349,400
------------- -------------
Cash flows from investing activities:
Capital expenditures (356,200) (124,500)
Intangible assets (116,300) --
Other assets 8,200 --
------------- -------------
Net cash used in investing activities (464,300) (124,500)
------------- -------------
Cash flows from financing activities:
Issuances of common stock 12,600 5,900
Bank borrowings (repayments), net 249,100 (186,300)
Principal payments under long-term debt
and other liabilities (26,000) (14,500)
------------- -------------
Net cash provided by (used in) financing activities 235,700 (194,900)
------------- -------------
Net (decrease) increase in cash and cash equivalents (245,200) 30,000
Cash and cash equivalents at beginning of period 554,100 171,100
------------- -------------
Cash and cash equivalents at end of period $ 308,900 201,100
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 373,300 19,500
============= =============
Interest $ 85,500 95,800
============= =============
</TABLE>
See accompanying note to consolidated financial statements.
4
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INVIVO CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated balance sheet as of September 30, 1998 and the related
consolidated statements of income for the three month periods ended September
30, 1998 and 1997; and the consolidated statements of cash flows for the three
month periods ended September 30, 1998 and 1997 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
consolidated financial statements and notes.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
Sales
Sales for the first quarter ended September 30, 1998 were $11,500,600,
an increase of 22.6% over sales of $9,383,700 for the same period of fiscal
1998. The sales increase in the first quarter of fiscal 1999 was primarily
attributable to the sales growth at the Company's patient safety monitoring
business. Strong demand for the Company's next generation MRI vital signs
monitor, introduced in the fourth quarter of fiscal 1998, was largely
responsible for the sales increase. Sales were also positively affected by
increased sales at the Company's gas detection business.
Gross Profit
The gross profit margin increased to 50.1% from 47.1% in the first
quarter ended September 30, 1998 as compared to the same period in the prior
fiscal year. The increase was primarily due to the product mix of sales at the
Company's patient safety monitoring business as the MRI vital signs monitor has
a higher gross margin than the "Millennia" vital signs monitor and other
monitoring products.
Operating Expenses
Selling, general and administrative expenses for the three month period
ended September 30, 1998 increased 24.6% or $759,400 compared to the previous
fiscal period. As a percentage of sales, selling, general and administrative
expenses were 33.4% for the quarter ended September 30, 1998 compared with 32.9%
for the same period in fiscal 1998. The increase in these expenditures was
primarily due to higher sales commission expenses on the higher sales volume at
the Company's patient safety monitoring business.
Research and experimental expenses were $690,900 or 6.0% of sales in the
first quarter of fiscal 1999 as compared to $610,300 or 6.5% of sales in the
prior year period. A substantial amount of the research and experimental
expenses are on behalf of the patient safety monitoring business as the Company
continues its efforts in enhancing its "Millennia" vital signs monitor and
developing other vital signs monitoring products.
Other Income and Expense
Interest expense decreased to $82,700 for the three months ended
September 30, 1998 compared with $95,800 for the same period in fiscal 1998.
This decrease was primarily the result of lower average balances on the
Company's revolving bank line of credit.
Provision for Income Taxes
The effective tax rate for the first quarter remained at 34%.
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1998 increased to $9,984,100 compared
with $9,363,700 at June 30, 1998. Cash and cash equivalents at September 30,
1998 were $308,900 compared with $554,100 at June 30, 1998. Net cash used in
operating activities was $16,600 for the first quarter ended September 30, 1998
compared with $349,400 provided by operations for the quarter ended September
30, 1997. This decrease was the result of the increase in net income being
offset by negative changes in operating assets and liabilities particularly
inventories, accounts receivable, prepaid expenses and other assets. Capital
expenditures were $356,200 for the first quarter of fiscal 1999 compared to
$124,500 for the prior year period.
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 vested on January 1, 1996, 1997 and
1998 and two-fifths vest on January 1, 1999. The former Invivo Research
shareholders can make an 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. In March of 1998, the former Invivo Research shareholders
elected to be paid on the second vested installment which amounted to $465,342.
The former Invivo Research shareholders agreed to a payment of $116,335 in
March, 1998 with the remainder to be paid in nine equal monthly payments
beginning in April, 1998.
In October of 1998, the Company increased its bank line of credit to
$7,500,000 from $5,000,000 and added a $1,000,000 three-year term loan. The
Company also renewed the line of credit from December 1, 1998 to December 1,
1999. The Company's revolving bank line of credit and term loan are
collateralized by the Company's accounts receivable, inventory, and equipment.
At September 30, 1998, $2,999,100 was outstanding on the line of credit,
$1,000,000 of which was subsequently converted into the term loan.
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 1999.
The Company will continue to explore opportunities for the possible acquisitions
of technologies or businesses, which may require the Company to seek additional
financing.
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME. In 1997, the financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components. The statement is effective
for fiscal years beginning after December 15, 1997 and has been adopted by
Invivo Corporation in fiscal year 1999. The Company does not currently have any
of the reconciling components defined; therefore, net income equals
comprehensive income.
7
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RECENT ACCOUNTING PRONOUNCEMENTS
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, disclosures about Segments of an Enterprise and
Related Information, which establishes standards for the way the public business
enterprises are to report selected information about operating segment in
interim financial reports issued to stockholders. The statement is effective for
periods beginning after December 15, 1997, and will be adopted by Invivo
Corporation in its annual reporting for fiscal year 1999.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132. SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of disclosures for
earlier periods provided for comparative purposes, if available. Because the
Company does not have any of these type of plans, it believes that SFAS No. 132
will have no impact on the consolidated financial statements.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, accounting for derivative instruments and hedging
activities, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The statement is effective for fiscal
quarters of fiscal years beginning after June 15, 1999. As the Company does not
currently have any derivative instruments for hedging activities engaged, the
Company believes that SFAS No. 133 will have no impact on its consolidated
financial statements.
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 fiscal 1997, the Company introduced its new "Millennia" portable
multi-parameter vital signs monitor and substantially increased selling, general
and administrative expenses in connection with this product coming on line. In
late fiscal 1998, the Company introduced its next generation MRI monitor. The
Company expects both of these products 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 these products.
The success of the "Millennia" and the MRI monitor 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: customer acceptance of new product;
effectiveness of sales and marketing efforts; customer buying patterns; changes
in healthcare delivery and reimbursement; availability of components; impact of
the international economic environment; execution of new product manufacturing
ramp and competitive factors, such as competitor's new products and pricing
pressures.
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<PAGE> 9
The Company's statements in this Form 10-Q for the period ended September 30,
1998 regarding the year 2000 issue also constitutes forward looking statements
of anticipated costs, timing of hardware and software installation and year 2000
compliance of suppliers and customers. Actual results could differ due to
unanticipated difficulties in completing year 2000 compliance efforts or to the
determination of additional year 2000 issues that have not been identified by
the Company.
YEAR 2000
Many existing computer systems and related software applications use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. Such systems and applications
could fail or create erroneous results unless corrected so that they can process
data related to the year 2000. The Company relies on such computer systems and
applications in operating and monitoring all major aspects of its business. The
Company has evaluated the impact of the year 2000 issue on its business and the
related expenses incurred in attempting to remedy such impact. The Company
determined that regardless of the year 2000 issue, replacement of existing
systems would be provide more efficiency of operations and additional
functionality. The Company has contracted with outside information consulting
companies to install both new hardware and replace its current mission critical
software systems with off the shelf year 2000 compliant software. Management's
current estimate is that the costs associated with the new systems will total
approximately $250,000 to $300,000 and should not have a material adverse effect
on the results of operations or financial position of the Company in fiscal
1999. Through September 30, 1998, the Company had incurred approximately
$100,000 of costs associated with the new information systems, all of which has
been capitalized. Management expects all information system upgrades and
conversions to be completed and fully operational by early calendar 1999. The
Company has not attempted to quantify the most likely year 2000 worst--case
scenario nor has it considered any contingent plans in case the installations
performed by the outside information consulting companies are not satisfactory
for the year 2000 compliance, as the Company believes that the installations
will sufficiently address the year 2000 issue. However, if the completed
installations by early calendar 1999 are not satisfactory for year 2000
compliance, the Company will then formulate the necessary contingent plans.
The Company believes that its currently marketed products are or will be
by early calendar 1999, year 2000 compliant. Some of the Company's products are
not affected because the product does not contain a date field in the software.
On some previously marketed products which are not year 2000 compliant, the
Company plans to offer an upgrade to customers requiring year 2000 compliance.
The Company is currently assessing its electronic office and manufacturing
equipment to determine if such equipment is date sensitive and will require
upgrades. The Company cannot predict the effect of the year 2000 problems on its
vendors, customers and other entities with which the Company transacts business,
or with whose products the Company's products interact. The Company has not yet
undertaken a survey of the year 2000 readiness of these third parties. However,
the Company does plan to begin an assessment of the readiness of its key vendors
and suppliers soon and plans to have this assessment complete by mid-calendar
1999.
9
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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:
None.
ITEM 5: OTHER INFORMATION:
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index included herein on page 11
(b) Reports on Form 8-K:
None.
10
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INVIVO CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.12 Credit Agreement dated October 6, 1998 between
Invivo Corporation and Wells Fargo Bank
10.13 First Amendment to Credit Agreement dated November
1, 1998 between Invivo Corporation and Wells Fargo
Bank
11.1 Statement of computation of net income per share
27.0 Financial Data Schedule
</TABLE>
11
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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
Date: November 13, 1998 By:/S/ JOHN F. GLENN
-----------------
Vice President-Finance
and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
12
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EXHIBIT 10.12
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of October 6, 1998, by and between
INVIVO CORPORATION, a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 1, 1996, as amended from time to time (the 1996 Agreement);
WHEREAS, Borrower has requested from Bank an increase in the maximum
principal amount of Borrower's revolving credit accommodation granted pursuant
to the 1996 Agreement, as well as certain other additions to and/or changes in
Borrower's credit accommodations available thereunder; and
WHEREAS, Bank has agreed to provide said increase and other changes in
Borrower's available credit accommodations (each, a Credit and collectively, the
Credits) 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. CANCELLATION OF 1996 AGREEMENT. The 1996 Agreement shall be
canceled and superseded by this Agreement as of the date first set forth above.
SECTION 1.2. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including December 1, 1998, not to exceed at any time the aggregate
principal amount of Seven Million Five Hundred Thousand Dollars ($7,500,000)
("Line of Credit"), the proceeds of which shall be used (i) to provide working
capital for Borrower and for Borrower?s wholly-owned subsidiaries, G.C.
Industries, Inc., Linear Laboratories Corp., Lumidor Safety Corporation, Sierra
Precision and Invivo Research, Inc. (each, a Subsidiary and collectively, the
Subsidiaries?), and (ii) to finance Borrower? repurchase of its stock in amounts
not to exceed an aggregate of One Million Dollars ($1,000,000) during the term
of the Line of Credit. 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 sight
commercial and/or 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 ($200,000). Each Letter of Credit shall
be issued for a term designated by
1
<PAGE> 2
Borrower; provided however, that no Letter of Credit shall have an expiration
date subsequent 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 1.3. TERM LOAN.
(a) Term Loan. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make a loan to Borrower in the principal amount of One
Million Dollars ($1,000,000) ("Term Loan"), the proceeds of which shall be used
to finance capital expenditures for Borrower and/or the Subsidiaries. Borrower's
obligation to repay the Term Loan shall be 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.
(b) Repayment. The principal amount of the Term Loan shall 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. All prepayments of principal
shall be applied on the most remote installment or installments of principal
then unpaid.
SECTION 1.4. INTEREST/FEES.
(a) Interest. The outstanding principal balances of the Credits shall
bear interest at the rates of interest set forth in the Line of Credit Note and
the Term Note (collectively, the Notes).
(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 Notes.
(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
one-eighth percent (.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 quarterly basis by Bank and shall be due and
payable by Borrower in arrears within ten (10) days after each billing is sent
by Bank.
2
<PAGE> 3
(d) Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation by Bank of
each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.5. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under each 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 1.6. COLLATERAL. As security for all indebtedness of Borrower to
Bank, including any interest rate swap exposure incurred under contracts now or
hereafter entered into between Borrower and Bank, (a) Borrower hereby grants to
Bank security interests of first priority in all Borrower's accounts receivable
and other rights to payment, general intangibles, inventory and equipment, and
(b) Borrower shall cause each Subsidiary to grant to Bank security interests of
first priority in all accounts receivable and other rights to payment, general
intangibles, inventory and equipment of such Subsidiary. 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 1.7. GUARANTIES. All indebtedness of Borrower to Bank shall be
guaranteed by each Subsidiary in the principal amount of Eight Million Five
Hundred Thirty Dollars ($8,530,000) each, as evidenced by and subject to the
terms of guaranties in form and substance satisfactory to Bank.
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 and each Subsidiary are
corporations, duly organized and existing and in good standing under the laws of
its respective state of incorporation, and are qualified or licensed to do
business (and are 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 or any Subsidiary.
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
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accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower, the Subsidiary or other party which
executes the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower and each Subsidiary of each of the Loan Documents to which it is a
party do not violate any provision of any law or regulation, or contravene any
provision of the Articles or Certificate of Incorporation or By-Laws of Borrower
or such Subsidiary, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower or such Subsidiary
is a party or by which Borrower or such Subsidiary 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 and the Subsidiaries other than
those disclosed by Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The consolidated
financial statement of Borrower and the Subsidiaries dated June 30, 1998, 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 and the Subsidiaries, (b) discloses all liabilities of Borrower and the
Subsidiaries 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
consolidated financial condition of Borrower and the Subsidiaries, nor has
Borrower or any Subsidiary 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 the income tax payable by Borrower and the
Subsidiaries with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower or any Subsidiary is a party or by
which Borrower or any Subsidiary may be bound that requires the subordination in
right of payment of any obligations of Borrower or any Subsidiary subject to
this Agreement to any other obligation of Borrower or such Subsidiary.
SECTION 2.8. PERMITS, FRANCHISES. Borrower and each Subsidiary
possesses, and will hereafter possess, all permits, consents, approvals,
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, and where applicable each Subsidiary, 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"); neither Borrower nor any Subsidiary has violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower or such Subsidiary (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower or any Subsidiary; Borrower and each
Subsidiary has met its
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minimum funding requirements under ERISA with respect to each Plan; and each
Plan will be able to fulfill its benefit obligations as they come due in
accordance with the Plan documents and under generally accepted accounting
principles.
SECTION 2.10. OTHER OBLIGATIONS. Neither Borrower nor any Subsidiary is
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 and each Subsidiary 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 their
respective 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, and the Federal Toxic Substances Control
Act, as any of the same may be amended, modified or supplemented from time to
time. None of the operations of Borrower or any Subsidiary 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. Neither Borrower nor any
Subsidiary has any 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.
(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 Resolution: Borrowing.
(iii) Corporate Resolution: Continuing Guaranty and Third Party Pledge
from each Subsidiary.
(iv) Certificate of Incumbency from Borrower and each Subsidiary.
(v) All Security Agreements, Third Party Security Agreements, UCC
Financing Statements and other documents deemed necessary by
Bank for the creation and perfection of all security interests
from Borrower and the Subsidiaries required by Section 1.6
hereof.
(vi) All Continuing Guaranties required by Section 1.7 hereof.
(vii) 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 Subsidiary, 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 Subsidiary.
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(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all property of Borrower and the Subsidiaries, 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, 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, and shall cause each Subsidiary to,
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 and the Subsidiaries.
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 of
Borrower and the Subsidiaries, together with form 10-K, prepared by an
independent certified public accountant acceptable to Bank, to include balance
sheet, income statement, statement of cash flows 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 of Borrower and
the Subsidiaries, together with form 10-Q, prepared by Borrower, to include
balance sheet and income statement;
(c) from time to time such other information as Bank may reasonably
request.
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SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of their respective businesses; and comply with the provisions of all
documents pursuant to which Borrower or any Subsidiary is organized and/or which
govern Borrower's or such Subsidiary's continued existence and with the
requirements of all laws, rules, regulations and orders of any governmental
authority applicable to Borrower, each Subsidiary and/or its respective
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 and each Subsidiary, 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 the
business of Borrower or any Subsidiary 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 or any Subsidiary
may in good faith contest or as to which a bona fide dispute may arise, and (b)
for which Borrower or such Subsidiary has made provision, to Bank's
satisfaction, for eventual payment thereof in the event Borrower or such
Subsidiary is obligated to make such payment.
SECTION 4.8. FINANCIAL CONDITION. Maintain the financial condition of
Borrower and the Subsidiaries on a consolidated basis 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 $7,000,000, with "Working
Capital" defined as total current assets minus total current liabilities.
(b) Tangible Net Worth not at any time less than $11,000,000, 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 2.0 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.
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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
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower or any Subsidiary; (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 or any
Subsidiary 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 any property of Borrower or any Subsidiary.
SECTION 4.10. YEAR 2000 COMPLIANCE. Perform all acts reasonably
necessary to ensure that (a) Borrower, each Subsidiary and any business in which
Borrower or any Subsidiary holds a substantial interest, and (b) all customers,
suppliers and vendors that are material to the business of Borrower or any
Subsidiary, become Year 2000 Compliant in a timely manner. Such acts shall
include, without limitation, performing a comprehensive review and assessment of
all of systems of Borrower and the Subsidiaries and adopting a detailed plan,
with itemized budget, for the remediation, monitoring and testing of such
systems. As used herein, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods or systems
utilized by or material to the business operations or financial condition of
such entity, will properly perform date sensitive functions before, during and
after the year 2000. Borrower shall, immediately upon request, provide to Bank
such certifications or other evidence of compliance with the terms hereof as
Bank may from time to time require.
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, and will not permit any
Subsidiary to, 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 or any
Subsidiary to Bank; (b) the existing liabilities of Invivo Research, Inc. to
First Union Bank under a real estate loan incurred in connection with its
Orlando, Florida manufacturing facility; (c) the liabilities of Borrower to
Roger Susi incurred in connection with Borrower's purchase of Invivo Research,
Inc.; (d) any liabilities of the Subsidiaries to Borrower; (e) new liabilities
of Borrower and/or the Subsidiaries under capital leases in amounts not to
exceed an aggregate of $325,000 in any fiscal year; and (f) any other
liabilities of Borrower or any Subsidiary existing as of, and disclosed to Bank
prior to, the date hereof.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
its
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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 otherwise dispose
of all or a substantial or material portion of the assets of Borrower or any
Subsidiary 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 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: (a) loans or advances from
Borrower to the Subsidiaries; and (b) any other loans, advances and/or
investments 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, except
repurchases of stock made with the proceeds of the Line of Credit to the extent
permitted by this Agreement.
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 the assets of
Borrower or any Subsidiary, now owned or hereafter acquired, except: (a) any of
the foregoing in favor of Bank; or (b) any of the foregoing 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, any
Subsidiary or any other party under this Agreement or any other 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 Subsidiary 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
Subsidiary; or the recording of any abstract of judgment against Borrower or any
Subsidiary in any county in which Borrower or such Subsidiary has an interest in
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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
Subsidiary; or the entry of a judgment against Borrower or any Subsidiary.
(f) Borrower or any Subsidiary 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 Subsidiary 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 Subsidiary, or Borrower or any
Subsidiary shall file an answer admitting the jurisdiction of the court and the
material allegations of any involuntary petition; or Borrower or any Subsidiary
shall be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower or any Subsidiary 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 or any Subsidiary of its obligations under
any of the Loan Documents.
(h) The dissolution or liquidation of Borrower or any Subsidiary; or
Borrower or any Subsidiary, or any of their directors, stockholders or members,
shall take action seeking to effect the dissolution or liquidation of Borrower
or such Subsidiary.
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 each 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.
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,
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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
Mt. Diablo Regional Commercial Banking Office
1320 Willow Pass Road, Suite 440
Concord, CA 94520
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), expended or
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, 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,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
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, any Subsidiary or its
respective business, 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 in writing signed by each party
hereto.
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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 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 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. Section 91 or any similar applicable state law.
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(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 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
13
<PAGE> 14
remain fully valid and enforceable. If any such Dispute is not submitted to
arbitration, the Dispute shall be referred to a referee in 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: _______________________
James B. Hawkins Rick Freeman
President Vice President
By: ______________________
John F. Glenn
Vice President-Finance
14
<PAGE> 1
EXHIBIT 10.13
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of November 1, 1998, by and between INVIVO CORPORATION, a Delaware
corporation ("Borrower), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of October 6, 1998, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
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 Credit
Agreement shall be amended as follows:
1. Section 1.2. (a) hereby amended by deleting "December 1, 1998", as
the last day on which Bank will make advances under the Line of Credit, and by
substituting for said date "December 1, 1999," with such change to be effective
upon the execution and delivery to Bank of a promissory note substantially in
the form of Exhibit A attached hereto (which promissory note shall replace and
be deemed the Line of Credit Note defined in and made pursuant to the Credit
Agreement) and all other contracts, instruments and documents required by Bank
to evidence such change.
2. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
3. Borrower hereby remakes all representations and warranties contained
in the 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 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.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK,
INVIVO CORPORATION NATIONAL ASSOCIATION
By: ____________________________ By: _________________________
James B. Hawkins Rick Freeman
President Vice President
By: ____________________________
John F. Glenn
Vice President-Finance
1
<PAGE> 1
EXHIBIT 11.1
INVIVO CORPORATION AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
BASIC:
Weighted average common
shares outstanding 3,269,947 3,256,059
============= =============
Net Income $ 759,300 460,000
============= =============
Basic net income per common share $ 0.23 0.14
============= =============
DILUTED:
Weighted average common
shares outstanding (basic) 3,269,947 3,256,059
Dilutive stock options 246,442 115,409
------------- -------------
Weighted average common
shares outstanding (diluted) 3,516,389 3,371,468
============= =============
Net Income $ 759,300 460,000
============= =============
Diluted net income per common share $ 0.22 0.14
============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 309
<SECURITIES> 0
<RECEIVABLES> 10,641
<ALLOWANCES> 333
<INVENTORY> 7,616
<CURRENT-ASSETS> 20,418
<PP&E> 8,926
<DEPRECIATION> 4,309
<TOTAL-ASSETS> 31,036
<CURRENT-LIABILITIES> 10,434
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 18,937
<TOTAL-LIABILITY-AND-EQUITY> 31,036
<SALES> 11,501
<TOTAL-REVENUES> 11,501
<CGS> 5,736
<TOTAL-COSTS> 5,736
<OTHER-EXPENSES> 4,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 1,150
<INCOME-TAX> 391
<INCOME-CONTINUING> 759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 759
<EPS-PRIMARY> .23<F1>
<EPS-DILUTED> .22
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
