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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1999
REGISTRATION NO. 333-72071
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INVIVO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 77-0115161
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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4900 HOPYARD ROAD, #210
PLEASANTON, CALIFORNIA 94588
(925) 468-7600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES B. HAWKINS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INVIVO CORPORATION
4900 HOPYARD ROAD, #210
PLEASANTON, CALIFORNIA 94588
(925) 468-7600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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DANIEL J. WINNIKE, ESQ. FAYE H. RUSSELL, ESQ.
JOHN E. STONER, ESQ. MICHAEL A. BARMETTLER, ESQ.
HOWARD, RICE, NEMEROVSKI, CANADY, BROBECK, PHLEGER & HARRISON LLP
FALK & RABKIN 550 WEST C STREET
A PROFESSIONAL CORPORATION SUITE 1300
1755 EMBARCADERO ROAD SAN DIEGO, CALIFORNIA 92101
PALO ALTO, CALIFORNIA 94303 (619) 234-1966
(650) 842-8500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 9, 1999
PROSPECTUS
LOGO
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960,000 SHARES OF COMMON STOCK
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Invivo Corporation is offering 860,000 shares of its common stock and the
selling stockholder is selling an additional 100,000 shares of common stock.
Invivo Corporation is traded on the Nasdaq National Market under the symbol
"SAFE." The last reported sale price of the common stock on the Nasdaq National
Market on March 5, 1999 was $15.00 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
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THE OFFERING PER SHARE TOTAL
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Public Offering Price......................................
Underwriting Discounts and Commissions.....................
Proceeds to Invivo.........................................
Proceeds to the Selling Stockholder........................
</TABLE>
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE COMMON STOCK OR DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Invivo has granted the underwriters a 45-day option to purchase up to an
additional 94,000 shares of common stock to cover over-allotments. One of our
other stockholders (not the selling stockholder) has also granted the
underwriters a 45-day option to purchase up to 50,000 shares of common stock to
cover over-allotments. We will not receive any proceeds from the selling
stockholder selling shares in the offering or the other stockholder selling
shares to cover over-allotments.
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CRUTTENDEN ROTH GERARD KLAUER MATTISON
I N C O R P O R A T E D & CO., INC.
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1999
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Inside Front Cover: Pictures arranged within four boxes linked to a depiction
of a hospital illustrating the different settings within the hospital for our
patient monitoring products.
Box #1 (Upper left hand corner)
Caption: "The Omni-Trak 3150 in the MRI room"
Description: A nurse with child ready to be placed in an MRI scanner with
the Omni-Trak 3150 patient monitoring system located nearby.
Box #2 (Upper right hand corner)
Caption: "The Omni-Trak 3150 provides for remote viewing."
Description: A nurse in a control room of an MRI suite viewing the Millennia
component of the Omni-Trak 3150 illustrating the radio transmission feature
that allows the nurse to be outside the MRI room. The Omni-Trak 3150 mobile
unit can be seen in the background next to the MRI scanner.
Box #3 (Lower left hand corner)
Caption: "The Millennia used during patient transport"
Description: A patient being transported on a gurney with a Millennia monitor
attached to the patient illustrating the unit's portability feature.
Box #4 (Lower right hand corner)
Caption: "The Millennia used in the recovery room"
Description: A physician examining an unconscious patient's vital signs with
the Millennia monitor in a recovery room.
The caption below the artwork will read as follows: "Health care providers use
Invivo's products in a number of medical settings within the hospital and
stand-alone imaging centers."
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[INSERT GRAPHICS]
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.............. 4
Risk Factors.................... 8
Use of Proceeds................. 17
Price Range of Common Stock..... 17
Dividend Policy................. 18
Capitalization.................. 19
Selected Financial Data......... 20
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 21
Business........................ 30
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PAGE
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Directors and Management........ 39
Selling Stockholder............. 40
Description of Capital Stock.... 41
Shares Eligible for Future
Sale.......................... 42
Underwriting.................... 43
Legal Matters................... 45
Experts......................... 45
Incorporation of Certain
Information by Reference...... 45
Additional Information.......... 46
Index to Financial Statements... F-1
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2
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NOTES TO READERS OF THIS PROSPECTUS
We were incorporated in 1986 in Delaware. When we refer to "us," "we,"
"our," "the Company" and "Invivo" in this prospectus, we mean Invivo Corporation
and its consolidated subsidiaries. Our executive offices are located at 4900
Hopyard Road, #210, Pleasanton, California 94588. Our telephone number at that
location is (925)468-7600. Information contained on our websites does not
constitute part of this prospectus.
This offering is for 960,000 shares. However, the underwriters have a
45-day option to purchase up to a total of 144,000 additional shares from us and
from one of our other stockholders (not the selling stockholder) to cover
over-allotments. Some of the disclosures in this prospectus would be different
if the underwriters exercise the option. Unless we tell you otherwise, the
information in this prospectus assumes that the underwriters will not exercise
the option.
Millennia(R) is a registered trademark of Invivo. Centurion(TM),
Invivo(TM), Invivo Research(TM), Lumidor(TM), MicroMax(TM), Omni-Trak(TM),
quickTemp(TM) and UniMax(TM) are trademarks of Invivo. Each other trademark,
trade name or service mark appearing in this prospectus belongs to its holder.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus (including the documents incorporated by reference in this
prospectus) may contain forward-looking statements regarding our plans,
expectations, estimates and beliefs. Our actual results could differ materially
from those discussed in, or implied by, these forward-looking statements.
Forward-looking statements are identified by words such as "believe,"
"anticipate," "expect," "intend," "plan," "will," "may" and other similar
expressions. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. Forward-looking statements in these documents include, but are not
necessarily limited to, those relating to:
- our intention to further penetrate the broad patient monitoring market
- the anticipated growth in medical applications of MRI equipment
- our ability to carry out our strategy
- our success in developing new or enhanced products to take advantage of
market opportunities or to respond to competition
- our ability to complete any future acquisitions of products or businesses
- our achieving year 2000 compliance or the impact on us of any third
party's year 2000 compliance
- our belief that patient monitors will become an integral component of MRI
equipment
Factors that could cause actual results or conditions to differ from those
anticipated by these and other forward-looking statements include those more
fully described in the "Risk Factors" section and elsewhere in this prospectus.
We are not obligated to update or revise these forward-looking statements to
reflect new events or circumstances.
3
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PROSPECTUS SUMMARY
This summary highlights some of the information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. To
understand this offering fully, you should read the entire prospectus carefully,
including the risk factors and the financial statements.
Business: Invivo Corporation designs, manufactures and markets
monitoring systems that measure and display vital signs
of patients in medical settings. Our systems
simultaneously monitor heart function, respiration,
heart rate, blood oxygen levels, invasive and
non-invasive blood pressure and exhaled carbon dioxide
levels. Our systems are used in various hospital
settings, including radiology units, operating rooms,
emergency rooms, critical care units, post-anesthesia
care units and delivery rooms, and in stand-alone
imaging centers. Our patient monitoring business has
been the key factor contributing to our six sequential
quarters of revenue and net income growth.
In addition to our patient monitoring business, we
offer a line of safety and industrial instrumentation
products. While these products are not our primary
focus, they historically have provided a stable source
of revenue and cash flow.
MRI Patient
Monitoring: We believe we are the world's leading provider of
equipment for monitoring patient vital signs during
magnetic resonance imaging. MRI is a non-invasive
diagnostic tool that uses magnetic fields and radio
frequencies to produce images of internal organs and
structures of the human body. The MRI environment
presents unique challenges for patient monitoring. A
monitor must not interfere with the MRI in a manner
that degrades the image. In addition, the monitor
signal must be protected from the MRI's magnetic field
and radio frequencies in order to maintain the accurate
performance of the monitor. Using our patented
technologies and proprietary shielding techniques, we
pioneered the first MRI patient monitoring system that
overcame these challenges. We provide an integrated
system that is convenient and easy to use. Customers
can configure our product for both direct and remote
viewing. Our latest product in the MRI patient
monitoring market is the Omni-Trak 3150.
With our patient monitoring capabilities, hospitals are
now able to safely and accurately perform MRI scans on
critically ill patients, patients under anesthesia and
children or claustrophobic patients who require
sedation. We believe that about 1,500 new MRI units
were placed worldwide in 1998 and that the MRI
marketplace will continue to grow as new uses for MRI
are developed. As such, we believe the need for MRI
patient monitors will continue to expand.
4
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We have established relationships with most of the
world's largest MRI equipment manufacturers. We
presently maintain distribution agreements or other OEM
vendor relationships with Siemens A.G. Medical
Engineering Group, Philips Medical Systems, Hitachi
Medical Corporation, GE Medical Systems and Elscint,
Ltd. We estimate that GE Medical, Siemens Medical and
Philips Medical together control over 70% of the
worldwide MRI equipment market. We continue to work
with MRI equipment manufacturers to develop additional
customized features.
General Patient
Monitoring: Based on our reputation in the MRI patient monitoring
field and our technological expertise, we have
penetrated the highly competitive market for general
patient monitoring systems. We estimate the worldwide
market for patient monitoring products that measure
multiple vital signs, including general and MRI patient
monitoring, was approximately $1.5 billion in 1998.
The Millennia, our general patient monitor, is a
portable, lightweight and compact multi-parameter
monitor that provides space and transport flexibility.
These features enable a hospital to maximize its use of
the monitors because medical personnel can easily move
them to new locations or patients. In addition, the
Millennia features a large color display and
user-friendly interface. We recently introduced an
anesthetic agent identification and analysis module for
the Millennia that we believe will allow us to further
penetrate operating rooms and outpatient surgery
centers. The Centurion, our central station monitor,
networks Millennia patient monitors, allowing a single
healthcare professional to monitor up to eight patients
simultaneously.
Safety and Industrial
Instrumentation: We also design, manufacture and market gas detection
and oxygen monitoring instrumentation and pressure and
temperature sensing devices used in safety and
industrial applications. Gas detection monitors are
used for worker safety when toxic gases or low oxygen
levels are suspected. The primary use of our oxygen
monitoring products is for a self-contained breathing
apparatus for firefighters and hazardous material
clean-up workers. Our industrial instrumentation
products target a wide range of companies in the
automotive, food processing and pharmaceutical
industries.
Strategy: Our strategy includes the following key elements:
- exploit our leadership position in MRI patient
monitoring to grow with advances in MRI uses
- expand penetration of the Millennia product line
- acquire or develop additional medical products
- leverage the advantages provided by our dedicated
sales force
- continue to benefit from existing non-medical product
lines
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THE OFFERING
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Common stock offered
By Invivo................................. 860,000 shares
By the selling stockholder................ 100,000 shares
Common stock to be outstanding after the
offering.................................. 4,152,318 shares
Use of proceeds............................. Working capital and general corporate
purposes, including research and
experimental expenses and future
acquisitions, final payment of an earn-out
to former stockholders of our medical
device subsidiary, including one of our
directors, and repayment of outstanding
debt. Please see "Use of Proceeds."
Nasdaq National Market Symbol............... "SAFE"
</TABLE>
6
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
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1996 1997 1998 1997 1998
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Sales......................... $31,391 $35,904 $40,651 $19,107 $23,411
Net income.................... $ 2,472 $ 316 $ 2,263 $ 1,003 $ 1,653
Basic net income per common
share...................... $ .77 $ .10 $ .69 $ .31 $ .50
Weighted average common shares
outstanding (basic)........ 3,216 3,239 3,265 3,261 3,274
Diluted net income per common
share...................... $ .72 $ .09 $ .66 $ .30 $ .47
Weighted average common shares
outstanding (diluted)...... 3,456 3,445 3,427 3,394 3,551
</TABLE>
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<CAPTION>
JUNE 30, DECEMBER 31, 1998
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1996 1997 1998 ACTUAL AS ADJUSTED(1)
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<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Working capital........... $ 7,490 $ 7,474 $ 9,364 $11,448 22,520
Total assets.............. 22,204 26,612 30,195 31,101 39,852
Long-term debt............ 730 1,584 1,480 2,067 1,428
Stockholders' equity...... 15,276 15,815 18,168 19,981 31,691
</TABLE>
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(1) Adjusted to reflect the estimated net proceeds from the sale of 860,000
shares of our common stock at an assumed public offering price of $15.00 per
share. Please see "Use of Proceeds" and "Capitalization."
7
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risks and other information in this
prospectus before purchasing our common stock. If any of the following risks
actually occur, our business or results of operations would likely suffer. In
such case, the trading price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
RISKS RELATING TO OUR BUSINESS
WE ARE DEPENDENT ON A CONCENTRATED LINE OF PRODUCTS
Our future financial performance will be largely dependent on our patient
monitor product line, which includes a limited number of products. We expect our
recently introduced Omni-Trak 3150 MRI patient monitor and our Millennia
portable patient monitor to have a substantial impact on revenue growth. In the
MRI monitoring market, the success of our Omni-Trak 3150 is heavily dependent on
the continued acceptance of MRI technology as a diagnostic tool. In the general
patient monitoring market, our Millennia monitor is heavily dependent on our
ability to penetrate an already competitive market.
In addition, the recent consolidation in the medical care provider market
has resulted in a number of very large purchasers of medical devices. These
large purchasers typically prefer to establish relationships with medical device
manufacturers that have broad and diverse product lines.
The failure of our products to continue to gain market acceptance or an
increase in the concentration of the medical care provider market could have a
material adverse effect on our business and results of operations.
WE FACE INCREASED LEVELS OF COMPETITION
We have encountered and will continue to encounter significant competition
in the sale of our products. Our general patient monitoring competitors include
a number of large multinational corporations. Some of these competitors may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than we can. In the MRI patient monitoring
market, we have enjoyed a significant first-to-market advantage over our
competitors. However, we are aware that some of our competitors have introduced
products designed to compete with our MRI vital signs monitoring products. In
addition, as the market for MRI vital signs monitoring products expands it may
attract competitors with greater resources.
Additionally, competition may increase if new companies enter our markets
or if existing competitors expand their product lines or intensify efforts
within existing product lines. The introduction of competitive products may
result in a decrease in our market share and in a decrease in the prices at
which we are able to sell our products. Our market share may also be adversely
affected by increasing concentration in the medical care provider market. Any
decrease in our market share or decrease in the prices at which we are able to
sell our products could have a material adverse effect on our business and
results of operations.
8
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OUR FINANCIAL RESULTS MAY FLUCTUATE
Our financial results may fluctuate significantly from period to period
because of a variety of factors, many of which are beyond our control. These
factors include:
- increased competition
- changes in our pricing policies and those of our competitors
- changes in our operating expenses or capital expenditures
- timing and market acceptance of new and upgraded product introductions by
us and our competitors
- seasonal fluctuations in the demand for our products
- introduction of alternative technologies by us and our competitors
- effect of potential acquisitions
- other general economic factors
Fluctuations caused by these and other factors could have a material adverse
effect on our business and results of operations.
WE ARE DEPENDENT ON CAPITAL SPENDING POLICIES AND GOVERNMENT FUNDING
Capital spending trends by our medical device customers have a significant
effect on the demand for our products. These customers include hospitals,
stand-alone imaging centers, outpatient surgery centers, health care providers,
government agencies and public and private research institutions. Their capital
spending policies are based on a wide variety of factors, including:
- the resources available to make purchases
- the spending priorities among various types of equipment
- public policy
- the effects of different economic cycles
Any decrease in capital spending by any of our customers that account for a
significant portion of our sales could have a material adverse effect on our
business and results of operations.
WE ARE SUBJECT TO A SIGNIFICANT RISK OF NEW LAWS RELATED TO HEALTH CARE
Changes in the law or new interpretations of existing laws may have a
significant effect on our costs of doing business and the amount of
reimbursement we receive from both government and third-party payors. In
addition, economic forces, regulatory influences and political initiatives are
subjecting the health care industry to fundamental changes. Health care reform
proposals have been formulated by the current administration and by members of
Congress. Federal, state and local government representatives are likely to
continue to review and assess alternative health care delivery systems and
payment methods. We expect ongoing public debate on these issues. Any of these
efforts or reforms could have a material adverse affect on our business and
results of operations.
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OUR BUSINESS IS SUBJECT TO TECHNOLOGICAL CHANGE AND INTRODUCTION OF NEW PRODUCTS
The markets for our products are characterized by technological change,
evolving industry standards and new product introductions and enhancements. Many
of our products and products under development are technologically innovative,
and therefore require significant planning, design, development and testing.
These activities require us to make significant capital commitments and
investments. In addition, industry standards may change on short notice and new
products and technologies may render our existing products and technologies
uncompetitive. Additionally, the products that we are currently developing, and
those that we develop in the future, may not be technologically feasible or
accepted by the marketplace or they may not be completed in an acceptable time
frame. Any increased capital investments or loss in sales due to technological
change could have a material adverse effect on our business and results of
operations.
WE CURRENTLY ARE INVOLVED IN A LEGAL PROCEEDING
Our medical device subsidiary, Invivo Research, Inc., is one of two
third-party defendants named in a lawsuit by Southern Nevada Surgical Center and
Surgex Southern Nevada, Inc. in Nevada state court. The underlying action in
this matter stems from an incident involving a surgical patient undergoing a
procedure at the Southern Nevada Surgical Center. The patient suffered a serious
permanent brain injury. A lawsuit was filed on behalf of the patient against the
surgical center and the anesthesiologist who monitored the patient. A
substantial settlement was made to the patient by the defendants in that action.
Southern Nevada Surgical Center and Surgex are now seeking indemnity and
contribution of approximately $14 million from the manufacturer of the
anesthetic gas machine and Invivo Research, which manufactured the vital signs
monitor used in the procedure. Southern Nevada Surgical Center and Surgex are
alleging that both the anesthetic gas machine and the vital signs monitor were
defective. This matter is scheduled to commence trial on June 6, 1999. Any
judgment against us that exceeds the amount that our insurer is required to pay
could have a material adverse effect on our business and results of operations.
WE MAY NOT BE ABLE TO ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
We may not be able to detect unauthorized use of or to take appropriate
steps to enforce our intellectual property rights. We rely on a combination of
patent, trademark, trade secret and copyright law and contractual restrictions
to protect our technology, which provides only limited protection. The steps we
have taken may not deter competitors from misappropriating our proprietary
information. If we sued to enforce our rights, the resulting lawsuit would be
expensive, would divert management resources and may not be adequate to protect
our business. We also could be subject to claims alleging infringement of third-
party intellectual property rights. In addition, we may be required to indemnify
our distributors and customers for similar claims made against them. Any claims
against us could require us to spend significant time and money in litigation,
pay damages, develop non-infringing intellectual property or acquire licenses.
Whether or not successful, such claims could seriously damage our reputation and
our business. If successful, these claims could have a material adverse effect
on our business and results of operations.
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WE FACE INCREASED RISKS OF INTERNATIONAL OPERATIONS
International sales have accounted for over 20% of our sales for each of
the past three years and will likely increase over time. International sales are
subject to a number of risks, including the following:
- fluctuations in exchange rates may affect the demand for products and
services we provide in foreign markets
- adverse changes in local economic conditions, such as those recently
occurring in Asian and South American countries, could depress the demand
for our products
- agreements may be difficult to enforce and receivables difficult to
collect through a foreign country's legal system
- foreign customers may have longer payment cycles
- foreign countries may impose additional withholding taxes or otherwise
tax our foreign income, impose tariffs, or adopt other restrictions on
foreign trade
- U.S. export licenses may be difficult to obtain
- the protection of intellectual property in foreign countries may be more
difficult to enforce
Any of these factors could have a material adverse impact on our business and
results of operations.
WE FACE PRODUCT LIABILITY AND PRODUCT RECALL RISKS
With respect to all of our products, and particularly our medical devices,
we face the risk of potentially large product liability claims. The malfunction
or misuse of our products could potentially result in serious harm to a patient.
In addition, we may be required to indemnify our distributors and customers for
similar claims made against them.
Claims could be made against us even if our products did not contribute to
the injury that was sustained. Frequently, our products are used with products
developed by other manufacturers. Even if our products are not the cause of the
injury, we may not be able to prove that a claimant's injury was caused by some
other product malfunction or human error.
We have had product liability claims made against us in the past and may
have further claims made against us in the future. While we are insured for
certain product liability claims, not all claims will be covered and the level
of our insurance may not be sufficient to protect us from the full amount of a
successful claim. In addition, we may not be able to obtain adequate amounts of
insurance at an acceptable cost. Claims made against us that are not insured, or
that exceed the amount of our coverage, could have a material adverse effect on
our business and results of operations.
Similarly, our products are subject to the potential of being recalled by
government agencies for actual or potential deficiencies or problems. Any such
recall would likely be expensive and would have a material adverse effect on our
business and results of operations.
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WE MUST MANAGE OUR GROWTH EFFECTIVELY
If we are unable to manage our growth effectively, which includes
attracting and retaining additional qualified management, our business and
results of operations could be adversely affected. Our strategy is to expand our
product offerings through internal development and, if opportunities arise,
through acquisitions. Our internal information systems, procedures and controls
may not be adequate to support our operations as they expand. Any future growth
will impose significant added responsibilities on our senior management,
including the need to recruit and integrate new senior level managers and
executives.
THE GOVERNMENT EXTENSIVELY REGULATES OUR BUSINESS AND WE MAY NOT RECEIVE ALL
REGULATORY APPROVALS OR CLEARANCES WE NEED.
Our medical devices are subject to extensive regulation by the FDA and, to
varying degrees, by state and foreign regulatory agencies. The process to obtain
FDA and other foreign and domestic clearances and regulatory approvals may be
lengthy, expensive and uncertain. The time required to obtain approval for sale
in foreign countries may be longer or shorter than that required for FDA
clearance or approval and the requirements may differ. We may not be able to
obtain necessary regulatory approvals or clearances in a timely manner or at
all. Delays in receipt of or failure to receive such approvals or clearances,
the loss of previously received approvals or clearances, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on our business and results of operations.
We are required to manufacture our medical devices in compliance with FDA
regulations regarding current good manufacturing practices in the U.S. and
similar regulations in other countries, which include testing, control and
documentation requirements. Ongoing compliance with good manufacturing practices
and other applicable regulatory requirements, such as reporting requirements,
are monitored through periodic inspections by state and federal agencies,
including the FDA, and by comparable agencies in other countries.
If we do not comply with applicable regulatory requirements, including
marketing products only for approved uses, we could be subject to fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to grant premarket clearance
or premarket approval for products, withdrawal of approvals and criminal
prosecution. In addition, changes in existing regulations or adoption of new
governmental regulations or policies could prevent or delay regulatory approval
of our products or result in increased regulatory costs. Furthermore, once
clearance or approval is granted, subsequent modifications to the approved
product or manufacturing process may require a new round of clearances or
approvals, which could require substantial additional clinical data and FDA
review.
The manufacture, sale and use of our products are subject to regulation by
other federal entities, such as OSHA and the EPA, and by various state and local
agencies. Federal, state and local regulations regarding the manufacture, sale
and use of our products are subject to future change and these changes could
have a material adverse effect on our business and results of operations.
12
<PAGE> 15
WE RELY HEAVILY ON OUR KEY PERSONNEL
We are highly dependent on the continuing efforts of our executive officers
and other key personnel. If any of these persons does not continue in his or her
management or other role until we are able to attract and retain a qualified
replacement, this could have a material adverse effect on our business and
results of operations.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE
We have funded our capital requirements primarily through cash flow from
operations, borrowings from third parties and capitalized leases. Our future
capital requirements depend on numerous factors, including the rate of market
acceptance of our products, our ability to maintain and expand our customer base
and potential acquisitions. We cannot accurately predict the timing and amount
of our capital requirements. If our capital requirements vary materially from
our plans, we may require additional financing sooner than anticipated. We have
no commitments for any additional financing other than a $7.5 million line of
credit from a bank, and we would need that bank's consent to receive further
debt financing.
Because we will have a limited number of authorized but unissued or
unreserved shares of common stock after the offering, our ability to raise
capital through common stock offerings or to use common stock for acquisitions
will be limited. Any future increase in authorized shares will require
stockholder approval. If we increase our authorized capital, any additional
equity financing may be dilutive to our stockholders. Debt financing, if
available, may involve further restrictions on our financing and operating
activities. If we are unable to obtain additional financing as needed, we may be
required to reduce the scope of our operations or anticipated expansion, which
could have a material adverse effect on our business and results of operations.
THE YEAR 2000 PROBLEM MAY AFFECT OUR BUSINESS
READINESS FOR 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 incorrect or unintended results unless corrected so that they can
process data related to the year 2000 and thereafter. We rely on such computer
systems and applications in operating and monitoring most major aspects of our
business. We are evaluating the impact of the year 2000 issue on our business
and the related expenses incurred in attempting to remedy such impact. The year
2000 issue could affect us in at least three different ways:
- the software or the chips embedded within computers and other systems we
use in our offices and manufacturing facilities could be affected
- the software or the chips used in the products we sell could be affected
- third parties who do business with us may not be prepared for the year
2000
We have determined that regardless of the year 2000 issue, replacement of
existing office and other systems would provide more efficient operations and
added functionality. We have contracted with outside information consulting
companies both to install new hardware and to replace our current
mission-critical software systems with off-the-shelf
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<PAGE> 16
year 2000 compliant software. We expect all information system upgrades and
conversions to be completed and fully operational by April 1, 1999. We are
currently assessing our electronic office and manufacturing equipment to
determine if such equipment is date-sensitive and will require upgrades. If we
determine after this assessment that some of our equipment needs to be upgraded
or replaced, we plan to finish the required work by September 1999.
We believe that our currently marketed products are, or will be by July 1,
1999, year 2000 compliant. Some of our products are not affected because they do
not contain a date field in the software. On some previously marketed products
which are not year 2000 compliant, we will make an upgrade available to our
customers to ensure year 2000 compliance.
We cannot predict the effect of year 2000 problems on our vendors,
customers and other entities with which we transact business, or with whose
products our products interact. We have undertaken a survey of the year 2000
readiness of these third parties and plan to complete this assessment by
mid-calendar 1999.
COSTS
Through December 31, 1998, we incurred approximately $275,000 of costs
associated with our new information systems, all of which have been capitalized.
Of this amount, approximately $200,000 has been spent on replacing old hardware,
and approximately $75,000 has been spent on replacing old software. We currently
estimate that the costs associated with the new systems will ultimately total
approximately $350,000 and should not have a material adverse effect on our
business or results of operations in fiscal 1999. We expect that most of the
remaining $75,000 will be spent on replacing existing hardware. Because we would
have replaced these systems even without the year 2000 problem, our year 2000
expenditures have not deferred other projects that we otherwise would have
undertaken.
RISKS
We expect to make the changes required to address the year 2000 problem for
the software and embedded chips in our offices and manufacturing facilities and
in the products we make. We presently believe that with the new software and
hardware we are currently purchasing and with any required modifications to our
office and other systems which our assessment shows to be needed, the year 2000
issue is not reasonably likely to pose significant problems with respect to our
operations or products. However, if unforeseen difficulties arise, such
modifications, conversions and replacements are not completed on time, or if our
customers' or suppliers' systems are not modified to become year 2000 compliant,
the year 2000 issue may have a material adverse effect on our business and
results of operations.
We cannot presently assess the likelihood that we will experience
significant problems due to the unresolved year 2000 problems of third parties
with which we do business. Although we have not been put on notice that any
known third-party problem will not be timely resolved, we have limited
information and no assurance can be made concerning the year 2000 readiness of
third parties. If third parties fail to achieve year 2000 compliance, the year
2000 issue may have a material adverse effect on our business and results of
operations. Similarly, there can be no assurance that we can timely mitigate our
risks related to a third party's failure to resolve its year 2000 issues. If we
fail to timely mitigate
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<PAGE> 17
such risks, that failure may have a material adverse effect on our business and
results of operations.
CONTINGENCY PLANS
We have not attempted to quantify our most likely year 2000 worst-case
scenario nor have we considered any contingency plans in case the installations
by our outside information consulting companies are not satisfactory for year
2000 compliance. We believe that the installations will sufficiently address the
year 2000 issue. However, if the installations completed by April 1, 1999 are
not satisfactory for year 2000 compliance, we will then formulate appropriate
contingency plans.
WE MAY FACE PROBLEMS WITH LABOR RELATIONS
Although none of our employees currently are subject to collective
bargaining agreements, some of our employees may unionize in the future or we
may acquire companies with unionized employees. If our employees unionize, or we
acquire a company with unionized employees, we could incur higher ongoing labor
costs and could experience a significant disruption of operations in the event
of a strike or other work stoppage. This could have a material adverse effect on
our business and results of operations.
WE ARE SUBJECT TO STRINGENT ENVIRONMENTAL REGULATIONS
The manufacture and testing of our medical devices and safety products
requires us to handle and store small quantities of a wide variety of chemicals,
some of which are highly toxic. Certain of these chemicals pose a serious threat
to workers and others who may come in contact with them if improperly used or
handled. Most municipalities, including those in which we are presently located,
now require that the proposed storage and use of dangerous chemicals receive
local approval. State air quality boards, or similar agencies, must also approve
the venting, and certain other aspects of handling, of these types of chemicals.
These municipal and state agencies may, as a condition to the granting of
approvals and permits, impose certain procedural limitations on our storage and
handling of these chemicals and structural requirements on the facilities where
these chemicals are stored and used. They also impose record keeping and
reporting requirements on the users of these chemicals. The requirements imposed
by these environmental authorities, or our failure to comply with any such
requirements, could adversely affect our business and results of operations.
RISKS RELATING TO SHARE OWNERSHIP
OUR STOCK PRICE MAY BE HIGHLY VOLATILE AND YOU MAY LOSE MONEY ON YOUR INVESTMENT
IN OUR COMMON STOCK
The market price of our common stock is subject to significant fluctuations
in response to various factors and events which may or may not be related to our
performance. In addition, the stock market has from time to time experienced
significant price and volume fluctuations, which have particularly affected the
market prices of the stocks of medical device companies. Furthermore, our
operating results and prospects from time to time may be below the expectations
of public market analysts and investors. Any such event could result in a
material decline in the price of our common stock.
15
<PAGE> 18
WE DO NOT PLAN TO PAY CASH DIVIDENDS ON OUR COMMON STOCK
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying cash dividends in the foreseeable future. In addition,
our credit facility prohibits the payment of dividends without written consent.
EXISTING MANAGEMENT, STOCKHOLDERS AND AFFILIATES WILL CONTROL 19.9% OF THE
OUTSTANDING SHARES
Following the completion of the offering, our executive officers, directors
and affiliates will beneficially own approximately 19.9% of the outstanding
shares of common stock. They would beneficially own 18.2% of the shares of
common stock if all outstanding options are exercised. They will beneficially
own approximately 18.4% if the underwriters' over-allotment option is exercised
in full and 16.9% if all outstanding options are exercised. These holders of
common stock, if acting in concert, will continue to exercise substantial
control over our affairs and to control the outcome of any matter submitted to a
vote of stockholders.
OUR BOARD OF DIRECTORS' ABILITY TO ISSUE PREFERRED STOCK MAY ADVERSELY AFFECT
HOLDERS OF COMMON STOCK
The rights of holders of any preferred stock we issue may adversely affect
the rights of holders of our common stock. Our ability to issue preferred stock
could make it more difficult for a third party to acquire a majority of our
voting stock. Our certificate of incorporation authorizes our board of directors
to issue up to 1,000,000 shares of preferred stock. The certificate of
incorporation also authorizes the board of directors to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the stockholders.
SHARES ELIGIBLE FOR FUTURE SALES MAY AFFECT SHARE PRICE
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering or the
perception that such sales could occur. These factors could also make it more
difficult for us to raise funds through future offerings of common stock.
There will be 4,152,318 shares of common stock outstanding immediately
after the offering. All of the shares sold in the offering will be, and all of
our outstanding shares of common stock are, freely transferable without
restriction or further registration under the Securities Act, except for shares
purchased or held by our "affiliates," as defined in Rule 144 under the
Securities Act of 1933. We have agreed, as have each of our Directors and our
Chief Executive Officer, subject to certain exceptions, not to sell any shares
of common stock for a period of 75 days after the date of this prospectus
without the prior written consent of Cruttenden Roth Incorporated. During this
lock-up period, however, we will be permitted to (i) grant options to purchase
shares of common stock pursuant to our stock option plans and (ii) issue shares
of common stock upon the exercise of options granted pursuant to the stock
option plans.
We cannot predict the effect, if any, that future sales of shares of our
common stock or the availability of shares for future sale will have on the
market price of our common stock. Sales of substantial amounts of our common
stock in the market after the offering could adversely affect prevailing market
prices for our common stock and our ability to raise additional capital in the
future.
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<PAGE> 19
USE OF PROCEEDS
The net proceeds to us from the sale of the 860,000 shares of common stock
we are offering hereby are estimated to be approximately $11.7 million ($13.0
million if the underwriters' over-allotment option is exercised in full),
assuming a public offering price of $15.00 per share and after deducting
estimated underwriting discounts and commissions and offering expenses. We
currently intend to use approximately $5.8 million of the net proceeds for
general corporate purposes, which includes working capital and research and
experimental expenses and may include future acquisitions. While we from time to
time may consider possible acquisition prospects as part of our growth strategy,
we presently have no agreements, arrangements or other understandings with
respect to any such acquisitions. We currently intend to use approximately $2.9
million to fund the final payment of an earn-out due to the former stockholders
of Invivo Research, Inc., which we acquired in 1992. This payment may be reduced
if we pay a portion of the earn-out in common stock under the terms of the
earn-out. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" for a
discussion of the earn-out. We intend to use approximately $3 million to repay
the outstanding balance under our revolving credit facility, which matures on
December 1, 1999, and bears interest at LIBOR plus 1.75% or the prime rate, and
a three-year term loan which matures on September 30, 2001, and bears interest
at LIBOR plus 1.75%. Prior to their use, we intend to invest the net proceeds of
this offering in short-term, high grade interest-bearing investments or
accounts.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"SAFE." The following table describes, for the quarters indicated, the high and
low closing sale prices for a share of our common stock as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED JUNE 30, 1997
First Quarter............................................. 11 9 1/4
Second Quarter............................................ 14 1/4 10
Third Quarter............................................. 15 3/8 12
Fourth Quarter............................................ 11 3/4 6 5/8
YEAR ENDED JUNE 30, 1998
First Quarter............................................. 7 1/2 6 3/4
Second Quarter............................................ 10 7/8 7
Third Quarter............................................. 10 3/4 8 7/16
Fourth Quarter............................................ 13 1/2 10 3/4
YEAR ENDED JUNE 30, 1999
First Quarter............................................. 14 3/4 9 1/4
Second Quarter............................................ 16 7/16 12
Third Quarter (through March 5, 1999)..................... 18 1/2 14 5/8
</TABLE>
As of January 31, 1999, we had 64 shareholders of record of our common
stock, although there are a larger number of beneficial holders. On March 5,
1999, the last reported sale price on the Nasdaq National Market for our common
stock was $15.00.
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<PAGE> 20
DIVIDEND POLICY
We intend to retain all earnings, if any, to finance the expansion of our
business. We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. If we were to declare dividends in the future, such
dividends would be paid at the discretion of our board of directors after taking
into account various factors, including, among other things, our financial
condition, results of operations, cash flows from operations, current and
anticipated cash needs and expansion plans, the income tax laws then in effect
and the requirements of Delaware law. In addition, our credit facility prohibits
the payment of dividends to our stockholders without written consent from our
lender. Please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" for a more
detailed description of the terms of our credit facility.
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<PAGE> 21
CAPITALIZATION
The following table sets forth, as of December 31, 1998, (i) our actual
capitalization and (ii) our capitalization as adjusted to give effect to receipt
by us of the estimated net proceeds from the sale of 860,000 shares of our
common stock offered hereby at an assumed public offering price of $15.00 per
share. This table should be read in conjunction with the more detailed
consolidated financial statements and notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of long-term
debt).................................................... $ 2,425 $ 104
======= =======
Long-term debt (excluding current portion)................. 2,067 1,428
------- -------
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; none issued and outstanding.................. -- --
Common stock, $0.01 par value, 5,000,000 shares authorized;
3,286,768 shares issued and outstanding actual; and
4,152,318 shares issued and outstanding as adjusted(1)... 33 41
Additional paid-in capital................................. 13,038 24,740
Retained earnings.......................................... 6,910 6,910
------- -------
Total stockholders' equity....................... 19,981 31,691
------- -------
Total capitalization............................. $22,048 $33,119
======= =======
</TABLE>
- -------------------------
(1) Excludes 751,875 shares of common stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $8.76 per
share as of December 31, 1998. As of March 8, 1999, 5,550 of these options
had been exercised.
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<PAGE> 22
SELECTED FINANCIAL DATA
The operations data set forth below with respect to the fiscal years ended
June 30, 1996, 1997 and 1998 and the balance sheet data at June 30, 1997 and
1998 are derived from, and are qualified by reference to, our audited financial
statements included elsewhere in this prospectus and should be read in
conjunction with those financial statements and the notes thereto. The
operations data set forth below with respect to the fiscal years ended June 30,
1994 and 1995 and the balance sheet data at June 30, 1994, 1995 and 1996 are
derived from audited financial statements not included in this prospectus. The
operations data for the six months ended December 31, 1997 and 1998 and the
balance sheet data at December 31, 1998 are derived from unaudited financial
statements. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the operations data for such periods. The
operations data for the six months ended December 31, 1998 are not necessarily
indicative of results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------
SIX MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales..................................... $27,801 $32,489 $31,391 $35,904 $40,651 $19,107 $23,411
Gross profit.............................. 14,129 16,646 15,580 17,285 19,695 9,159 11,746
Operating expenses
Selling, general and administrative..... 7,934 9,501 9,691 14,174 13,429 6,256 7,707
Research and experimental............... 1,549 1,841 2,095 2,449 2,455 1,250 1,413
Other income (expense).................... (91) (51) (49) (184) (383) (171) (161)
Income tax expense........................ 1,674 1,905 1,273 162 1,165 479 812
Net income................................ $ 2,881 $ 3,348 $ 2,472 $ 316 $ 2,263 $ 1,003 $ 1,653
Basic net income per common share......... $ .91 $ 1.05 $ .77 $ .10 $ .69 $ .31 $ .50
Weighted average common shares outstanding
(basic)................................. 3,163 3,186 3,216 3,239 3,265 3,261 3,274
Diluted net income per common
share................................... $ .86 $ .99 $ .72 $ .09 $ .66 $ .30 $ .47
Weighted average common shares outstanding
(diluted)............................... 3,359 3,390 3,456 3,445 3,427 3,394 3,551
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, 1998
----------------------------------------------- ------------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED(1)
------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................... $ 5,477 $ 6,428 $ 7,490 $ 7,474 $ 9,364 $11,448 $22,520
Total assets....................... 17,427 19,860 22,204 26,612 30,195 31,101 39,852
Long-term debt..................... 3,367 926 730 1,584 1,480 2,067 1,428
Stockholders' equity............... 9,137 12,616 15,276 15,815 18,168 19,981 31,691
</TABLE>
- ---------------
(1) Adjusted to reflect the estimated net proceeds from the sale of 860,000
shares of our common stock at an assumed public offering price of $15.00 per
share. Please see "Use of Proceeds" and "Capitalization."
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and the respective notes and "Selected Financial Data"
appearing elsewhere in this prospectus. Except for the historical information,
the discussion in this prospectus may contain certain forward-looking statements
that involve risks and uncertainties, such as statements regarding our plans,
objectives, expectations and intentions. You should read the cautionary
statements made in this prospectus as being applicable to all related forward-
looking statements wherever they appear in this prospectus. Our actual results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors" as well
as those discussed elsewhere in this prospectus.
OVERVIEW
Through our medical devices subsidiary, Invivo Research, we offer a line of
patient monitors capable of continuous measurement of multiple vital signs in
the medical care environment. Prior to fiscal 1997, our patient monitoring
business was primarily focused on products for use in the MRI environment, in
which we were the pioneer. In the mid-1990s, we undertook to develop a
full-featured, competitively priced monitor for general applications. This
effort culminated in our introduction of the Millennia monitor in early fiscal
1997. We substantially increased our sales force and marketing efforts in fiscal
1996 and 1997 to promote our entry into this new market. This increase was the
primary cause of operating expenses growing more rapidly than revenue in those
years. The improved operating results in fiscal 1998 and for the six months
ended December 31, 1998 reflect, in part, the ongoing market penetration of the
Millennia product.
Our line of safety products includes monitors used to detect harmful levels
of toxic and other gases in the workplace and other environments. We offer these
monitors through our Lumidor Safety Products subsidiary. Our other safety
products include a line of oxygen monitoring equipment, pressure gauges and
calibration devices and equipment that sets and verifies the accuracy of gas
monitors. We also manufacture and market products for our industrial
instrumentation business. Our products for this market consist of pressure
sensors and non-contact infrared temperature measuring devices.
The percentage of our sales contributed by our medical device line of
products was 49%, 55% and 57% for fiscal years 1996, 1997, and 1998. The
percentage of our sales contributed by our safety and industrial instrumentation
products was 51%, 45% and 43% for fiscal years 1996, 1997, and 1998. Our medical
device line accounted for 57% and 62% of our sales for the six months ended
December 31, 1997 and 1998. Our safety and industrial instrumentation products
accounted for 43% and 38% of our sales for the six months ended December 31,
1997 and 1998.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1997
SALES. Sales for the six months ended December 31, 1998 increased 22.5% to
$23,410,800 compared with $19,107,300 for the same period last year. The sales
increase for the six months ended December 31, 1998 was primarily due to sales
growth at our
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<PAGE> 24
patient monitoring business. Continued strong demand for our next-generation MRI
vital signs monitor, the Omni-Trak 3150, was largely responsible for the sales
increase. Sales of the Millennia portable vital signs monitor and Centurion
central station monitor also contributed to the sales increase. Increased sales
at our gas detection and oxygen monitoring businesses positively affected sales
for the six-month period ended December 31, 1998.
GROSS PROFIT. The gross profit margin increased for the six-month period
ended December 31, 1998 to 50.2% from 47.9% for the same period last year. The
increase was largely attributable to the sales growth of our MRI vital signs
monitoring products, which have higher gross margins than the Millennia vital
signs monitor and other monitoring products.
OPERATING EXPENSES. Selling, general and administrative expenses for the
six-month period ended December 31, 1998 increased 23.2% or $1,451,200 over the
same period last year. Selling, general and administrative expenses were 32.9%
of sales for the six-month period ended December 31, 1998 compared with 32.7%
for the same period last year. The increase in these expenditures in absolute
dollars was largely due to higher sales commission expenses on the higher sales
volume at our patient monitoring and gas detection businesses. Higher
administrative expenses in support of the incremental sales volume at our
patient monitoring business also contributed to the increase.
Research and experimental expenses were $1,413,100 or 6.0% of sales for the
six-month period ended December 31, 1998 compared to $1,250,200 or 6.5% for the
same period last year. A substantial amount of the total research and
experimental expenses was on behalf of our patient monitoring business as we
continued to develop additional features for our Millennia vital signs monitor
for specialized market areas.
OTHER INCOME AND EXPENSE. Interest expense decreased to $159,900 for the
six months ended December 31, 1998 compared with $195,200 for the same period
last year. This decrease was primarily the result of lower average balances on
our revolving bank line of credit for the six months ended December 31, 1998.
PROVISION FOR INCOME TAXES. Our effective tax rate for the six months ended
December 31, 1998 was 32.9% compared with 32.3% for last year. The effective tax
rate differs from the statutory rate principally due to the benefit of a foreign
sales corporation and utilization of research, experimental and other credits.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
SALES. Our sales for fiscal 1998 increased 13.2% to $40,651,400 from
$35,903,500 in fiscal 1997. The sales increase in fiscal 1998 was primarily
attributable to the sales growth at our patient monitoring business as sales of
the Millennia portable multi-parameter vital signs monitor continued to increase
from prior year levels. Growth in our safety and industrial instrumentation
businesses also positively affected sales.
GROSS PROFIT. Our gross profit margin increased slightly in fiscal 1998 to
48.5% from 48.1% in fiscal 1997. Continued improvement in the gross margin of
the Millennia monitor was primarily due to material cost reductions and
manufacturing efficiencies. In addition, higher gross margins at our gas
detection and industrial instrumentation businesses offset a decline in the
gross margin at our oxygen monitoring business.
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<PAGE> 25
OPERATING EXPENSES. Our selling, general and administrative expenses in
fiscal 1998 decreased 5.3% or $745,800 over fiscal 1997 levels. Our selling,
general and administrative expenses were 33.0% of sales in fiscal 1998 compared
with 39.5% for fiscal 1997. The decrease in these expenditures in absolute
dollars and as a percentage of sales was primarily due to reduced selling,
general and administrative expenses at our patient monitoring business. This
reduction occurred as many of the expenses associated with the significant
expansion of our direct sales force in fiscal 1997 decreased.
Our research and experimental expenses remained nearly constant in absolute
dollars at $2,455,000 or 6.0% of sales in fiscal 1998 as compared to $2,448,800
or 6.8% of sales in fiscal 1997. A substantial amount of our research and
experimental expenses was on behalf of our patient monitoring business as we
continued to develop additional features for our Millennia vital signs monitor
for specialized market areas.
OTHER INCOME AND EXPENSE. Interest expense increased to $387,300 for fiscal
1998 compared with $251,400 in fiscal 1997. The increase in interest expense was
the result of higher outstanding balances on our revolving bank line of credit
along with the increased mortgage on our expanded patient monitoring facility.
PROVISION FOR INCOME TAXES. Our effective tax rate for fiscal 1998 remained
stable at 34.0%.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
SALES. Our sales for fiscal 1997 increased 14.4% to $35,903,500 from
$31,390,900 in fiscal 1996. The sales increase in fiscal 1997 was primarily due
to sales of the Millennia vital signs monitor introduced by our patient
monitoring business in the first quarter of fiscal 1997. Sales growth at our
oxygen monitoring and industrial instrumentation businesses for fiscal 1997
offset a sales decline at our gas detection business.
GROSS PROFIT. Our gross profit margin declined in fiscal 1997 to 48.1% from
49.6% in fiscal 1996. The decline was primarily due to the product mix of sales
at our patient monitoring business as the Millennia monitor has lower gross
margins than the MRI vital signs monitor. The increased sales at our oxygen
monitoring business also contributed to the margin decline as that business has
lower gross margins than our other businesses.
OPERATING EXPENSES. Our selling, general and administrative expenses in
fiscal 1997 increased 46.3% or $4,483,600 over fiscal 1996 levels. Selling,
general and administrative expenses were 39.5% of sales in fiscal 1997 compared
with 30.9% for fiscal 1996. The total dollar and percentage of sales increases
in these expenditures were due to the significant investment made in our sales
and marketing infrastructure. This investment consisted of an overhaul and
increase of our direct sales force and added sales and marketing management
capabilities at our patient monitoring business in connection with the
introduction of the Millennia monitor.
Our research and experimental expenses were $2,448,800 in fiscal 1997,
remaining stable as a percentage of sales at 6.8%. The absolute dollar increase
of $353,400 in research and experimental expenses in fiscal 1997 was due to
higher research and experimental expenditures on behalf of our patient
monitoring business as we continued to develop additional features for our
Millennia vital signs monitor for specialized market areas.
23
<PAGE> 26
OTHER INCOME AND EXPENSE. Interest expense increased to $251,400 for fiscal
1997 compared with $175,200 in fiscal 1996. The increase was the result of
increased borrowings on our revolving bank line of credit along with the
increased mortgage on our recently expanded patient monitoring facility.
PROVISION FOR INCOME TAXES. Our effective tax rate for fiscal 1997 remained
stable at 34.0%.
QUARTERLY RESULTS OF OPERATIONS
The following graphs depict our unaudited sales and net income for the six
quarters ended December 31, 1998. This data has been derived from unaudited
interim consolidated financial statements prepared on the same basis as the
audited consolidated financial statements contained in this prospectus. Results
for the quarters ended September 30 and December 31, 1998 are not necessarily
indicative of results to be expected for the full fiscal year.
[GRAPH]
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[GRAPH]
INFLATION
We do not believe that inflation had a significant impact on our results of
operations during any of the last three fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1998 increased to $11,448,200 compared with
$9,363,700 at June 30, 1998. Cash and cash equivalents at December 31, 1998 were
$606,500 compared with $554,100 at June 30, 1998. Net cash provided by operating
activities was $780,700 for the six months ended December 31, 1998 compared with
$345,400 provided by operations for the six months ended December 31, 1997. This
increase was largely the result of the increase in net income offset by
reductions in operating assets and liabilities, particularly inventories,
accounts receivable, accounts payable and income taxes payable.
Capital expenditures were $777,300 for the first six months of fiscal 1999
compared to $217,400 for the prior year period. The increase was primarily the
result of costs associated with our new information systems and sales
demonstration equipment at our patient monitoring business.
In December 1992, we purchased 80% of the outstanding common stock of
Invivo Research. The stock purchase 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 July 1993, we amended the stock purchase agreement to acquire the
remaining 20% of the common stock of Invivo Research. The purchase price for the
additional shares vested one-fifth on each of January 1, 1996, 1997 and 1998 and
two-fifths vested on January 1, 1999. While the right to payments has vested,
the amount of each vested payment is not fixed. Instead, each payment is based
on the after-tax profits of Invivo
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<PAGE> 28
Research for the calendar year prior to the calendar year in which the former
Invivo Research stockholders elect payment, subject to certain minimums. In
March 1996, the former Invivo Research stockholders elected to receive their
first vested payment, which amounted to approximately $987,000, and they were
paid that amount in full on June 1, 1996. In March 1998, the former Invivo
Research stockholders elected to receive their second vested payment, which
amounted to approximately $465,000 and has been paid in full. The former Invivo
Research stockholders may elect to receive any of the three remaining vested
payments on June 1, 1999, by giving notice to us by March 15, 1999, or may
choose to defer any vested payments to future years. If the former stockholders
elect to receive a vested payment, we must make the payment on June 1, 1999. The
payments are to be made in cash. However, if the stockholders require that the
payment that vested in 1998 and one or more of the payments that vested in 1999
all be made in any one year, we can elect to make the payment that vested in
1998 in the form of our shares. Beginning March 31, 1999, we have the right to
elect to pay any or all of the remaining three payments. If we exercise our
rights, we must make the payment in cash. As of February 1999, the total
remaining purchase price is estimated to be approximately $2,900,000.
In October 1998, we increased our bank line of credit to $7,500,000 from
$5,000,000 and added a $1,000,000 three-year term loan. We also renewed the line
of credit from December 1, 1998 to December 1, 1999. Our revolving bank line of
credit and term loan are collateralized by our accounts receivable, inventory
and equipment. At December 31, 1998, $1,987,100 was outstanding on the line of
credit and $972,200 was outstanding on the term loan. All of our subsidiaries
have guaranteed our payments due under our bank line and term loan.
We believe that our cash flow from operations and amounts available from
the bank line of credit and the proceeds from this offering will be adequate to
meet our anticipated cash needs for working capital and capital expenditures
throughout fiscal 2000. We will continue to explore opportunities for the
possible acquisitions of technologies or businesses, which may require us to
seek additional financing. Our capital requirements depend on numerous factors
and we cannot accurately predict their timing or amount. We may be required to
raise additional capital over a period of several years in order to continue to
internally develop new products or to acquire complementary products or
businesses. We have no commitments for additional financing other than our line
of credit, and we cannot be sure that we can obtain additional financing on
favorable terms, if at all. Additional equity financing, if available, may
dilute our stockholders. Debt financing, if available, may restrict our ability
to declare and pay dividends and raise future capital. If we are unable to
obtain additional needed financing, we may be required to reduce the scope of
operations or anticipated expansion, which could materially and adversely affect
us. Please see "Risk Factors -- We May Need Additional Capital in the Future."
RECENT ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 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. We adopted this statement in fiscal year 1999. However,
our comprehensive income currently does not include any of the components that
SFAS No. 130 requires companies
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<PAGE> 29
to reconcile, and therefore through December 31, 1998, comprehensive income
equals net income.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes standards for the way
public business enterprises are to report selected information about operating
segments in interim financial reports issued to stockholders. The statement is
effective for years beginning after December 15, 1997, and will be adopted by us
in our annual reporting for fiscal year 1999.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February 1998, the FASB issued SFAS 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 we do not have any of these types of plans, we
believe that SFAS No. 132 will have no impact on our consolidated financial
statements.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS 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
we do not currently have any derivative instruments or engage in hedging
activities, we believe that SFAS No. 133 will have no impact on our consolidated
financial statements.
YEAR 2000
READINESS FOR 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 incorrect or unintended results unless corrected so that they can
process data related to the year 2000 and thereafter. We rely on such computer
systems and applications in operating and monitoring most major aspects of our
business. We are evaluating the impact of the year 2000 issue on our business
and the related expenses incurred in attempting to remedy such impact. The year
2000 issue could affect us in at least three different ways:
- the software or the chips embedded within computers and other systems we
use in our offices and manufacturing facilities could be affected
- the software or the chips used in the products we sell could be affected
- third parties who do business with us may not be prepared for the year
2000
We have determined that regardless of the year 2000 issue, replacement of
existing office and other systems would provide more efficient operations and
added functionality. We have contracted with outside information consulting
companies both to install new
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<PAGE> 30
hardware and to replace our current mission-critical software systems with
off-the-shelf year 2000 compliant software. We expect all information system
upgrades and conversions to be completed and fully operational by April 1, 1999.
We are currently assessing our electronic office and manufacturing equipment to
determine if such equipment is date-sensitive and will require upgrades. If we
determine after this assessment that some of our equipment needs to be upgraded
or replaced, we plan to finish the required work by September 1999.
We believe that our currently marketed products are, or will be by July 1,
1999, year 2000 compliant. Some of our products are not affected because they do
not contain a date field in the software. On some previously marketed products
which are not year 2000 compliant, we will make an upgrade available to our
customers to ensure year 2000 compliance.
We cannot predict the effect of year 2000 problems on our vendors,
customers and other entities with which we transact business, or with whose
products our products interact. We have undertaken a survey of the year 2000
readiness of these third parties and plan to complete this assessment by
mid-calendar 1999.
COSTS
Through December 31, 1998, we incurred approximately $275,000 of costs
associated with our new information systems, all of which have been capitalized.
Of this amount, approximately $200,000 has been spent on replacing old hardware,
and approximately $75,000 has been spent on replacing old software. We currently
estimate that the costs associated with the new systems will ultimately total
approximately $350,000 and should not have a material adverse effect on our
business or results of operations in fiscal 1999. We expect that most of the
remaining $75,000 will be spent on replacing existing hardware. Because we would
have replaced these systems even without the year 2000 problem, our year 2000
expenditures have not deferred other projects that we otherwise would have
undertaken.
RISKS
We expect to make the changes required to address the year 2000 problem for
the software and embedded chips in our offices and manufacturing facilities and
in the products we make. We presently believe that with the new software and
hardware we are currently purchasing and with any required modifications to our
office and other systems which our assessment shows to be needed, the year 2000
issue is not reasonably likely to pose significant problems with respect to our
operations or products. However, if unforeseen difficulties arise, such
modifications, conversions and replacements are not completed on time, or if our
customers' or suppliers' systems are not modified to become year 2000 compliant,
the year 2000 issue may have a material adverse effect on our business and
results of operations.
We cannot presently assess the likelihood that we will experience
significant problems due to the unresolved year 2000 problems of third parties
with which we do business. Although we have not been put on notice that any
known third-party problem will not be timely resolved, we have limited
information and no assurance can be made concerning the year 2000 readiness of
third parties. If third parties fail to achieve year 2000 compliance, the year
2000 issue may have a material adverse effect on our business and results of
operations. Similarly, there can be no assurance that we can timely mitigate our
risks
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<PAGE> 31
related to a third party's failure to resolve its year 2000 issues. If we fail
to timely mitigate such risks, that failure may have a material adverse effect
on our business and results of operations.
CONTINGENCY PLANS
We have not attempted to quantify our most likely year 2000 worst-case
scenario nor have we considered any contingency plans in case the installations
by our outside information consulting companies are not satisfactory for year
2000 compliance. We believe that the installations will sufficiently address the
year 2000 issue. However, if the installations completed by April 1, 1999 are
not satisfactory for year 2000 compliance, we will then formulate appropriate
contingency plans.
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<PAGE> 32
BUSINESS
OVERVIEW
Invivo Corporation designs, manufactures and markets monitoring systems
that measure and display vital signs of patients in medical settings. Our
systems simultaneously monitor heart function, respiration, heart rate, blood
oxygen levels, invasive and non-invasive blood pressure and exhaled carbon
dioxide levels.
We developed the first multi-parameter vital sign patient monitoring system
for use during magnetic resonance imaging. As a result we have enjoyed a
significant first-to-market advantage. Based on our reputation in the MRI
patient monitoring field and our technological expertise, we have made inroads
into the general patient monitoring market. We believe that several new product
offerings will bolster our ability to gain greater market share and to better
target what we believe to be substantial specialized markets for patient
monitors.
We have established relationships with most of the world's largest MRI
equipment manufacturers. We presently maintain distribution agreements or other
OEM vendor relationships with Siemens A.G. Medical Engineering Group, Philips
Medical Systems, Hitachi Medical Corporation, GE Medical Systems and Elscint,
Ltd. GE Medical and Siemens Medical have approved the use of our monitors for
incorporation into their MRI equipment. We continue to work with MRI equipment
manufacturers to develop additional customized features.
In addition to our medical business, we offer a line of safety and
industrial instrumentation products. While these products are not our primary
focus, they historically have provided a stable source of revenue and cash flow.
Based on our comprehensive offerings, we believe that we are capable of
addressing the cost, quality and ease-of-use concerns of our customers while
adding value above what is currently available in the product offerings of our
competitors.
INDUSTRY
MRI
MRI is a non-invasive diagnostic tool that uses magnetic fields and radio
frequencies to produce images of internal organs and structures of the body. As
the technology has improved, MRI has become a widely accepted method of
performing diagnostic procedures. As a result, MRI scanners are used worldwide,
and are located principally in hospitals and stand-alone imaging centers. We
believe that roughly half of these MRI scanners are located in the United
States. We estimate that GE Medical, Siemens Medical and Philips Medical
together control over 70% of the worldwide MRI equipment market.
We believe the MRI marketplace will continue to grow as new uses for MRI
are developed. We believe that about 1,500 new MRI units were placed worldwide
in 1998. Over the next three years, we believe that there will be 10% to 15%
annual growth in MRI unit sales as old equipment is replaced and new equipment
is added in hospitals and imaging centers.
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While not every MRI use requires a patient monitor, as uses continue to
expand, we believe patient monitoring during the MRI procedure will become
increasingly important. MRI patient monitoring technology enables physicians to
track vital signs while the patient is undergoing an MRI procedure. The MRI
environment presents unique challenges for patient monitoring. A monitor must
not interfere with the MRI in a manner that degrades the image. In addition, the
monitor signal must be protected from the MRI's magnetic field and radio
frequencies in order to maintain the accurate performance of the monitor. In
light of these challenges, only three companies are currently manufacturing MRI
patient monitors. We believe we are the market leader.
We expect that growth in the MRI monitoring market will come from new MRI
unit placements, outfitting existing MRI equipment not presently equipped with
monitoring devices and replacing existing MRI patient monitors.
GENERAL PATIENT MONITORING
General patient monitoring products measure, display and document vital
signs information obtained from sensors attached to the patient. The principal
customers of patient monitoring products include hospitals and outpatient
surgery centers.
We estimate the worldwide market for patient monitoring products that
measure multiple vital signs, including MRI and general patient monitoring, was
approximately $1.5 billion in 1998. This market consists of three segments
identified by their environments. The first segment is the portable monitoring
market that includes the emergency room, bedsides, cath labs and neo-natal care
units of hospitals. The second segment is the inpatient and outpatient operating
room market. The final segment includes intensive and critical care units in
hospitals.
The general patient monitoring market is mature and therefore highly
competitive. We believe the two greatest factors contributing to product success
are price and features.
SAFETY & INDUSTRIAL INSTRUMENTATION
The safety products market is comprised of gas detection and monitoring
devices that are offered in portable and fixed settings. OSHA and other
regulatory agencies require the use of such devices in confined spaces where
toxic gases or low levels of oxygen are suspected. The industrial
instrumentation market includes pressure and infrared sensor instrumentation
that are frequently utilized in industrial settings. We expect both of these
markets to experience only modest growth in the foreseeable future.
STRATEGY
Our strategy includes the following key elements:
EXPLOIT OUR LEADERSHIP POSITION IN MRI PATIENT MONITORING TO GROW WITH
ADVANCES IN MRI USES. We believe that physicians and medical researchers will
continue to develop additional uses for MRIs in diagnostic, surgical and other
medical and patient care areas. We believe that a number of these new uses will
require effective monitoring of a patient's vital signs. We intend to capitalize
on our technology and relationships with our OEMs, hospitals and stand-alone
imaging centers to participate in the growth of MRI uses. We further intend to
pursue refinements in our MRI monitors to suit new uses of MRI equipment.
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EXPAND PENETRATION OF THE MILLENNIA PRODUCT LINE. We believe there is an
increasing awareness in the medical community of our patient monitoring
capabilities outside of the MRI room since the introduction of the Millennia
product line. We intend to take advantage of this growing familiarity with the
Millennia to expand its market opportunities.
ACQUIRE OR DEVELOP ADDITIONAL MEDICAL PRODUCTS. We intend to leverage our
growing reputation within the medical community by expanding our medical product
line. We believe an expanded medical product line will enable us to achieve
economies of scale and present cross-selling opportunities for all of our
medical products. To expand our product lines, we will evaluate the acquisition
and licensing of attractive products and complementary businesses and the
internal development of complementary products.
LEVERAGE THE ADVANTAGES PROVIDED BY OUR DEDICATED SALES FORCE. Unlike many
other medical device companies our size, we use a dedicated sales force
currently comprised of approximately 35 salespeople to sell our patient
monitoring products. Our dedicated sales force provides us with direct access to
our customers, which we believe enables us to establish strong relationships and
to better understand our customers' needs. We intend to use our sales force to
further expand our market opportunities.
CONTINUE TO BENEFIT FROM EXISTING NON-MEDICAL PRODUCT LINES. We have a
number of well-established safety and industrial instrumentation product lines
that serve mature markets. We believe these products will continue to provide a
stable source of revenue and cash flow. We plan to continue to serve these
markets with our existing products and to evaluate the potential return from
enhancements of or modifications to these product lines.
PRODUCTS
MRI PATIENT MONITORS
Through our patented technologies and our proprietary shielding techniques,
we are able to monitor a patient's vital signs without disrupting the magnetic
resonance imaging process.
OMNI-TRAK 3100. In the late 1980s, we pioneered the development of vital
signs monitoring during magnetic resonance imaging with the introduction of the
Omni-Trak 3100. The Omni-Trak 3100 provides continuous monitoring of all key
aspects of a patient's vitality, including electrocardiograph, respiration,
heart rate, blood oxygen levels, invasive and non-invasive blood pressure and
expired carbon dioxide levels.
OMNI-TRAK 3150. In April 1998, we introduced our next-generation MRI
monitor. The Omni-Trak 3150 incorporates all of the features of the Omni-Trak
3100 plus it is compact, mobile and easy to use. Through state-of-the-art radio
transmission, the Omni-Trak 3150 communicates with our Millennia remote display
controller, allowing critical data to be viewed by physicians and technicians in
both the MRI room and the control room.
GENERAL PATIENT MONITORING
Based on our reputation in the MRI patient monitoring field and our
technological expertise, we have penetrated the general patient monitoring
market.
MILLENNIA. The Millennia portable patient monitor is a compact
multi-parameter vital signs monitor which weighs under 15 pounds.
Ease-of-transport enables a hospital to
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maximize use of the monitors because they can easily be moved with a patient or
between locations. The Millennia also features a large color display and
user-friendly interface that medical personnel can easily use.
In January 1999, we introduced two new products in the Millennia line that
target substantial specialized markets for patient monitors. The first of these
is a module for anesthetic agent identification and analysis that allows an
anesthesiologist to confirm the type and amount of anesthetic gas that is
administered to a patient. The second incorporates the ability to measure blood
oxygen levels in non-tranquil patients (such as newborns)whose frequent and
unpredictable movements make the use of many traditional monitors difficult. We
are developing a product that will measure multiple anesthetic agents
simultaneously.
We also recently developed a modified version of the Millennia for
incorporation into GE Medical's CT scanners for use in cardiology. This
represents the first use of our patient monitors in radiology applications
outside the MRI room.
CENTURION. Our Centurion central station monitoring system networks
Millennia patient monitors, allowing a single healthcare professional to monitor
up to eight patients simultaneously. The main monitoring screen provides for
rapid interpretation of vital signs information by a single health care
professional.
With the recent FDA approval of our arrythmia detection enhancement for the
Centurion, we are continuing to upgrade our total product offering.
OTHER. Our other monitors include:
- a non-invasive blood pressure monitor that uses digital signal processing
for fast and consistent measurements
- an inexpensive multi-parameter vital signs monitor designed specifically
for the low-end international market
- a stand-alone unit to measure blood oxygen levels
- a monitor for blood pressure and blood oxygen levels
- a portable, hand-held blood oxygen level monitor offering a low-cost,
transportable monitoring unit
SAFETY AND INDUSTRIAL INSTRUMENTATION
We offer single-gas and multi-gas detection and monitoring instruments in
both portable and fixed models. Gas detection monitors increase worker safety
when toxic gases or low oxygen levels are suspected. The user carries or wears
portable units that are equipped with audible and visual alarms to warn the user
that potential dangers exists. Typical applications for these units are in
industrial or other settings where the user expects to move about, including
underground spaces housing telephone cables and waste water sewers, mines and
large factories. Fixed gas area monitors are appropriate for confined spaces
where chemicals or gases are used or stored. Typical applications for these
monitors are oil refineries, chemical plants and semiconductor fabrication
facilities.
Our flagship safety product, the MicroMax, is a hand-sized,
microprocessor-based, portable, multi-gas detector. The MicroMax simultaneously
detects up to four gases. In
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fiscal 1998, we introduced the UniMax, a pocket-sized, microprocessor-based,
portable, single-gas detector. UniMax is available with up to nine
interchangeable plug-in sensors for various types of gases and allows for
audible and visual alarm combinations.
Our oxygen monitoring products measure oxygen levels in air cylinders used
by individuals in oxygen-deprived situations. The primary use for this equipment
is for a self-contained breathing apparatus for fire fighters and hazardous
material clean-up workers.
Our industrial sensor and instrumentation products consist of pressure
sensors and infrared non-contact temperature measuring devices.
The infrared non-contact temperature measuring products are used in a wide
variety of industrial instrumentation uses. These include the fabrication of
semiconductors, the manufacturing of metals and glass, and miscellaneous
automotive, plant maintenance, construction and food preparation applications.
In fiscal 1997, we introduced the quickTemp, a hand-held, pocket-sized, infrared
non-contact thermometer.
We sell our pressure sensing devices primarily to plastic extrusion
equipment manufacturers who use these devices in their production processes.
Manufacturers in the food, beverage, synthetic fiber and pharmaceutical
industries use these devices to measure the pressure of processing ingredients.
SALES AND MARKETING
Unlike many other medical device companies our size, we sell our patient
monitoring products in the United States through a direct sales force. Our
domestic sales force includes 30 salespersons organized into five regions in the
United States. Distributors, assisted by our five international sales personnel
located in Europe and in the Far East, handle sales throughout the rest of the
world.
We sell our patient monitoring products primarily to hospitals and, to a
lesser degree, to stand-alone imaging centers, outpatient surgery centers and
OEM customers. We have OEM or worldwide distribution agreements with Siemens
A.G. Medical Engineering Group, Philips Medical Systems, Hitachi Medical
Corporation, GE Medical Systems and Elscint, Ltd. for our MRI monitoring
equipment. These relationships facilitate the sale of our monitors with the MRI
equipment manufactured by these companies.
We have also established relationships with leading group purchasing
organizations such as Premier Technology Management and AmeriNet, Inc. and
health care providers such as Kaiser Permanente and Columbia/HCA.
We market our gas detection, gas calibration and oxygen monitoring products
mostly through distributors and our own sales personnel. We sell these products
primarily to municipalities, utilities, telephone companies, oil refineries,
manufacturers and OEMs. We sell our industrial instrumentation products
primarily through distributors.
Foreign sales represented 20%, 22% and 23% of our total sales in fiscal
1996, 1997 and 1998 and 22% of our total sales for the six months ended December
31, 1998. We are actively trying to expand our international presence,
especially in the patient monitoring business.
Our backlog of unfilled purchase orders for all our products was
approximately $8.8 million as of December 31, 1998. Within the next 12 months,
we expect to ship all of our current backlog. Because of customer changes in
delivery schedules and the possible
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cancellation of orders, our backlog as of any particular date may not be
representative of our actual sales for any succeeding fiscal period.
Historically, order cancellations have not been significant. Our businesses are
not inherently seasonal, although for some of our businesses orders and
shipments in our first and second fiscal quarters have been historically lower
than the third and fourth quarters.
MANUFACTURING AND ASSEMBLY
Other companies manufacture components and subassemblies to our
specifications. We then assemble our products at our facilities in California
and Florida. Our patient monitoring and gas detection manufacturing facilities
are all ISO 9001 certified. We generally obtain from a wide variety of suppliers
the materials and supplies that we use to produce our products. We have not
experienced any significant shortages. Although certain materials that we use in
the manufacture of certain patient monitoring and gas detection devices are
readily available from only a few suppliers, we do not anticipate any
significant difficulties in obtaining any of these materials in the foreseeable
future.
COMPETITION
The patient monitoring markets in which we compete include MRI and general
monitoring. We are aware of three current competitors in the worldwide MRI
monitoring market. The general patient monitoring market is highly competitive
and includes companies that are much larger than us with significantly greater
financial resources. We estimate there are approximately 15 to 20 competitors in
the general patient monitoring market.
In the patient monitoring business, price is an important factor in
hospital purchasing patterns as a result of cost containment pressures on the
health care industry. To the extent that healthcare reform measures negatively
affect the financial condition of hospitals and thereby reduce their capital
purchases, we expect price to continue to play a large part as a basis of
competition.
The markets for our non-medical products are, in general, characterized by
a relatively limited number of competitors; however, these markets are highly
competitive. We estimate there are generally five to ten competitors in each of
these markets.
GOVERNMENTAL REGULATION
The patient monitoring devices we manufacture and market are subject to
regulation by the FDA and, in some instances, corresponding state and foreign
governmental agencies.
Our existing medical devices were cleared for marketing in the United
States through the FDA's section 510(k) premarket notification process. The
510(k) premarket notification process is available where the new product being
submitted to the FDA can be compared to a pre-existing commercially available
product that performs similar functions the FDA considers to be substantially
equivalent. If a product does not meet the eligibility requirements for the
510(k) process, then its application must be submitted, instead, under the more
time consuming and costly premarket approval procedure.
Our manufacturing facilities and the manufacture of our products are
subject to FDA regulations regarding registration of manufacturing facilities,
compliance with FDA good
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manufacturing practices and the reporting of adverse events. The FDA's recently
revised good manufacturing practices, titled "Quality System Regulation", now
require preproduction design controls and implementation of a full quality
assurance system along with standards for manufacturing processes and facilities
and record keeping for device failure and complaint investigations. We are
subject to periodic on-site inspection for compliance with such regulations. The
FDA may also conduct investigations and evaluations of our products at its own
initiative or in response to customer complaints or reports of malfunctions. If
the FDA believes that its regulations have been violated, it has extensive
enforcement authority including the power to seize, embargo or restrain entry of
products from the market and to prohibit the operation of manufacturing
facilities until the noted deficiencies are corrected to their satisfaction. We
believe we are in compliance with all applicable FDA regulations.
We seek, where appropriate, to comply with the certification and safety
standards of various organizations such as Underwriters' Laboratories, the
Canadian Standards Association and the various safety and test regulations of
the European Community.
The manufacture and testing of our safety products and medical devices
requires us to handle and store small quantities of a wide variety of chemicals,
some of which are highly toxic. Certain of these chemicals pose a serious threat
to workers and others who may come in contact with them if improperly used or
handled. Most municipalities, including those in which we are presently located,
now require that the proposed storage and use of dangerous chemicals receive
local approval. State air quality boards, or similar agencies, must also approve
the venting, and certain other aspects of handling, of these types of chemicals.
These municipal and state agencies may, as a condition to the granting of
approvals and permits, impose certain procedural limitations on our storage and
handling of these chemicals and structural requirements on the facilities where
these chemicals are stored and used. They also impose record keeping and
reporting requirements on the users of these chemicals.
We believe that we presently are in compliance with all applicable material
environmental regulations. Compliance with these requirements has not, to date,
had a material effect on our capital expenditures, earnings or competitive
position. Nonetheless, environmental regulation at the local, state and national
levels is still evolving, and the possibility exists that more stringent
limitations and requirements may become applicable to us.
EMPLOYEES
As of December 31, 1998 we had 297 employees, all of whom were full-time.
We are not a party to any collective bargaining agreement and have not
experienced a strike or work stoppage. We consider our relations with our
employees to be good.
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PROPERTIES
The following table sets forth information with respect to the real
property owned or leased by us which we consider material to our business.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
GENERAL CHARACTER OWNERSHIP OR DATE OF
LOCATION AND USE OF THE PROPERTY EXPIRATION OF LEASE
- -------------------------------------------------------------------------------
<C> <S> <C>
Pleasanton, California 3,200 square-foot April 2001
headquarters facility
- -------------------------------------------------------------------------------
Fremont, California 17,000 square-foot March 2001
building used as our
manufacturing and
distribution facility for
our gas calibration and
process control products
- -------------------------------------------------------------------------------
Orlando, Florida 42,000 square-foot Owned
building used as the
manufacturing,
distribution and
administrative facility
for our patient
monitoring products
- -------------------------------------------------------------------------------
Cucamonga, California 24,000 square-foot December 1999
building used as the
manufacturing,
distribution and
administrative facility
for our oxygen monitoring
products
- -------------------------------------------------------------------------------
Miramar, Florida 9,000 square-foot August 1999
building used as the
manufacturing,
distribution and
administrative facility
for our gas detection and
monitoring products
- -------------------------------------------------------------------------------
</TABLE>
We are currently negotiating new leases for our facilities in Cucamonga and
Miramar. These facilities may be moved to different locations in the same area.
We do not believe that the cost of any such relocation would be material to us.
We also believe that this will not interrupt our business.
We consider our present facilities to be sufficient for our current
operations. However, from time to time, we may lease smaller facilities as our
needs dictate.
LEGAL PROCEEDINGS
Our medical device subsidiary, Invivo Research, is one of two third-party
defendants named in a lawsuit by Southern Nevada Surgical Center and Surgex
Southern Nevada, Inc. in Nevada state court. The underlying action in this
matter stems from an incident involving a surgical patient undergoing a
procedure at the Southern Nevada Surgical Center. The patient suffered a serious
permanent brain injury. A lawsuit was filed on
37
<PAGE> 40
behalf of the patient against the surgical center and the anesthesiologist who
monitored the patient. A substantial settlement was made to the patient by the
defendants in that action. Southern Nevada Surgical Center and Surgex are now
seeking indemnity and contribution of approximately $14 million from the
manufacturer of the anesthetic gas machine and Invivo Research, which
manufactured the vital signs monitor used in this procedure. Southern Nevada
Surgical Center and Surgex are alleging that both the anesthetic gas machine and
the vital signs monitor were defective. This matter is scheduled to commence
trial on June 6, 1999. Any judgment against us that exceeds the amount that our
insurer is required to pay could have a material adverse effect on our business
and results of operations.
In addition to the legal proceeding described above, we are subject to
other various legal proceedings that arise in the ordinary course of business.
While the outcome of these proceedings cannot be predicted with certainty, we
believe that none of such proceedings, individually or in the aggregate, will
have a material adverse effect on our business or results of operations.
38
<PAGE> 41
DIRECTORS AND MANAGEMENT
Our executive officers and directors as of December 31, 1998, are listed
below, together with brief accounts of their business experience and certain
other information.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James B. Hawkins..................... 43 President, Chief Executive Officer,
Secretary and Director
John F. Glenn........................ 37 Vice President, Finance and Chief
Financial Officer
F. Larry Young....................... 39 Vice President, Operations
Ernest C. Goggio..................... 76 Chairman of the Board of Directors
Laureen DeBuono...................... 41 Director
George S. Sarlo...................... 61 Director
Roger Susi........................... 45 Director
</TABLE>
James B. Hawkins has been President, Chief Executive Officer and a Director
of Invivo and its predecessor since August 1985. He also has served as Secretary
of Invivo since July 1986. Mr. Hawkins has served as a Director of Pillar
Corporation, a major stockholder in Invivo, since August 1987. Pillar
Corporation, based in Milwaukee, Wisconsin, manufactures heat induction and
melting equipment for the metals industry. He earned his undergraduate degree in
Business Commerce from Santa Clara University and a MBA in Finance from San
Francisco State University.
John F. Glenn was appointed Vice President, Finance and Chief Financial
Officer of Invivo in November 1990. From September 1988 to November 1990, Mr.
Glenn was employed by Pillar Corporation as Vice President, Finance and Chief
Financial Officer. From August 1983 to September 1988, he served in various
capacities with First Interstate Bank. Mr. Glenn earned his undergraduate degree
in Business Administration from University of Nevada, Reno and his MBA in
Finance from the University of Santa Clara.
F. Larry Young has been Vice President, Operations of Invivo since April
1990 and the Chief Operating Officer of our Lumidor Safety Products subsidiary
since August 1996. From September 1986 to April 1990, Mr. Young was Vice
President, Manufacturing of Invivo. Prior to joining Invivo's predecessor as
Manufacturing Manager in July 1985, he served for four years in various
managerial capacities with Apple Computer, Inc.
Ernest C. Goggio has served as Chairman of the Board of Directors of Invivo
since November 1986. He has been the President and Chairman of the Board of
Pillar Corporation since 1966 and is Pillar's majority stockholder.
Laureen DeBuono has been a Director of Invivo since February 1998. Ms.
DeBuono is Chief Operating Officer and Chief Financial Officer of ReSound
Corporation, a health care company that manufactures and markets advanced
hearing devices, a position she has held since October 1998. From 1992 to April
1998, Ms. DeBuono was Executive Vice President and General Counsel of Nellcor
Puritan Bennett Inc., a medical device company.
George S. Sarlo has been a Director of Invivo since January 1991. He has
been a general partner of the Walden Group of venture capital funds since 1974.
Mr. Sarlo also founded and has served as Chairman of the Board of Directors of
Ashfield and Co., Inc., an investment management company, since 1973.
Roger Susi has been a Director of Invivo since December 1998. Mr. Susi is
Chairman of the Board of Directors of our Invivo Research subsidiary. Mr. Susi
founded and served as President of Invivo Research from 1979 to November 1998.
39
<PAGE> 42
SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of our common stock for the selling stockholder immediately prior to
the offerings and after giving effect to the sale by him of shares of our common
stock in connection with the offering. Except as otherwise indicated, we believe
that the person listed below, based on information provided by such owner, has
sole investment and voting power with respect to the common stock shown below as
being beneficially owned by him, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER THE
OFFERING OFFERED OFFERING
-------------------- --------- -------------------
NUMBER PERCENT NUMBER PERCENT
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Ernest C. Goggio.................. 514,986(1) 15.5% 100,000 414,986 9.9%
4900 Hopyard Rd. Suite 210
Pleasanton, CA 94588
</TABLE>
- -------------------------
(1) Includes 28,000 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days, 350,000 of which are owned by the Pillar
Charitable Remainder Unitrust, of which Mr. Goggio is the sole trustee, and
113,986 shares of our common stock owned by Pillar Corporation, of which Mr.
Goggio is President and majority stockholder. All of the 100,000 shares
being sold by the selling stockholder are being sold by the Pillar
Charitable Remainder Unitrust.
Mr. Goggio has served as Chairman of the Board of Directors of Invivo since
November 1986. He is also the President, Chairman of the Board and majority
stockholder of Pillar Corporation, which is an affiliate of Invivo.
40
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 5,000,000 shares of common stock,
par value $0.01 per share and 1,000,000 shares of preferred stock, par value
$0.01 per share. The following discussion of the material features of our
capital stock is intended as a summary only and is qualified in its entirety by
reference to our certificate of incorporation (as amended) and restated bylaws,
which are incorporated by reference to the registration statement of which this
prospectus is a part.
COMMON STOCK
On December 31, 1998, 3,286,768 shares of common stock were outstanding.
The outstanding shares are, and the shares offered by us will be, when issued,
fully paid and nonassessable. Upon completion of this offering, we will have
outstanding 4,152,318 shares of common stock. If the over-allotment option is
exercised in full, we will have outstanding 4,246,318 shares of common stock. As
of December 31, 1998, we had outstanding options to purchase 751,875 shares of
our common stock, 385,750 of which were then exercisable.
The holders of shares of common stock elect all directors, are entitled to
one vote per share and are not entitled to cumulate their votes in the election
of directors. Holders of record are entitled to receive dividends when and if
declared by the board of directors out of legally available funds. Upon any
liquidation, dissolution or winding up of us, holders of common stock are
entitled to share pro rata in any amounts available for distribution to the
stockholders after payment of all creditors and liquidation preferences of any
preferred stock that may be outstanding. Stockholders have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of common stock may become subject to those of holders of
preferred stock if we were to issue preferred stock in the future.
Following the completion of this offering, our officers and directors and
their affiliates will own approximately 19.9% (18.4% if the underwriters'
over-allotment option is exercised in full) of our outstanding common stock,
assuming no exercise of outstanding stock options. As a result, such persons
will continue to be able to exert significant influence over the outcome of
matters submitted to a vote of stockholders, including the election of
directors.
We have agreed, as have each of our Directors and our Chief Executive
Officer, subject to certain exceptions, not to sell any shares of common stock
for a period of 75 days after the date of completion of this offering without
the prior written consent of Cruttenden Roth Incorporated. During this lock-up
period, however, we will be permitted to (i) grant options to purchase shares of
common stock pursuant to our stock option plans and (ii) issue shares of common
stock upon the exercise of options granted pursuant to the stock option plans.
PREFERRED STOCK
The board of directors has authority to establish, from time to time,
various series of preferred stock. When the board of directors establishes a
series of preferred stock, it will determine the rights, preferences and
privileges of that series, including, among other matters, any dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms, the number of shares constituting
41
<PAGE> 44
any such series and the description thereof. No shares of preferred stock have
been issued, and we have no present plans to issue any such shares. The board of
directors can, without stockholder approval, issue preferred stock with voting
and conversion rights which could dilute the voting rights of the common
stockholders. In addition, the ability to issue such shares could deter tender
offers which could be in the best interest of our stockholders and prolong the
tenure of management.
DELAWARE LAW
We are a Delaware corporation and subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prevents
an "interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date on which such person became an interested stockholder. This limitation
is subject to certain exceptions, such as the approval of such a business
combination by the board of directors and the holders of at least two-thirds of
the outstanding shares of voting stock not owned by the interested stockholder.
The existence of Section 203 would be expected to have an anti-takeover effect,
possibly inhibiting takeover attempts that might otherwise result in a premium
over the market price being paid for the shares of common stock held by
stockholders.
TRANSFER AGENT
Our transfer agent and registrar for our common stock is U.S. Stock
Transfer, Glendale, California.
SHARES ELIGIBLE FOR FUTURE SALE
There will be 4,152,318 shares of common stock outstanding immediately
after the offering. All of the shares sold in the offering will be freely
transferable without restriction or further registration under the Securities
Act, except for shares purchased by our "affiliates," as defined in Rule 144
under the Securities Act. All of the remaining shares are also freely tradable,
except that shares held by affiliates are subject to Rule 144 or the
availability of another exemption. We, our Chief Executive Officer and each of
our Directors have agreed, subject to certain exceptions, not to sell any shares
of common stock for a period of 75 days after the date of completion of this
offering without the prior written consent of Cruttenden Roth Incorporated.
During this lock-up period, however, we will be permitted to (i) grant options
to purchase shares of common stock pursuant to our stock option plan and (ii)
issue shares of common stock upon the exercise of options granted pursuant to
the stock option plan.
42
<PAGE> 45
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, the underwriters named below, for whom Cruttenden Roth Incorporated
is acting as representative, have agreed to purchase from us and the selling
stockholder, and we and the selling stockholder have agreed to sell to the
underwriters, the respective number of shares of common stock set forth opposite
each underwriter's name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Cruttenden Roth Incorporated................................
Gerard Klauer Mattison & Co., Inc...........................
-------
Total............................................. 960,000
=======
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in our business and the receipt of certain
certificates, opinions and letters from our counsel and independent public
accountants. The nature of the underwriters' obligation is such that they are
committed to purchase and pay for all the shares of common stock if any are
purchased.
We and the selling stockholder have been advised by the representative that
the underwriters propose to offer the shares of common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus and to certain securities dealers at such price less a concession not
in excess of $ per share. The underwriters may allow, and such selected
dealers may reallow, a discount not in excess of $ per share to certain
brokers and dealers. After the public offering of the shares, the public
offering price and other selling terms may be changed by the representative. No
change in such terms shall change the amount of proceeds to be received by us as
set forth on the cover page of this prospectus.
We have granted an option to the underwriters, exercisable for a period of
45 days after the date of this prospectus, to purchase up to an additional
94,000 shares of our common stock at the public offering price set forth on the
cover page of this prospectus, less the underwriting discounts and commissions.
James B. Hawkins, our Chief Executive Officer, has granted an option to the
underwriters to purchase an additional 50,000 shares of our common stock on the
same terms and conditions. The underwriters may exercise this option only to
cover over-allotments, if any. To the extent that the underwriters exercise this
option, each of the underwriters will be committed, subject to certain
conditions, to purchase such additional shares of common stock in approximately
the same proportion as set forth in the above table.
Our Chief Executive Officer and our Directors have agreed that they will
not, without the prior written consent of Cruttenden Roth Incorporated (which
consent may be withheld in its sole discretion) and subject to certain limited
exceptions, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, sell short, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer or
43
<PAGE> 46
dispose of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or enter into
any swap or similar agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the common stock, for a period of 75 days
after the date of completion of this offering. Cruttenden Roth Incorporated, on
behalf of the underwriters, may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to these lock-up
agreements. In addition, we have agreed that, for a period of 75 days after the
date of completion of this offering, we will not, without the consent of
Cruttenden Roth Incorporated, make any offering, purchase, or sale or other
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of common stock (or agreement for
such) except for (i) the grant of options to purchase shares of common stock
pursuant to our stock option plans and (ii) the issuance of shares of common
stock issued pursuant to the exercise of options granted under such plan.
The representative has advised us that it does not expect any sales of the
shares of common stock offered hereby to be made to discretionary accounts
controlled by the underwriters.
The underwriting agreement provides that we will indemnify the underwriters
and their controlling persons against certain liabilities under the Securities
Act or will contribute to payments the underwriters and their controlling
persons may be required to make in respect thereof. We are generally obligated
to indemnify the underwriters and their respective controlling persons in
connection with losses or claims arising out of any untrue statement of a
material fact contained in this prospectus or in related documents filed with
the Securities and Exchange Commission or with any state securities
administrator or arising out of any omission to state in any of such documents
any material fact required to be stated in such documents or necessary to make
the statements made in such documents, in light of the circumstances under which
they were made, not misleading. In addition, we are generally obligated to
indemnify the underwriters and their respective controlling persons in
connection with losses or claims arising out of any breach of any
representation, warranty, agreement or covenant of Invivo contained in the
underwriting agreement. The selling stockholder has similar indemnification
obligations to the underwriters and their respective controlling persons in
connection with losses or claims arising out of his representations, warranties,
agreements, covenants, statements and omissions.
The foregoing is a summary of the principal terms of the underwriting
agreement; it does not purport to be complete and is qualified in its entirety
by reference to the form of underwriting agreement that has been filed as an
exhibit to our registration statement of which this prospectus is a part.
To facilitate this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the market price of the common
stock. Specifically, the underwriters may over-allot shares in connection with
this offering (i.e., sell more shares than are set forth on the cover page of
this prospectus), thereby creating a "short position" in the underwriters'
syndicate account. To cover such over-allotments or to stabilize the market
price of the shares, the underwriter may bid for, and purchase, shares in the
open market. The underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above. Any of
these activities may maintain the market price of the shares at a level above
that which might otherwise prevail in the open
44
<PAGE> 47
market. The underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time.
LEGAL MATTERS
The legality of the common stock offered hereby will be passed on for us by
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation,
Palo Alto, California. Certain legal matters will be passed on for the
underwriters by Brobeck, Phleger & Harrison LLP, San Diego, California.
EXPERTS
The consolidated financial statements of Invivo Corporation and
subsidiaries as of June 30, 1997 and 1998, and for each of the years in the
three-year period ended June 30, 1998, have been included herein and in the
registration statement in reliance upon the reports of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed by us with the Securities and
Exchange Commission under Section 13(a) or 15(d) of the Exchange Act (File No.
0-15963) are incorporated herein by reference: (i) annual report on Form 10-K/A
for the year ended June 30, 1998 (filed February 9, 1999); and (ii) quarterly
reports on Form 10-Q for the quarters ended September 30, 1998 (filed November
12, 1998) and December 31, 1998 (filed February 9, 1999).
In this prospectus we have incorporated certain documents by reference. If
any statement in this prospectus modifies or supersedes a statement in one of
those documents, we incorporate the earlier statement only to the extent that
the later statement does not modify or supersede it. The same applies for any
statement in an earlier document which is modified or superseded by a statement
in a later document which this prospectus incorporates by reference.
We will provide without charge to each person to whom this prospectus is
delivered, upon the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference herein (other than exhibits
to any such document unless such exhibits are specifically incorporated by
reference into such document). Requests for such copies should be directed to:
Corporate Secretary
Invivo Corporation
4900 Hopyard Road, #210,
Pleasanton, California 94588
Telephone (925) 468-7600
45
<PAGE> 48
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-2 under the Securities Act of 1933, as amended, with respect
to the common stock offered hereby. This prospectus, which forms a part of the
registration statement, does not contain all of the information set forth in the
registration statement. For further information with respect to us and our
common stock, reference is made to the registration statement. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such reference
to such exhibit.
Copies of the registration statement, the documents incorporated by
reference into this prospectus and other documents that we file with the
Securities and Exchange Commission may be examined without charge at the Public
Reference Room of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and the Securities and Exchange
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any portion of the registration
statement can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain fees
prescribed by the Commission. You may obtain information regarding the Public
Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-1330. The Commission maintains a World Wide Web site that contains
registration statements, reports, proxy and information statements and other
information regarding registrants (including Invivo) that file electronically
with the Commission. The address of such World Wide Web site is
http://www.sec.gov.
46
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets -- as of June 30, 1997 and 1998
and December 31, 1998 (unaudited)......................... F-3
Consolidated Statements of Income -- years ended June 30,
1996, 1997 and 1998 and six months ended December 31, 1997
and 1998 (unaudited)...................................... F-4
Consolidated Statements of Stockholders' Equity -- years
ended June 30, 1995, 1996, 1997 and 1998 and six months
ended December 31, 1998 (unaudited)....................... F-5
Consolidated Statements of Cash Flows -- years ended June
30, 1996, 1997 and 1998 and six months ended December 31,
1997 and 1998 (unaudited)................................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Invivo Corporation:
We have audited the accompanying consolidated balance sheets of Invivo
Corporation and subsidiaries (the Company) as of June 30, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Invivo
Corporation and subsidiaries as of June 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
July 30, 1998
F-2
<PAGE> 51
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1997 1998 1998
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 171,100 554,100 606,500
Trade receivables, less allowance for
doubtful accounts of $371,000 as
of June 30, 1997, $288,000 as of
June 30, 1998, and $455,748 as of
December 31, 1998................. 7,898,800 10,277,000 10,583,800
Inventories.......................... 7,100,900 7,282,400 7,495,300
Deferred income taxes................ 802,300 1,138,000 1,138,000
Prepaid expenses and other current
assets............................ 516,200 451,400 470,400
----------- ---------- ----------
Total current assets......... 16,489,300 19,702,900 20,294,000
Property and equipment, net............ 4,460,100 4,441,100 4,856,500
Intangible assets...................... 5,442,400 5,748,700 5,664,300
Other assets........................... 219,700 302,600 286,200
----------- ---------- ----------
$26,611,500 30,195,300 31,101,000
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... 2,871,000 3,139,100 2,353,900
Accrued expenses..................... 2,153,200 2,679,700 2,920,600
Current portion of long-term debt and
bank borrowings................... 3,487,900 3,087,200 2,424,800
Income taxes payable................. 481,200 1,433,200 1,146,500
Other................................ 21,900 -- --
----------- ---------- ----------
Total current liabilities.... 9,015,200 10,339,200 8,845,800
Long-term debt, excluding current
portion.............................. 1,584,400 1,479,800 2,066,600
Deferred income taxes.................. 145,400 156,000 156,000
Other.................................. 52,000 52,000 52,000
----------- ---------- ----------
Total liabilities............ 10,797,000 12,027,000 11,120,400
----------- ---------- ----------
Stockholders' equity:
Common stock, $.01 par value;
authorized shares -- 5,000,000;
issued and outstanding
shares -- 3,255,668 as of June 30,
1997, 3,269,418 as of June 30,
1998, and 3,286,768 as of December
31, 1998.......................... 32,557 32,694 32,868
Additional paid-in capital........... 12,787,443 12,878,606 13,038,232
Retained earnings.................... 2,994,500 5,257,000 6,909,500
----------- ---------- ----------
Total stockholders' equity... 15,814,500 18,168,300 19,980,600
Commitments and contingencies..........
----------- ---------- ----------
$26,611,500 30,195,300 31,101,000
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 52
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------- -------------------------
1996 1997 1998 1997 1998
----------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................. $31,390,900 35,903,500 40,651,400 19,107,300 23,410,800
Cost of goods sold.... 15,810,900 18,618,900 20,956,600 9,948,000 11,665,300
----------- ---------- ---------- ---------- ----------
Gross
profit... 15,580,000 17,284,600 19,694,800 9,159,300 11,745,500
----------- ---------- ---------- ---------- ----------
Operating expenses:
Selling, general,
and
administrative... 9,690,700 14,174,300 13,428,500 6,256,000 7,707,200
Research and
experimental..... 2,095,400 2,448,800 2,455,000 1,250,200 1,413,100
----------- ---------- ---------- ---------- ----------
Total
operating
expenses... 11,786,100 16,623,100 15,883,500 7,506,200 9,120,300
----------- ---------- ---------- ---------- ----------
Income from
operations... 3,793,900 661,500 3,811,300 1,653,100 2,625,200
Other income
(expense):
Interest expense.... (175,200) (251,400) (387,300) (195,200) (159,900)
Other, net.......... 126,700 67,900 4,000 24,100 (1,300)
----------- ---------- ---------- ---------- ----------
Income
before
income
taxes.... 3,745,400 478,000 3,428,000 1,482,000 2,464,000
Income tax expense.... 1,273,400 162,500 1,165,500 478,900 811,500
----------- ---------- ---------- ---------- ----------
Net
income... $ 2,472,000 315,500 2,262,500 1,003,100 1,652,500
=========== ========== ========== ========== ==========
Basic net income per
common share........ $ .77 .10 .69 .31 .50
=========== ========== ========== ========== ==========
Weighted average
common shares
outstanding
(basic)............. 3,216,362 3,239,187 3,264,966 3,260,646 3,273,667
=========== ========== ========== ========== ==========
Diluted net income per
common share........ $ .72 .09 .66 .30 .47
=========== ========== ========== ========== ==========
Weighted average
common shares
outstanding
(diluted)........... 3,455,501 3,445,326 3,426,718 3,393,748 3,551,454
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 53
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances as of June 30,
1995.................... 3,200,043 $32,000 12,377,100 207,000 12,616,100
Exercise of stock
options................. 25,950 260 83,840 -- 84,100
Tax benefit from exercise
of options.............. -- -- 103,400 -- 103,400
Net income................ -- -- -- 2,472,000 2,472,000
--------- ------- ---------- ---------- ----------
Balances as of June 30,
1996.................... 3,225,993 32,260 12,564,340 2,679,000 15,275,600
Exercise of stock
options................. 29,675 297 160,703 -- 161,000
Tax benefit from exercise
of Options.............. -- -- 62,400 -- 62,400
Net income................ -- -- -- 315,500 315,500
--------- ------- ---------- ---------- ----------
Balances as of June 30,
1997.................... 3,255,668 32,557 12,787,443 2,994,500 15,814,500
Exercise of stock
options................. 13,750 137 76,863 -- 77,000
Tax benefit from exercise
of Options.............. -- -- 14,300 -- 14,300
Net income................ -- -- -- 2,262,500 2,262,500
--------- ------- ---------- ---------- ----------
Balances as of June 30,
1998.................... 3,269,418 32,694 12,878,606 5,257,000 18,168,300
Exercise of stock options
(unaudited)............. 17,350 174 107,926 -- 108,100
Tax benefit from exercise
of options
(unaudited)............. -- -- 51,700 -- 51,700
Net income (unaudited).... -- -- -- 1,652,500 1,652,500
--------- ------- ---------- ---------- ----------
Balances as of December
31, 1998 (unaudited).... 3,286,768 $32,868 13,038,232 6,909,500 19,980,600
========= ======= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 54
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------------- -------------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................... $ 2,472,000 315,500 2,262,500 1,003,100 1,652,500
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and
amortization.............. 601,400 745,900 760,000 386,500 437,000
Loss on disposal of property
and equipment............. 31,200 21,200 64,800 -- 9,200
Changes in operating assets
and liabilities:
Trade receivables......... (215,900) (1,483,300) (2,378,200) (1,911,600) (306,800)
Inventories............... (412,500) (1,596,500) (181,500) 268,000 (212,900)
Deferred income taxes..... (72,300) (230,600) (310,700) -- --
Prepaid expenses and other
current assets......... (128,000) 68,300 64,800 121,700 (19,000)
Accrued expenses.......... (65,900) 251,900 526,500 (91,000) 240,900
Accounts payable.......... 292,800 1,234,700 268,100 (24,000) (785,200)
Income taxes payable...... 220,500 158,700 952,000 595,800 (235,000)
Other current
liabilities............ 2,600 (71,000) (21,900) (3,100) --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) operating
activities........... 2,725,900 (585,200) 2,006,400 345,400 780,700
----------- ----------- ----------- ----------- ----------
Cash flows from investing
activities:
Capital expenditures.......... (769,300) (2,380,500) (646,800) (217,400) (777,300)
Proceeds from sale of property
and equipment............... 17,000 69,400 -- -- --
Intangible assets............. (987,900) -- (232,600) -- (232,600)
Other assets.................. (297,400) 149,800 (82,900) (108,000) 16,400
----------- ----------- ----------- ----------- ----------
Net cash used in
investing
activities........... (2,037,600) (2,161,300) (962,300) (325,400) (993,500)
----------- ----------- ----------- ----------- ----------
Cash flows from financing
activities:
Issuances of common stock..... 84,100 161,000 76,900 71,000 108,200
Bank borrowings (repayments),
net......................... 1,800,000 2,545,000 (645,000) (62,400) 209,000
Principal payments under long-
term debt and other
liabilities................. (2,457,800) (224,600) (93,000) (40,800) (52,000)
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities........... (573,700) 2,481,400 (661,100) (32,200) 265,200
----------- ----------- ----------- ----------- ----------
Net increase (decrease) in cash
and cash equivalents.......... 114,600 (265,100) 383,000 (12,200) 52,400
Cash and cash equivalents at
beginning of year............. 321,600 436,200 171,100 171,100 554,100
----------- ----------- ----------- ----------- ----------
Cash and cash equivalents at end
of year....................... $ 436,200 171,100 554,100 158,900 606,500
=========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 55
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND ACCOUNTING POLICIES
THE COMPANY
Invivo Corporation and subsidiaries (the Company) are engaged in the
design, manufacture, and marketing of sensor-based instruments for health,
safety, and industrial process control applications.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
comprised primarily of U.S. Treasury securities and money market funds.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation is calculated on the straight-line method over
the estimated useful lives of the related assets, generally three to seven
years. Leasehold improvements and assets under capital leases are amortized on
the straight-line method over the shorter of the lease term or the estimated
useful life of the related asset.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits that are not expected to be realized.
INTANGIBLE ASSETS
Intangible assets include patents and the cost in excess of amounts
otherwise assigned to net assets of businesses acquired (goodwill). Patents are
amortized on a straight-line basis over their approximate useful lives, not to
exceed 17 years. Goodwill is amortized on a straight-line basis over 40 years.
The Company assesses the recoverability of goodwill by projecting results of
operations over the remaining useful lives of the businesses acquired.
F-7
<PAGE> 56
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accumulated amortization as of June 30, 1997 and 1998 was approximately $708,400
and $867,500, respectively. Amortization expense was approximately $136,100,
$153,400 and $159,100 for 1996, 1997, and 1998, respectively.
BASIC AND DILUTED NET INCOME PER COMMON SHARE
The Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, requires the
presentation of basic net income per share and diluted net income per share. The
Company adopted the provisions of SFAS No. 128 for the year ended June 30, 1998
and prior periods have been restated to conform to SFAS No. 128.
REVENUE RECOGNITION
The Company recognizes revenue and all related costs upon shipment of
products to its customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes indicate that the
carrying amount of an asset may not be recoverable. The Company has identified
no long-lived assets or identifiable intangibles which are considered impaired.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate their fair values because of their short
maturities.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to the design, development and
testing of new monitors, applications and technologies are charged to expense as
incurred.
ACCOUNTING FOR STOCK OPTIONS
Prior to June 30, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25,
F-8
<PAGE> 57
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On June 30,
1996, the Company adopted Statement of Financial Accounting Standards No. 123
(SFAS No. 123), Accounting for Stock-Based Compensation, which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employees
stock option grants made in 1996 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure as required by SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, is effective for years beginning after December 15, 1997. The
Company will adopt this standard for fiscal year 1999.
UNAUDITED INTERIM INFORMATION
The information presented as of December 31, 1998, and for the six-month
periods ended December 31, 1997 and 1998, has not been audited. In the opinion
of management, the unaudited interim financial statements include all
adjustments necessary to present fairly the Company's financial position as of
December 31, 1998, and the results of its operations and its cash flows for the
six months ended December 31, 1997 and 1998.
(2) ACQUISITION OF INVIVO RESEARCH INC.
On December 31, 1992, the Company acquired 80% of the outstanding common
stock of Invivo Research Inc., a company which designs, manufactures, and
markets sensor-based patient safety devices.
In fiscal 1994, the Company entered into an agreement to acquire the
remaining 20% of the Invivo Research Inc. shares. Under this agreement, the
purchase price for the remaining shares is to be paid in five installments. One
installment in the amount of $987,000 was paid during fiscal 1996. During fiscal
1998, the Company accrued for a second installment in the amount of $465,000, of
which $232,600 was paid as of June 30, 1998. The three remaining installments
will become payable on March 15, 1999 and will be based on calendar year 1998
results. The value of each installment will be determined based upon a formula
involving after-tax profits, subject to a minimum share price if certain
milestones are achieved. As of February 1999, the total remaining purchase price
is estimated to be approximately $2,900,000 (unaudited).
F-9
<PAGE> 58
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INVENTORIES
A summary of inventories as of June 30 follows:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Raw materials.......................... $3,804,500 3,842,100
Work in process........................ 1,180,100 2,126,000
Finished goods......................... 2,116,300 1,314,300
---------- ---------
$7,100,900 7,282,400
========== =========
</TABLE>
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30 follows:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Land and building.................... $ 2,324,800 2,329,500
Equipment............................ 3,935,800 4,467,900
Furniture and fixtures............... 960,100 1,003,800
Vehicles............................. 147,000 148,500
----------- ----------
7,367,700 7,949,700
Less accumulated depreciation and
amortization....................... (2,907,600) (3,508,600)
----------- ----------
$ 4,460,100 4,441,100
=========== ==========
</TABLE>
F-10
<PAGE> 59
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) DEBT AND BANK BORROWINGS
A summary of debt and bank borrowings as of June 30 follows:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Installments payable on the purchase
of the remaining shares of Invivo
Research (note 2). Amount is
payable in monthly installments of
$38,778 through December 31,
1998............................... $ -- 232,600
Term loan payable in monthly
installments of approximately
$8,700, including interest at
8 1/2%; secured by land and
building........................... 1,677,300 1,584,400
Borrowings under the $5,000,000
revolving loan, which expires and
is payable on December 1, 1998;
collateralized by accounts
receivable and inventory and
equipment; interest payable monthly
at LIBOR plus 2.0% or the prime
rate............................... 3,395,000 2,750,000
----------- ----------
5,072,300 4,567,000
Less current portion................. (3,487,900) (3,087,200)
----------- ----------
$ 1,584,400 1,479,800
=========== ==========
</TABLE>
The aggregate maturities of long-term debt as of June 30, 1998 are as
follows:
<TABLE>
<S> <C>
Year ending June 30,
1999..................................... $3,087,200
2000..................................... 104,600
2001..................................... 104,600
2002..................................... 104,600
2003..................................... 104,600
Thereafter................................. 1,061,400
----------
$4,567,000
==========
</TABLE>
In December 1997, the Company and its bank lender agreed to renew the
revolving $5,000,000 loan to December 1, 1998. In the second quarter of fiscal
1999, the Company increased its bank line of credit to $7,500,000 from
$5,000,000, renewed the line of credit from December 1, 1998 to December 1,
1999, and added a $1,000,000 three-year term loan (unaudited). The revolving
loan requires the Company to maintain a minimum tangible net worth, a maximum
ratio of total liabilities to tangible net worth, a minimum working capital
balance, quarterly profitability, a minimum debt service ratio, and prohibits
the Company from paying dividends. As of June 30, 1998, $2,250,000 was available
under the line of credit.
F-11
<PAGE> 60
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) ACCRUED EXPENSES
A summary of accrued expenses as of June 30 follows:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Accrued compensation and benefits...... $1,245,400 2,062,500
Other.................................. 907,800 617,200
---------- ---------
$2,153,200 2,679,700
========== =========
</TABLE>
(7) LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating leases.
The facilities' leases require the Company to pay certain executory costs such
as taxes, insurance, and maintenance. Rent expense related to operating leases
was approximately $416,900, $385,000 and $422,200 for the years ended June 30,
1996, 1997, and 1998, respectively.
A summary of future minimum lease payments required under noncancelable
operating leases with terms in excess of one year, net of sublease rental
income, as of June 30, 1998 follows:
<TABLE>
<S> <C>
Fiscal year ending
1999....................................... $411,500
2000....................................... 250,500
2001....................................... 156,300
2002....................................... 5,100
2003....................................... 1,900
--------
Future minimum lease payments.............. $825,300
========
</TABLE>
F-12
<PAGE> 61
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES
A summary of the components of income tax expense (benefit) for the years
ended June 30 are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ---------
<S> <C> <C> <C>
1996:
Federal......................... $1,101,800 (56,400) 1,045,400
State........................... 243,900 (15,900) 228,000
---------- -------- ---------
$1,345,700 (72,300) 1,273,400
========== ======== =========
1997:
Federal......................... 206,000 (179,000) 27,000
State........................... 187,100 (51,600) 135,500
---------- -------- ---------
$ 393,100 (230,600) 162,500
========== ======== =========
1998:
Federal......................... 1,252,500 (284,000) 968,500
State........................... 237,000 (40,000) 197,000
---------- -------- ---------
$1,489,500 (324,000) 1,165,500
========== ======== =========
</TABLE>
Amounts are based upon estimates and assumptions as of the date of this
report and could vary significantly from amounts shown on the tax returns as
filed.
Deferred income taxes are attributable primarily to depreciation, accrued
expenses, and allowances.
The effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities as of June 30 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Reserves and other accruals....... $ 587,000 800,600 1,138,000
Capital loss carryover............ 1,500 199,400 199,400
Accumulated depreciation.......... -- 1,700 --
--------- --------- ---------
Gross deferred tax
assets................. 588,500 1,001,700 1,337,400
Valuation allowance................. (1,500) (199,400) (199,400)
--------- --------- ---------
Total deferred tax assets,
less valuation
allowance.............. 587,000 802,300 1,138,000
--------- --------- ---------
Deferred tax liabilities:
Federal depreciation in excess
of books....................... (11,000) -- (15,000)
Acquired intangibles from
acquisitions................... (149,700) (145,400) (141,000)
--------- --------- ---------
Total deferred tax
liabilities............ (160,700) (145,400) (156,000)
--------- --------- ---------
Net deferred tax asset.............. $ 426,300 656,900 982,000
========= ========= =========
</TABLE>
F-13
<PAGE> 62
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
There was no net change in the valuation allowance for the year ended June
30, 1998.
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the net
deferred tax asset or that the amounts will be recovered from previously paid
taxes.
The following summarizes the differences between the income tax expense and
the amount computed by applying the 34% federal statutory corporate rate to
income before income taxes as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- -------- ---------
<S> <C> <C> <C>
Federal income tax at statutory
rate.............................. $1,273,400 162,500 1,165,500
State income taxes.................. 150,500 103,000 156,000
Utilization of research,
experimental, and other credits... -- (50,000) (57,000)
Benefit of foreign sales
corporation....................... (111,500) (135,500) (204,000)
Permanent differences............... 21,000 44,000 54,000
Other............................... (60,000) 38,500 51,000
---------- -------- ---------
$1,273,400 162,500 1,165,500
========== ======== =========
</TABLE>
(9) STOCK OPTION PLAN
The Company has established stock option plans to provide for the granting
of stock options to employees (including officers and directors) at prices not
less than the fair market value of the Company's common stock at the date of
grant. Options vest ratably over 4 years and expire in 10 years. The Company has
reserved 314,400 and 600,000 shares of its common stock for issuance under the
1986 and 1994 Plans, respectively. During 1998, the Company granted 123,500
shares of common stock.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model in accordance with SFAS No. 123 with the
following assumptions for 1996, 1997 and 1998, respectively: risk free interest
rates of 5.96%, 6.39% and 5.76%, dividend yield of 0% for all years, average
expected lives of five years for all years and volatility of 55%, 55% and 58%.
Had the Company determined compensation costs related to its stock option
plans pursuant to SFAS No. 123, the Company's net income and net income per
share would have been reduced to the pro forma amounts indicated below for the
years noted:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ------- ---------
<S> <C> <C> <C> <C>
Net income................... As reported $2,472,000 315,500 2,262,500
Pro forma 2,456,800 70,800 2,151,899
Basic net income per share... As reported .77 .10 .69
Pro forma .75 .02 .66
Diluted net income per
share...................... As reported .72 .09 .66
Pro forma .71 .02 .63
</TABLE>
F-14
<PAGE> 63
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro forma net income reflects only options granted in 1996, 1997 and 1998.
Therefore, the full impact of calculating compensation cost for the Company's
Plan under SFAS No. 123 is not reflected in the option's vesting period and
compensation costs for options granted prior to July 1, 1995 are not considered.
A summary of stock option activity for the years ended June 30, 1997 and
1998 follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
WEIGHTED- EXERCISE
AVERAGE PRICE
WEIGHTED- GRANT OPTIONS BY OPTIONS
AVERAGE DATE EXERCISABLE EXERCISABLE
EXERCISE FAIR AT AT
OPTIONS PRICE VALUE YEAR END YEAR END
------- --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
June 30, 1996................... 364,400 234,675 $3.59
Granted....................... 197,000 11.47 5.39
Exercised..................... (29,675) 5.54
Canceled...................... (15,625) 8.74
-------
June 30, 1997................... 516,100 7.36 267,638 4.19
Granted....................... 123,500 10.00 5.41
Exercised..................... (13,750) 5.60
Canceled...................... (9,875) 7.29
-------
June 30, 1998................... 615,975 7.77 328,401 5.51
=======
</TABLE>
<TABLE>
<CAPTION>
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED-
RANGE OF AT REMAINING AVERAGE AT AVERAGE
EXERCISE JUNE 30, CONTRACTUAL EXERCISE JUNE 30, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
-------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.00- 5.13..................... 188,050 2.54 $2.80 188,050 $2.80
7.00- 8.75..................... 128,175 6.86 7.35 82,225 4.53
10.00-16.13..................... 299,750 8.74 11.07 58,126 12.15
------- ---- ----- ------- -----
615,975 6.46 7.77 328,401 4.89
======= =======
</TABLE>
(10) SALARY DEFERRAL PLAN
The Company's executive officers, together with all other eligible
employees, may participate in the Company's 401(k) Salary Deferral Plan (the
Plan). Employees become eligible upon completion of one year of service. Each
eligible employee receives a retirement benefit based upon accumulated
contributions to the Plan by the employee and the Company plus any earnings on
such contributions. The Company contributes an amount equal to 25% of the first
4% of compensation that the employee contributes. The Plan currently provides
that participants vest 25% each year over a four year period in the
F-15
<PAGE> 64
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's contributions. Company contributions to the Plan for the years ended
June 30, 1996, 1997, and 1998 were $43,200, $56,700 and $70,600, respectively.
(11) LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of its
business. While the ultimate results of such proceedings cannot be predicted
with certainty, management expects that these matters will not have a material
adverse effect on the Company's financial position or results of operations.
(12) MAJOR CUSTOMERS AND CREDIT RISK
In fiscal 1996, 1997, and 1998 no individual customer accounted for greater
than 10% of the Company's revenues or trade accounts receivable.
The Company has a customer base that is diverse geographically and by
industry. Customer credit evaluations are performed on an ongoing basis, and
collateral is generally not required for trade accounts receivable. Management
does not believe the Company has any significant concentration of credit risk as
of June 30, 1998.
(13) INDUSTRY AND GEOGRAPHIC INFORMATION
The Company operates in multiple industry segments and it markets its
products in the United States and in foreign countries through its sales
personnel and distributors. Export sales account for a portion of the Company's
net revenue and are approximately summarized by geographic area as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
United States.............................. $25,000 27,900 31,300
Export:
Europe................................... 1,400 2,200 2,400
Pacific Rim.............................. 2,300 2,600 2,000
Other international...................... 2,700 3,200 5,000
------- ------ ------
Total net sales.................. $31,400 35,900 40,700
======= ====== ======
</TABLE>
F-16
<PAGE> 65
INVIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) SUPPLEMENTAL CASH FLOWS INFORMATION
Noncash investing and financing activities and supplemental cash flow
information are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------ -------------------------
1996 1997 1998 1997 1998
---------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax benefit associated with
exercise of stock
options................... $ 103,400 62,400 14,300 11,300 51,700
Cash paid:
Income taxes.............. 1,076,700 234,800 875,158 211,000 1,033,300
Interest.................. 175,300 293,100 389,274 195,200 157,000
</TABLE>
F-17
<PAGE> 66
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
LOGO
960,000 SHARES OF COMMON STOCK
-----------------
PROSPECTUS
-----------------
CRUTTENDEN ROTH
INCORPORATED
GERARD KLAUER MATTISON & CO., INC.
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the Common Stock being registered
hereby, other than underwriting commissions and discounts. All amounts are
estimates, other than the SEC registration fee, the NASD filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
SEC registration fee........................................ $ 5,665
NASD filing fee............................................. 2,538
Nasdaq National Market listing fee.......................... 17,500
Blue Sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 60,000
Legal fees and expenses..................................... 75,000
Accounting fees and expenses................................ 100,000
Transfer Agent and Registrar fees........................... 5,000
Miscellaneous expenses...................................... 11,297
--------
Total............................................. $287,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Invivo has included in its Certificate of Incorporation, as amended, and
its Bylaws provisions to eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the General Corporation Law of the State of Delaware (the "DGCL").
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by each in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reason to believe their conduct was unlawful. In a derivative action, i.e.,
one by or in the right of the corporation, indemnification may be made only for
expenses (including attorneys' fees) actually and reasonably incurred by
directors, officers, employees or agents in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to which
they shall have acted in good faith and in a manner they reasonably believed to
be in, or not opposed to, the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
director, officer, employee or agent is fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability. Invivo has
entered into Indemnification Agreements with its directors and certain key
officers pursuant to which Invivo is generally obligated to indemnify its
directors and such officers to the full extent permitted by the DGCL as
described above.
II-1
<PAGE> 68
Invivo maintains insurance for its directors and officers indemnifying them
against certain civil liabilities, including liabilities under the federal
securities laws, which might be incurred by them in such capacity.
The Underwriting Agreement (Exhibit 1.01) provides for indemnification by
the Underwriters of Invivo, its directors and officers, and by Invivo of the
Underwriters, for certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), and affords certain
rights of contribution with respect thereto.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
1.01 Form of Underwriting Agreement**
3.01 Restated Certificate of Incorporation of the Registrant**
3.02 Restated By-Laws of the Registrant(1)
4.01 Form of Common Stock Certificate(1)
5.01 Opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation, as to the validity of the issues
of the shares registered hereby**
10.01 Sensor Control Corporation 1986 Incentive Stock Option Plan
and 1986 Non-statutory Stock Option Plan, as amended(2)
10.02 Indemnity Agreement(1)
10.03 SafetyTek 1994 Stock Option Plan(3)
10.04 Share purchase agreement dated as of January 5, 1990 by and
between Data-Design Laboratories and Sensor Control
Corporation(4)
10.05 Stock purchase agreement dated January 14, 1991 between G.C.
Industries Inc. and Sensor Control Corporation(5)
10.06 Asset purchase agreement dated June 21, 1991 by and between
Electronic Safety Products Inc. and Sensor Control
Corporation(6)
10.07 Stock purchase agreement dated December 31, 1992 by and
between Invivo Research Inc. and SafetyTek Corporation(7)
10.08 Real Estate Unconditional Guaranty dated January 21, 1993 by
and between First Union National Bank of Florida and
SafetyTek Corporation(8)
10.09 First Amendment to Stock Purchase Agreement dated July 1,
1993 and related Stock Pledge Agreement dated July 1, 1993
by and between Invivo Research Inc. and SafetyTek
Corporation(9)
10.10 Lease between Lincoln-Whitehall Realty LLC and SafetyTek
Corporation for the 5696 Stewart Ave. Fremont, CA
facility(10)
10.11 Construction Loan Agreement between Invivo Research and
First Union Bank dated July 31, 1996(11)
10.12 Credit Agreement between Wells Fargo Bank and Invivo Corp.
dated October 6, 1998(12)
10.13 First Amendment to Credit Agreement between Invivo Corp. and
Wells Fargo Bank dated November 1, 1998(12)
10.14 Stock Option Agreement with Walden Management Corporation
Pension Fund for the Benefit of George S. Sarlo***/****
11.01 Statement regarding computation of per share earnings****
</TABLE>
II-2
<PAGE> 69
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
23.01 Consent of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation (included in Exhibit 5.1)**
23.02 Consent of KPMG LLP**
24.01 Powers of Attorney (included on signature page)****
</TABLE>
- ---------------
** Filed herewith.
*** Compensatory plan or management contract.
**** Previously filed.
(1) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 28, 1990. (File No. 0-15963)
(2) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 28, 1991. (File No. 0-15963)
(3) Incorporated by reference to corresponding Exhibit included with
Registrant's Form S-8 filed January 27, 1995. (File No. 33-88798)
(4) Incorporated by reference to corresponding Exhibit included with
Registrant's Registration Statement on Form S-1 filed on December 23, 1991.
(File No. 33-44623)
(5) Incorporated by reference to corresponding Exhibit included with
Registrant's Amended Registration Statement on Form S-1 filed on February
5, 1992. (File No. 33-44623)
(6) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed March 13, 1992. (File No. 0-15963)
(7) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 14, 1993. (File No. 0-15963)
(8) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 24, 1993. (File No. 0-15963)
(9) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 1, 1993. (File No. 0-15963)
(10) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed May 15, 1996. (File No. 0-15963)
(11) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 27, 1996. (File No. 0-15963)
(12) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 12, 1998. (File No. 0-15963)
II-3
<PAGE> 70
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 9th day of March, 1999.
INVIVO CORPORATION
By: *
-----------------------------------
James B. Hawkins
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board March 9, 1999
- ------------------------------------------
Ernest C. Goggio
* President, Chief Executive March 9, 1999
- ------------------------------------------ Officer and Director
James B. Hawkins (Principal Executive
Officer)
/s/ JOHN F. GLENN Chief Financial Officer March 9, 1999
- ------------------------------------------ (Principal Financial and
John F. Glenn Accounting Officer)
* Director March 9, 1999
- ------------------------------------------
George S. Sarlo
* Director March 9, 1999
- ------------------------------------------
Laureen DeBuono
* Director March 9, 1999
- ------------------------------------------
Roger Susi
</TABLE>
*By: /s/ JOHN F. GLENN
------------------------------
John F. Glenn,
Attorney-in-Fact
II-5
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------ ----------------------- ------------
<C> <S> <C>
1.01 Form of Underwriting Agreement**....................
3.01 Restated Certificate of Incorporation of the
Registrant**........................................
3.02 Restated By-Laws of the Registrant(1)...............
4.01 Form of Common Stock Certificate(1).................
5.01 Opinion of Howard, Rice, Nemerovski, Canady, Falk &
Rabkin, A Professional Corporation, as to the
validity of the issues of the shares registered
hereby**............................................
10.01 Sensor Control Corporation 1986 Incentive Stock
Option Plan and 1986 Non-statutory Stock Option
Plan, as amended(2).................................
10.02 Indemnity Agreement(1)..............................
10.03 SafetyTek 1994 Stock Option Plan(3).................
10.04 Share purchase agreement dated as of January 5, 1990
by and between Data-Design Laboratories and Sensor
Control Corporation(4)..............................
10.05 Stock purchase agreement dated January 14, 1991
between G.C. Industries Inc. and Sensor Control
Corporation(5)......................................
10.06 Asset purchase agreement dated June 21, 1991 by and
between Electronic Safety Products Inc. and Sensor
Control Corporation(6)..............................
10.07 Stock purchase agreement dated December 31, 1992 by
and between Invivo Research Inc. and SafetyTek
Corporation(7)......................................
10.08 Real Estate Unconditional Guaranty dated January 21,
1993 by and between First Union National Bank of
Florida and SafetyTek Corporation(8)................
10.09 First Amendment to Stock Purchase Agreement dated
July 1, 1993 and related Stock Pledge Agreement
dated July 1, 1993 by and between Invivo Research
Inc. and SafetyTek Corporation(9)...................
10.10 Lease between Lincoln-Whitehall Realty LLC and
SafetyTek Corporation for the 5696 Stewart Ave.
Fremont, CA facility(10)............................
10.11 Construction Loan Agreement between Invivo Research
and First Union Bank dated July 31, 1996(11)........
10.12 Credit Agreement between Wells Fargo Bank and Invivo
Corp. dated October 6, 1998(12).....................
10.13 First Amendment to Credit Agreement between Invivo
Corp. and Wells Fargo Bank dated November 1,
1998(12)............................................
10.14 Stock Option Agreement with Walden Management
Corporation Pension Fund for the Benefit of George
S. Sarlo***/****....................................
11.01 Statement regarding computation of per share
earnings****........................................
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------ ----------------------- ------------
<C> <S> <C>
23.01 Consent of Howard, Rice, Nemerovski, Canady, Falk &
Rabkin, A Professional Corporation (included in
Exhibit 5.1)**......................................
23.02 Consent of KPMG LLP**...............................
24.01 Powers of Attorney (included on signature
page)****...........................................
</TABLE>
- ---------------
** Filed herewith.
*** Compensatory plan or management contract.
**** Previously filed.
(1) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 28, 1990. (File No. 0-15963)
(2) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 28, 1991. (File No. 0-15963)
(3) Incorporated by reference to corresponding Exhibit included with
Registrant's Form S-8 filed January 27, 1995. (File No. 33-88798)
(4) Incorporated by reference to corresponding Exhibit included with
Registrant's Registration Statement on Form S-1 filed on December 23, 1991.
(File No. 33-44623)
(5) Incorporated by reference to corresponding Exhibit included with
Registrant's Amended Registration Statement on Form S-1 filed on February
5, 1992. (File No. 33-44623)
(6) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed March 13, 1992. (File No. 0-15963)
(7) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 14, 1993. (File No. 0-15963)
(8) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 24, 1993. (File No. 0-15963)
(9) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 1, 1993. (File No. 0-15963)
(10) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed May 15, 1996. (File No. 0-15963)
(11) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 27, 1996. (File No. 0-15963)
(12) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 12, 1998. (File No. 0-15963)
<PAGE> 1
EXHIBIT 1.01
960,000 SHARES(1)
INVIVO CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
March ____, 1999
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
24 Corporate Plaza
Newport Beach, California 92660
Ladies and Gentlemen:
Invivo Corporation, a Delaware corporation (the "Company"), addresses
you as the Representative of each of the persons, firms and corporations listed
in Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell 860,000
shares of its authorized and unissued Common Stock, $0.01 par value per share
(the "Company Shares"), to the several Underwriters. The Pillar Charitable
Remainder Unitrust ("Pillar") proposes to sell to the several Underwriters
100,000 shares of the Company's Common Stock, $0.01 par value per share
(collectively with the Company Shares, the "Firm Shares"), which are
beneficially owned by Pillar. The Company and James B. Hawkins ("Hawkins" and
collectively with Pillar, the "Selling Securityholders," and individually, each
a "Selling Securityholder"), also propose to grant to the Underwriters an option
to purchase up to 144,000 additional shares of the Company's Common Stock, $0.01
par value per share (the "Option Shares"), of which the Company proposes to sell
94,000 of such Option Shares and Hawkins proposes to sell 50,000 of such Option
Shares, as further provided in Section 8 hereof. As used in this Agreement, the
term "Shares" shall include the Firm Shares and the Option Shares. All shares of
Common Stock, $0.01 par value per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby, including the Shares, are
hereinafter referred to as "Common Stock."
- ----------
(1) Plus an option to purchase up to 144,000 additional shares to cover
overallotments from the Company and James B. Hawkins.
<PAGE> 2
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to, and agrees with, each Underwriter that:
(a) A registration statement on Form S-2 (File No. 333-72071)
with respect to the Shares, including a prospectus, has been prepared and filed
by the Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the applicable rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such prospectuses and abbreviated
registration statements pursuant to Rule 462(b) of the Rules and Regulations (a
"462 Registration Statement") as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses and such 462 Registration Statements as may hereafter be required.
Copies of such registration statement and amendments together with each exhibit
filed therewith, of each related prospectus contained or filed as part of any
pre-effective amendment to such registration statement or filed pursuant to Rule
424(a) (the "Preliminary Prospectuses") and of any 462 Registration Statement
have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if the Representative, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations
pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if the
Representative, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement" as
used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits (including exhibits incorporated by
reference), in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto or the filing of any 462 Registration Statement after the effective date
of such registration statement, shall also mean (from and after the
effectiveness of such amendment or the filing of any 462 Registration Statement)
such registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); provided, however, that if in
-2-
<PAGE> 3
reliance on Rule 434 of the Rules and Regulations and with the consent of the
Representative, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as
applicable, prior to the time that a confirmation is sent or given for purposes
of Section 2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus
subject to completion" (as defined in Rule 434(g) of the Rules and Regulations)
last provided to the Underwriters by the Company and circulated by the
Underwriters to all prospective purchasers of the Shares (including the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus referred to in the immediately preceding
sentence (whether or not such revised prospectus is required to be filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use. If in reliance on Rule 434
of the Rules and Regulations and with the consent of the Representative, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the Prospectus and the term sheet, together, will not be
materially different from the prospectus in the Registration Statement. Any
reference to the Registration Statement or the Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein pursuant to
Item 12 of Form S-2 under the Act, as of the date of the Registration Statement
or the Prospectus, as the case may be, and any reference to any amendment or
supplement to the Registration Statement or the Prospectus shall be deemed to
refer to and include any documents filed after such date under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which, upon filing, are
incorporated by reference therein. As used in this Agreement, the term
"Incorporated Documents" means the documents which at the time are incorporated
by reference in the Registration Statement, the Prospectus or any amendment or
supplement thereto.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to
-3-
<PAGE> 4
information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter specifically for use in the preparation thereof.
The information set forth on the inside front cover page of the Prospectus
(insofar as such information relates to the Underwriters) concerning
stabilization, over-allotment and passive market making by the Underwriters ,
and under the first, third, sixth and ninth paragraphs under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus constitutes
the only information furnished by the Underwriters to the Company for inclusion
in any Preliminary Prospectus, the Prospectus or the Registration Statement.
(c) If the Company has elected to rely on Rule 462(b) and the
462 Registration Statement has not been declared effective (i) the Company has
filed a 462 Registration Statement in compliance with, and that is effective
upon filing pursuant to, Rule 462(b) and has received confirmation of its
receipt and (ii) (a) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
462 Registration Statement, in compliance with Rule 111 promulgated under the
Act or (b) the Commission has received payment of such filing fee.
(d) Each of the Company and its direct and indirect subsidiaries
(hereinafter, the "Subsidiaries") is duly incorporated and validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or to be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its Subsidiaries, taken as a whole
(hereinafter, a "Material Adverse Effect"); no proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification; each of the Company
and the Subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities that are material to the conduct of its
business, all of which are valid and in full force and effect. Neither Company
nor any of its Subsidiaries is in violation of their respective charter or
bylaws and no event has occurred which, with notice or lapse of time or both,
would constitute a breach or violation of any of the terms and provisions of, or
constitute a default under, any obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness, or in
any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which either the Company or any of
its Subsidiaries is a party or by which their properties may be bound. Neither
the Company nor any of its Subsidiaries is in violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, administrative
agency, regulatory body, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or their
respective properties except where such violation would not have a Material
Adverse Effect.
(e) Each of the Company and its Subsidiaries has full legal
right, power and authority to enter into this Agreement and perform the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and is a valid and
-4-
<PAGE> 5
binding agreement on the part of the Company, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and
rules of law governing specific performance, estoppel, waiver, injunctive
relief, and other equitable remedies (regardless of whether enforcement is
sought in a proceeding at law or in equity). The making, execution and
performance of this Agreement by the Company and the consummation of the
transactions herein contemplated will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any Subsidiary
is a party or by which their respective properties may be bound, (ii) the
charter or bylaws of the Company or any Subsidiary or (iii) any law, order,
rule, regulation, writ, injunction, judgment or decree of any court,
administrative agency, regulatory body, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any
Subsidiary or their respective properties. No consent, approval, authorization
or order of or qualification with any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any
Subsidiary or their respective properties is required for the execution and
delivery of this Agreement and the consummation by the Company of the
transactions herein contemplated, except such as may be required under the Act,
all of which requirements have been satisfied in all material respects, by the
National Association of Securities Dealers, Inc. (the "NASD"), or under or state
or other securities laws or Blue Sky laws.
(f) There is not pending or, to the Company's knowledge,
threatened, any action, suit, claim or proceeding against either the Company or
any of its Subsidiaries, any of Company's or any of its Subsidiaries' officers,
any of their respective properties, assets or rights before any court,
administrative agency, regulatory body, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of its
Subsidiaries or their respective officers or properties, or otherwise which (i)
except as set forth in the Registration Statement, might individually or in the
aggregate, result in any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its Subsidiaries, taken as a whole (a "Material Adverse Change"), or (ii)
might prevent consummation of the transactions contemplated hereby, or (iii) is
required to be disclosed in the Registration Statement or Prospectus and is not
so disclosed. For purposes of this Agreement, the phrases "to the Company's
knowledge" or "to the knowledge of the Company" shall mean the knowledge of the
senior management personnel of each of the Company and its Subsidiaries. There
are no agreements, contracts, leases or documents of the Company or any
Subsidiary of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement. Neither the
Company nor any Subsidiary is a party or subject to the provisions of any
injunction, judgment, decree or order of any court, administrative agency,
regulatory body, government or governmental agency or body domestic or foreign,
that could be expected to result in a Material Adverse Change. Each of the
Company and its Subsidiaries has conducted and is conducting its business in
compliance with all applicable federal, state, local and foreign statutes, laws,
rules, regulations, ordinances, codes, decisions, decrees, directives and
orders,
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<PAGE> 6
except where the failure to do so would not, singly or in the aggregate, have a
Material Adverse Effect.
(g) All outstanding shares of capital stock of each of the
Company and its Subsidiaries have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities.
The Company has an authorized, issued and outstanding capitalization as set
forth in the Prospectus under the caption "Capitalization." The capital stock of
the Company conforms to the description thereof contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the instruments defining the capitalization of the Company). The Shares to be
issued and sold by the Company hereunder have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement, and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. No preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Shares or the issuance and sale
thereof other than those that have been satisfied or expressly waived prior to
the date hereof and those that will automatically expire upon and will not apply
to the consummation of the transactions contemplated on or before the Closing
Date. No further approval or authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act or under state or
other securities or Blue Sky laws. Except as disclosed in the Registration
Statement, Prospectus and the financial statements of the Company, and the
related notes thereto included in the Prospectus, the Company has no outstanding
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Incorporated Documents fairly and accurately presents the information required
to be shown with respect to such plans, arrangements, options and rights. All
outstanding options of the Company have been duly authorized and issued in
compliance with the option plan pursuant to which such options were granted and
with all federal and state securities laws and the Delaware General Corporation
Law.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been (i)
any Material Adverse Change, (ii) any transaction that is material to either the
Company or any of its Subsidiaries, (iii) any obligation, direct or contingent,
incurred by either the Company or any of its Subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of either the Company or any of its
Subsidiaries, (v) any dividend or distribution of any kind declared, paid or
made on the capital stock of either the Company or any of its Subsidiaries, (vi)
any default in the payment of principal of or interest on any outstanding debt
obligations, or (vii) any loss or damage (whether or not insured) to the
property of either the Company or any of its Subsidiaries which has been
sustained or will have been sustained which has a Material Adverse Effect.
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<PAGE> 7
(i) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its Subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a Material Adverse Effect, (ii) the agreements to which either the Company
or any of its Subsidiaries is a party described in, or filed as exhibits to, the
Registration Statement and Prospectus are valid agreements, enforceable by the
Company or its Subsidiaries, as the case may be, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and rules of law governing specific
performance, estoppel, waiver, injunctive relief and other equitable remedies
(regardless of whether enforcement is sought in a proceeding at law or in
equity) and, to the Company's knowledge, the other contracting party or parties
thereto are not in breach or default under any of such agreements, and (iii)
either the Company or its Subsidiaries has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles and rules of law
governing specific performance, estoppel, waiver, injunctive relief and other
equitable remedies (regardless of whether enforcement is sought in a proceeding
at law or in equity). Except as set forth in the Registration Statement and
Prospectus, the Company and its Subsidiaries own or lease all such properties as
are necessary to its operations as now conducted or as proposed to be conducted.
(j) KPMG LLP ("KPMG"), Independent Auditors, which has examined
the consolidated financial statements of the Company, together with the related
schedules and notes, as of June 30, 1998, 1997, and 1996, and for the years
ended June 30, 1998, 1997 and 1996, filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations. The
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, forming part of the Registration Statement and Prospectus, fairly
present the consolidated financial position and the results of operations of the
Company and its Subsidiaries at the respective dates and for the respective
periods to which they apply; and all audited consolidated financial statements
of the Company, together with the related schedules and notes, and the unaudited
consolidated financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary consolidated
financial and statistical data included in the Registration Statement fairly
present the information shown therein and have been compiled on a basis
consistent with the audited consolidated financial statements presented therein.
No other financial statements or schedules are required to be included in the
Registration Statement.
(k) Each of the Company and its Subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded
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<PAGE> 8
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(l) There are no issues related to the Company's, or any of its
Subsidiaries', preparedness for the Year 2000 that (i) are of a character
required to be described or referred to in the Registration Statement or
Prospectus or by the Act or the Rules and Regulations or by the Exchange Act or
the rules and regulations of the Commission thereunder which have not been
accurately described in the Registration Statement or Prospectus or (ii) might
reasonably be expected to result in any Material Adverse Change or have a
Material Adverse Effect. Except as set forth in the Registration Statement, all
internal computer systems and each Constituent Component (as defined below) of
those systems and all computer-related products and each Constituent Component
(as defined below) of those products of the Company and each of its Subsidiaries
fully comply with the Year 2000 Qualification Requirements. "Year 2000
Qualification Requirements" means that the internal computer systems and each
Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company and each of its Subsidiaries (i) have been
reviewed to confirm that they store, process (including sorting and performing
mathematical operations, calculations and computations), input and output data
containing date and information correctly regardless of whether the date
contains dates and times before, on or after January 1, 2000, (ii) have been
designated to ensure date and time entry recognition, calculations that
accommodate same-century and multi-century formulas and date values, leap year
recognition and calculations, and date-data interface values that reflect the
century, (iii) accurately manage and manipulate data involving dates and times,
including single-century formulas and multi-century formulas, and will not cause
an abnormal ending scenario within the application or generate incorrect values
or invalid results involving such dates, (iv) accurately process any date
rollover, and (v) accept and respond to two-digit year date input in a manner
that resolves any ambiguities as to the century. "Constituent Component" means
all software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration.
(m) Each of the Company and its Subsidiaries has timely filed
all necessary federal, state, local and foreign income and franchise tax returns
and has paid all taxes shown thereon as due, and there is no tax deficiency that
has been or, might be asserted against the Company or any of its Subsidiaries
that might have a Material Adverse Effect. All tax liabilities are adequately
provided for on the books of each of the Company and its Subsidiaries.
(n) Each of the Company and its Subsidiaries maintains insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed prudent for its business and consistent with insurance
coverage maintained by similar companies in similar businesses or as otherwise
required by any agreement to which either the Company or a Subsidiary is a
party, including, but not limited to, insurance covering real and personal
property owned or leased by the Company or its Subsidiaries against theft,
damage, destruction, acts of vandalism, products liability, errors and
omissions, and all other risks customarily insured against, all of which
insurance is in full force and effect. Neither the Company nor any Subsidiary
has been refused any insurance coverage sought or applied for; and the Company
does not have any reason to believe that it will not be able to renew its or any
Subsidiary's existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect.
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<PAGE> 9
(o) The conditions for use of Form S-2, as set forth in the
General Instructions thereto, have been satisfied.
(p) No labor disturbance by the employees of the Company or any
of its Subsidiaries exists or, to the Company's knowledge, is imminent. The
Company is not aware of any existing or imminent work stoppage or labor strike
by the employees of any of the Company's or any of its Subsidiaries' principal
suppliers, subcontractors, distributors (domestic or foreign) that might be
expected to result in a Material Adverse Change or to have a Material Adverse
Effect. No collective bargaining agreement exists with any of the Company's or
any of its Subsidiaries' employees and, to the Company's knowledge, no such
agreement is imminent.
(q) If any full-time employee identified in the Prospectus has
entered into any non-competition, non-disclosure, confidentiality or other
similar agreement with any party other than the Company or its Subsidiaries,
such employee is neither in violation thereof nor is expected to be in violation
thereof as a result of the business conducted or expected to be conducted by the
Company or its Subsidiaries as described in the Prospectus or such person's
performance of his or her obligations to the Company or any Subsidiary. To the
Company's knowledge, no consultant or scientific advisor of the Company or any
Subsidiary (individually, a "Consultant" and collectively "Consultants") is in
violation of any non-competition, non-disclosure, confidentiality or similar
agreement between such Consultant and any party other than the Company or a
Subsidiary. Each Consultant engaged by or on behalf of the Company or any of its
Subsidiaries to render services for the Company or any of its Subsidiaries has
entered into an agreement with the Company or such Subsidiary, as the case may
be, providing for terms and conditions of non-competition, non-disclosure and
confidentiality in connection with such services ("Consulting Agreements"),
except where the failure to enter into such agreements does not or would not
have a Material Adverse Effect. Assuming due authorization, execution and
delivery of the Consulting Agreements by each Consultant, the Consulting
Agreements are the legal, valid, binding and enforceable instruments of the
Consultants, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting rights generally or by general equitable principles and rules of law
governing specific performance estoppel, waiver, injunctive relief, and other
equitable remedies (regardless of whether enforcement is sought in a proceeding
at law or in equity).
(r) The Common Stock is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
approved for quotation on the Nasdaq National Market ("Nasdaq"). The Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from Nasdaq, nor has the Company received any notification that the
Commission or Nasdaq is contemplating terminating such registration or
quotation.
(s) (i) Each of the Company and its Subsidiaries owns or
possesses sufficient rights to use all patents, patent rights, patent licenses,
inventions, trade secrets, trademarks, service marks, trade names, copyrights,
service names, mask works, technology, know-how and other proprietary
intellectual rights which are necessary to conduct its business as now conducted
and as described in the Registration Statement and Prospectus. Each of the
patents owned by the Company or its Subsidiaries (for purposes of this paragraph
(s), the "Patents") and each of the patent applications owned by the Company or
its Subsidiaries (for purposes of this paragraph (s), the "U.S.
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<PAGE> 10
Applications") were properly executed by the named inventor of such Patent or
U.S. Application. All pertinent prior art references known to the Company or its
Subsidiaries or its patent counsel during the prosecution of the Patents or U.S.
Applications were disclosed to the PTO and, neither the Company, its
Subsidiaries nor its patent counsel at such time made any representation to, or
concealed any relevant prior art from the PTO during such prosecution.
(ii) There are no asserted or, to the Company's
knowledge, unasserted or threatened claims of any persons relating to the scope
or ownership of the Patents or the U.S. Applications; there are no liens which
have been filed against any of the Patents or the U.S. Applications; there are
no material defects of form in the preparation or filing of the Patents or the
U.S. Applications; none of the U.S. Applications have been finally rejected or
abandoned. Nothing has come to Company's or any Subsidiary's attention that
leads the Company to believe that the pending U.S. Applications will not
eventually result in issued patents, or that any patents issued in respect
thereto will not be valid or will not afford the Company or its Subsidiaries, as
the case may be, any reasonable patent protection relative to the subject matter
thereof.
(iii) Neither the Company nor any of its Subsidiaries
has received any notice of, nor has it any knowledge of, any infringement of or
conflict with asserted rights of either the Company or any of its Subsidiaries
by others with respect to any patents, patent rights, inventions, trade secrets,
trademarks, service marks, trade names, copyrights, mask works, technology or
know-how. Neither the Company nor any of it Subsidiaries has received any notice
of, nor has it any knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a Material Adverse Effect. Except as set forth in the
Registration Statement, there are no actual or, to the Company's knowledge,
threatened legal, governmental or other third party action, suit, claim or
proceeding (including those relating to infringement) relating to patents or
patent rights owned by or affecting the business operations of the Company or
any of its Subsidiaries which are pending or threatened against the Company or
any of its Subsidiaries and which action, suit, claim or proceeding would, with
respect to any of the foregoing, have a Material Adverse Effect.
(iv) The information contained in the Registration
Statement and Prospectus concerning the Patents or patents licensed to the
Company or its Subsidiaries is accurate in all material respects. To the
Company's knowledge, there are no facts or circumstances which would require the
Company to obtain licenses under third party patents which are necessary to
allow the Company to conduct the business now being conducted or proposed to be
conducted by the Company as described in the Prospectus.
(t) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it is not
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<PAGE> 11
and will not become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
(u) Each of the Company and its Subsidiaries is conducting
business in compliance with all applicable statutes, rules, regulations and
orders administered or issued by any domestic or foreign administrative agency,
regulatory body, government or governmental agency in the jurisdictions in which
each is conducting business except where such noncompliance would not result in
a Material Adverse Effect. Without limiting the foregoing, each of the Company
and its Subsidiaries is in compliance with the provisions of the Federal Food,
Drug, and Cosmetic Act ("FDC Act") relating to medical devices except where such
noncompliance would not result in a Material Adverse Effect. Each device that
the Company and its Subsidiaries manufacture, cause to be manufactured and
distribute or cause to be distributed (the "Company Devices") is the subject of
a 510(k) premarket notification which resulted in a finding of substantial
equivalence by U.S. Food and Drug Administration ("FDA") or the Company believes
such device qualifies for exemption from 510(k) premarket notification
requirements. None of the Company Devices found substantially equivalent by the
FDA have been modified in such a manner as to require the submission of a new
510(k) premarket notification. None of the Company Devices have been labeled or
promoted in such a manner as to require the submission of a new 510(k)
notification. All the Company Devices are listed with the FDA and have been
manufactured in a facility registered by the Company with FDA. All the Company
Devices are manufactured in accordance with the Quality Systems Regulations and
current Good Manufacturing Practices Regulations, 21 C.F.R. Part 820, except
where such failure to be so manufactured in accordance would not have a Material
Adverse Effect. Either the Company or one of its Subsidiaries has submitted all
reports necessary to be submitted in accordance with the Medical Device
Reporting regulations, 21 C.F.R. Part 803. The Company has labeled and promoted
the Company Devices in accordance with the provisions of the FDC Act and FDA's
implementing regulations. The Company Devices are not misbranded, adulterated or
otherwise in violation of the FDC Act or FDA's regulations, or any foreign
regulatory law, regulation, order or rule governing the Company's or any of its
Subsidiaries' current business except where such misbranding, adulteration or
other violation would not have a Material Adverse Effect.
(v) Each of the Subsidiaries to which ISO 9000 or 9001
certification standards apply is in compliance with such ISO 9000 or 9001
certification standards and all CE mark certification requirements. Each of the
Company and its Subsidiaries has submitted all reports and other documentation
necessary to be submitted in accordance with all foreign regulatory orders, laws
and regulations in jurisdictions in which the Company or such Subsidiary is
conducting business except where such failure would not have a Material Adverse
Effect. Neither the Company nor any such Subsidiaries has received notification
of violation of any applicable statute, rule, regulation or order administered
or issued by any foreign administrative agency, regulatory body, government or
governmental agency in foreign jurisdictions in which it is conducting business.
(w) There are no actions, suits, or proceedings pending or, to
the knowledge of the Company, threatened by the FDA against the Company or any
of its Subsidiaries seeking limitations, suspension or revocation of any
license, permit, approval or authorization required by the Company or any of its
Subsidiaries to conduct its business as described in the Registration Statement
and the Prospectus. Except as set forth in the Prospectus, to the Company's
knowledge, there are no-rule-making or similar proceedings before the FDA or
comparable federal, state, local or foreign government bodies which involve or
affect the Company or any of its Subsidiaries which, if the
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<PAGE> 12
subject of an action unfavorable to the Company or any of its Subsidiaries,
would have a Material Adverse Effect.
(x) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its Subsidiaries is in compliance with
all laws, orders, rules and regulations relating to the use, treatment, storage
and disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to their respective businesses
except where failure to do so would not have a Material Adverse Effect, (ii)
neither the Company nor any of its Subsidiaries has received notice from any
administrative agency, regulatory body, government, governmental authority or
third party of an asserted claim under Environmental Laws, (iii) neither the
Company nor any of its Subsidiaries will be required to make material capital
expenditures to comply or cause its Subsidiaries to comply with Environmental
Laws in the foreseeable future and (iv) no property which is, or has been,
owned, leased or occupied by the Company or any of its Subsidiaries has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended, or otherwise designated as
a contaminated site under applicable state or local law.
(y) Each employee benefit plan, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is maintained, administered or contributed to by the Company or
any of its Subsidiaries for employees or former employees of the Company or any
of its Subsidiaries has been maintained in compliance with its respective terms
and the requirements of any applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Internal Revenue Code of 1986, as
amended (the "Code"). Each employee benefit plan intended to be qualified under
Section 401(a) of the Code has either obtained from the Internal Revenue Service
("IRS") a favorable determination letter as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has applied to the IRS for such a
determination letter prior to the requisite period under applicable Treasury
Regulations or IRS pronouncements in which to apply for a determination letter
and to make any amendments necessary to obtain a favorable determination. No
prohibited transaction, within the meaning of Section 406 of ERISA or Section
4975 of the Code, has occurred with respect to any such plan, excluding
transactions effected pursuant to a statutory or administrative exemption. For
each such plan which is subject to the funding rules of Section 412 of the Code
or Section 302 of ERISA, no "accumulated funding deficiency", as defined in
Section 412 of the Code, has been incurred, whether or not waived, and the fair
market value of the assets of each such plan (excluding for these purposes
accrued but unpaid contributions) exceeded the present value of all benefits
accrued under such plan determined using reasonable actuarial assumptions.
Neither the Company nor any of its Subsidiaries has been a party to or made
contributions to or otherwise incurred any obligation under any employee benefit
plan that was subject to Title IV of ERISA or Section 412 of the Code, and any
"multi-employer plan" as defined in Section 3(37) of ERISA.
With respect to each employee benefit plan, the Company and each
Subsidiary has complied with (i) the applicable health care continuation and
notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") and the proposed regulations thereunder, (ii) the applicable
requirements of the Family and Medical Leave Act of 1993 and the regulations
thereunder, and (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996 and the temporary regulations
thereunder. Neither the Company nor any
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<PAGE> 13
Subsidiary has any material obligations under COBRA with respect to any former
employees or qualifying beneficiaries thereunder. Neither the Company nor any of
its Subsidiaries are parties to a retiree medical plan.
(z) The Company has not distributed, and will not distribute
prior to the later of (i) the Closing Date or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(aa) Neither the Company nor any of its Subsidiaries has at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(bb) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(cc) Except as otherwise set forth in the Registration Statement
and the Prospectus, each person listed on Schedule B attached hereto has agreed
in writing that such person will not, except as described below, for a period of
75 days from the date of the final Prospectus (the "Lock-Up Period"), sell,
offer to sell, solicit an offer to buy, contract to sell, loan, pledge, grant
any option to purchase, or otherwise transfer or dispose of (collectively, a
"Disposition"), any shares of Common Stock, or any securities convertible into
or exercisable or exchangeable for Common Stock (collectively, "Securities"),
now owned or hereafter acquired by such person or with respect to which such
person has or hereafter acquires the power of disposition otherwise than (i) on
the transfer of shares of Common Stock or Securities during such person's
lifetime by bona fide gift or upon death by will or intestacy, provided that any
transferee agrees to be bound by the Lock-Up Agreement, and (ii) on the transfer
or other disposition of shares of Common Stock or Securities as a distribution
to limited partners or stockholders of such person, provided that the
distributees thereof agree to be bound by the terms of the Lock-Up Agreement.
The foregoing restriction has been expressly agreed to preclude the holder of
the Securities from engaging in any hedging, pledge or other transaction which
is designed to or may reasonably be expected to lead to or result in a
disposition of securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such stockholder. Such prohibited
hedging, pledge or other transactions would include, without limitation, any
short sale (whether or not against the box) any pledge of shares covering an
obligation that matures, or could reasonably mature during the Lock-Up Period,
or any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person has also agreed and consented to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the Securities held by such person except in compliance with the restrictions
described in this subsection (cc). The Company has provided to
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<PAGE> 14
counsel for the Underwriters ("Underwriters' Counsel") a complete and accurate
list of all securityholders of the Company as of December 31, 1998 and the
number and type of securities held by each securityholder. The Company has
provided to Underwriters' Counsel true, accurate and complete copies of all of
the agreements pursuant to which its officers, directors and stockholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Cruttenden Roth Incorporated.
(dd) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any stockholder who owns beneficially more than five
percent (5%) of the Common Stock or any of the members of the families of any of
them, except as disclosed in the Registration Statement and the Prospectus.
(ee) Other than the Representative, on behalf of the several
Underwriters, no person is or will be owed any finder's fee or commission or
similar payment in connection with the transactions contemplated by this
Agreement.
(ff) All offers and sales of capital stock of the Company prior
to the date hereof were at all relevant times duly registered or exempt from the
registration requirements of the Act and were duly registered or subject to an
available exemption from the registration requirements of the applicable state
securities or Blue Sky laws. There are no persons with registration or other
similar rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the Act, other than those
which have been waived or complied with.
(gg) No relationship, direct or indirect, exists between or
among the Company on the one hand and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, that is required by the
Act or the 1934 Act or the Rules and Regulations to be described in the
Registration Statement and the Prospectus that is not described as so required.
(hh) The Preliminary Prospectuses and Prospectus delivered to
the Underwriters for use in connection with this offering were identical to the
versions of the Preliminary Prospectuses and Prospectuses created to be
transmitted to the Commission for filing via Electronic Data Gathering Analysis
and Retrieval System ("EDGAR"), except to the extent permitted by Regulation
S-T.
(ii) The Incorporated Documents, at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission under the Exchange Act, and, when read together
with the other information in the Prospectus, at the time the Registration
Statement and any amendments thereto become effective and at the Closing Date
and the Option Closing Date, if any, will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
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(jj) The Company has complied with all provisions of Section
517.075, Florida Statutes, relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
3. REPRESENTATIONS AND WARRANTIES OF SELLING SECURITYHOLDERS. Each
Selling Securityholder represents and warrants to, and agrees with, each of the
several Underwriters that:
(a) Such Selling Securityholder has full power to enter into
this Agreement and to sell, assign, transfer and deliver to the Underwriters the
Securities to be sold by such Selling Securityholder hereunder in accordance
with the terms of this Agreement. This Agreement has been duly executed and
delivered by such Selling Securityholder.
(b) Such Selling Securityholder has duly executed and delivered
a custody agreement (with respect to such Selling Securityholder, the "Custody
Agreement"), in the form heretofore delivered to the Representative, appointing
U.S. Stock Transfer Corporation as custodian thereunder (the "Custodian").
Certificates in negotiable form, endorsed in blank or accompanied by blank stock
powers duly executed, with signatures appropriately guaranteed, representing the
Securities to be sold by such Selling Securityholder hereunder have been
deposited with the Custodian pursuant to the Custody Agreement for the purpose
of delivery pursuant to this Agreement. Such Selling Securityholder has full
power (corporate and other) to enter into the Custody Agreement and to perform
its obligations under the Custody Agreement. The Custody Agreement has been duly
executed and delivered by such Selling Securityholder and, assuming due
authorization, execution and delivery by the Custodian, is the legal, valid,
binding and enforceable instrument of such Selling Securityholder. Such Selling
Securityholder agrees that each of the Shares represented by the certificates on
deposit with the Custodian is subject to the interests of the Underwriters
hereunder, and that the obligations of such Selling Securityholder hereunder
shall not be terminated, except as provided in this Agreement or the Custody
Agreement, by any act of such Selling Securityholder, by operation of law or
otherwise, whether in the case of any individual Selling Securityholder by the
death or incapacity of such Selling Securityholder, in the case of a trust or
estate by the death of the trustee or trustees or the executor or executors or
the termination of such trust or estate, or in the case of a corporate or
partnership Selling Securityholder by its liquidation or dissolution or by the
occurrence of any other event. If any individual Selling Securityholder, trustee
or executor should die or become incapacitated or any such trust should be
terminated, or if any corporate or partnership Selling Securityholder shall
liquidate or dissolve, or if any other event should occur, before the delivery
of such Shares hereunder, the certificates for such Shares deposited with the
Custodian shall be delivered by the Custodian in accordance with the respective
terms and conditions of this Agreement as if such death, incapacity,
termination, liquidation or dissolution or other event had not occurred,
regardless of whether the Custodian shall have received notice thereof.
(c) Such Selling Securityholder is the lawful owner of the
Shares to be sold by such Selling Securityholder hereunder and upon sale and
delivery of, and payment for, such Shares,
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<PAGE> 16
as provided herein, such Selling Securityholder will convey good and marketable
title to such Shares, free and clear of any security interests, liens,
encumbrances, equities, claims or other defects.
(d) Such Selling Securityholder has not, directly or indirectly,
(i) taken any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares or (ii) since the filing of the Registration Statement
(A) sold, bid for, purchased, or paid anyone any compensation for soliciting
purchases of, the Shares (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company (except for the sale of Shares by the Selling Securityholders under this
Agreement).
(e) The information contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with information furnished to the Company by
such Selling Securityholder, as such information may be amended or supplemented
as of the Closing Date, does not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading; such Selling Securityholder has reviewed the Prospectus and the
Registration Statement, and although such Selling Securityholder has not
independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of the Selling
Securityholder that would lead such Selling Securityholder to believe that the
Prospectus contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(f) The sale by such Selling Securityholder of Shares pursuant
hereto is not prompted by any adverse information concerning the Company that is
not set forth in the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(g) The sale of the Shares to the Underwriters by such Selling
Securityholder pursuant to this Agreement, the compliance by such Selling
Securityholder with the other provisions of this Agreement, the Custody
Agreement and the consummation of the other transactions herein contemplated do
not (i) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have been
obtained or such as may be required under state securities or Blue Sky laws and,
if the registration statement filed with respect to the Shares (as amended) is
not effective under the Act as of the time of execution hereof, such as may be
required (and shall be obtained as provided in this Agreement) under the Act or
(ii) conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which such Selling
Securityholder is a party or by which such Selling Securityholder or any of such
Selling Securityholder's properties are bound, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental authority
or any arbitrator applicable to such Selling Securityholder.
4. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and Pillar agree to sell to
the Underwriters, and each Underwriter agrees, severally and
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<PAGE> 17
not jointly, to purchase from the Company and Pillar, at a purchase price of
$_____ per share, the respective number of Firm Shares which is set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 11).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 4 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in same-day funds, payable to the order
of the Company and Pillar or by wire transfer in same day funds, at the offices
of Howard, Rice, Nemerovski Canady Falk & Rabkin, 3 Embarcadero Center, 8th
Floor, San Francisco, California (or at such other place as may be agreed upon
between the Representative and the Company), at 7:00 A.M. Pacific daylight
savings time, (a) on the third (3rd) full business day following the first day
that Shares are traded or (b) if this Agreement is executed and delivered after
1:30 P.M. Pacific daylight savings time, the fourth (4th) full business day
following the day that this Agreement is executed and delivered or (c) at such
other time and date not later than seven (7) full business days following the
first day that Shares are traded as the Representative and the Company may
determine (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment and
delivery being herein called the "Closing Date;" provided, however, that if the
Company has not made available to the Representative copies of the Prospectus
within the time provided in Section 5(a)(4) hereof, the Representative may, in
its sole discretion, postpone the Closing Date until no later than two (2) full
business days following delivery of copies of the Prospectus to the
Representative. The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If the Representative so elects, delivery of the Firm Shares may be made
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 13 hereof) of the Firm Shares at a public offering price of $_____ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
5. FURTHER AGREEMENTS OF THE COMPANY AND SELLING SECURITYHOLDERS.
(a) The Company covenants and agrees with each of Underwriters
that:
(1) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible. The
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<PAGE> 18
Company will use its best efforts to cause any 462 Registration Statement as may
be required subsequent to the date the Registration Statement is declared
effective to become effective as promptly as possible. The Company will notify
you, promptly after it shall receive notice thereof, of the time when the
Registration Statement, any subsequent amendment to the Registration Statement
or any 462 Registration Statement has become effective or any supplement to the
Prospectus has been filed. If the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission. If the Company files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the Company will provide evidence satisfactory to you that the
Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as
applicable, of the Rules and Regulations have been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (7) of Rule 424(b) of
the Rules and Regulations. If for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it
will provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed. The Company will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information. Promptly upon your request, the
Company will prepare and file with the Commission any amendments or supplements
to the Registration Statement or Prospectus which, in the opinion of
Underwriters' Counsel, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters. The Company will promptly
prepare and file with the Commission, and promptly notify you of the filing of,
any amendments or supplements to the Registration Statement or Prospectus which
may be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. In case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, the Company will prepare
promptly upon request, but at the expense of such Underwriter, prepare such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act. The Company will file no amendment or supplement to
the Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the provisions of this Agreement.
(2) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
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<PAGE> 19
(3) The Company will arrange for qualification
(including by providing full cooperation with Underwriter's Counsel, whose
services in this matter are required and which you and the Company will seek to
expedite) of the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in effect
for so long as may be required for purposes of the distribution of the Shares,
provided, however, that the Company shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction in which it
is not otherwise required to be so qualified or to so execute a general consent
to service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be required by the laws of such jurisdiction
for such purpose.
(4) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first full business day
following the first day that Shares are traded, copies of each Registration
Statement (two of which will include all exhibits), each Preliminary Prospectus,
the Prospectus and any amendments or supplements to such documents, including
any prospectus prepared to permit compliance with Section 10(a)(3) of the Act,
all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if the Representative, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the Company shall provide to you copies of a Preliminary Prospectus
updated in all respects through the date specified by you in such quantities as
you may from time to time reasonably request.
(5) During a period of five (5) years after the date
hereof, the Company will furnish to its stockholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and, upon
request by a stockholder, unaudited quarterly reports of operations for each of
the first three quarters of the fiscal year, and will furnish to you and the
other several Underwriters hereunder, upon request (i) concurrently with
furnishing such reports to its stockholders, statements of operations of the
Company for each of the first three (3) quarters in the form furnished to the
Company's stockholders, (ii) concurrently with furnishing to its stockholders, a
balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to stockholders,
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange or
the NASD, (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared by the Company, and (vi) any additional information of
a public nature concerning the Company, or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and such subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(6) The Company will apply the net proceeds from the
sale of the Shares being sold by it in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.
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(7) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(8) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith consult with you concerning the substance and relative
advantages of a press release or other public statement responding to or
commenting on such rumor, publication or event.
(9) During the Lock-up Period, the Company will not,
without the prior written consent of the Representative, effect the Disposition
of, directly or indirectly, any Securities other than the sale of the Firm
Shares and the Option Shares hereunder and the Company's issuance of options or
Common Stock under the Company's presently authorized stock option and stock
purchase plans described in the Registration Statement and the Prospectus
following Stockholder Approval.
(10) The Company will not issue shares of Common Stock
or securities convertible into Common Stock of an amount which is greater than
the difference between (X) the total number of shares of Common Stock authorized
pursuant to the Company's Certificate of Incorporation and (Y) the total number
of shares of Common Stock outstanding after the completion of the transactions
contemplated by this Agreement plus the number of Shares of Common Stock
underlying securities convertible into the Common Stock.
(11) The Company will cause the Shares to be included
for quotation on Nasdaq following the Firm Closing Date.
(12) Prior to the Firm Closing Date, the Company will
cause its subsidiary, Invivo Research, Inc. to enter into a proprietary rights
or similar agreement (the "Susi Agreement") with Roger Susi ("Susi") providing
for, among other things, the engagement of certain services, the assignment of
all proprietary rights related to the Company's business and conceived during
the scope of Susi's employment or consultation with the Company. The form of the
Susi Agreement shall be in a form reasonably acceptable to the Representative
and Underwriters' Counsel.
(b) Each of the Selling Securityholders covenants and agrees
with each of the Underwriters that:
(1) Each Selling Securityholder will not, directly or
indirectly, (i) take any action designed to cause or result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or (ii) (A) sell, bid for,
purchase, or pay anyone any compensation for soliciting purchases of, the
Securities or (B) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Securityholders under this Agreement).
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(2) Each Selling Securityholder acknowledges the receipt
of valuable consideration under this Agreement in connection with the sale of
the Securities hereunder and agrees to be bound by all terms of this Agreement
applicable to such Selling Securityholder.
6. EXPENSES.
(a) The Company agrees with each Underwriter that:
(1) The Company will pay and bear all costs and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications and related expenses, not to exceed $10,000); and all
other expenses directly incurred by the Company in connection with the
performance of its obligations hereunder. The provisions of this Section 5(a)(i)
are intended to relieve the Underwriters from the payment of the expenses and
costs which the Company hereby agrees to pay.
(2) In addition to its other obligations under Section
9(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 9(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days after a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 9(b)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 9(b) hereof, they will
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reimburse the Company on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
after a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
6(a)(ii) and 6(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted in accordance with the commercial arbitration rules, then
in effect, of the American Arbitration Association. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections 6(a)(ii)
and 6(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 9(a) and 9(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 9(d) hereof.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company herein, to the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., Pacific time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may have
requested to enable them to pass upon the matters referred to in this Section.
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(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its Subsidiaries, taken as a whole, from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of Howard, Rice, Nemerovsky, Canady, Falk & Rabkin, A
Professional Corporation, counsel for the Company, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(1) Each of the Company and its Subsidiaries has been
duly incorporated and are validly existing as corporations in good standing
under the laws of the jurisdiction of their incorporation with requisite
corporate power and authority to own, lease and operate its properties and to
conduct their respective businesses as described in the Registration Statement
and the Prospectus;
(2) Each of the Company and its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction, if any, in which the ownership or leasing of their respective
properties or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its Subsidiaries, taken as a whole;
(3) The authorized, issued and outstanding capital stock
of the Company conforms as to legal matters to the description thereof contained
in the Prospectus;
(4) The shares of the capital stock of the Company
outstanding prior to the issuance of the Shares or the Option Shares, as the
case may be, have been duly authorized and are validly issued, fully paid and
nonassessable, and have not been issued in violation of the Company's charter or
bylaws, and all sales of the Company's capital stock were at all relevant times
exempt from the registration or qualification requirements of the Act and state
securities laws;
(5) The Firm Shares or the Option Shares, as the case
may be, to be issued and sold by the Company under this Agreement have been duly
authorized and, upon when delivered and paid for by the Underwriters in
accordance with the terms of the Underwriting Agreement, will be validly issued,
fully paid and non-assessable and the issuance of the Shares or the Option
Shares, as the case may be, is not subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar rights under
the Company's charter or bylaws or under any agreement known to such counsel;
and the forms of certificates evidencing the Shares comply with Delaware law;
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<PAGE> 24
(6) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(7) This Agreement has been duly authorized, executed
and delivered by the Company and, assuming due authorization, execution and
delivery by the Representative, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification and
contribution provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights generally
or by general equitable principles;
(8) The Registration Statement has become effective
under the Act and, to our knowledge based solely on the telephonic confirmation
of the staff of the Securities and Exchange Commission on the date immediately
preceding the Closing Date or Option Closing Date, as the case may be, no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or,
threatened under the Act;
(9) The Registration Statement and the Prospectus, and
each amendment or supplement thereto (other than the financial statements
(including supporting schedules), financial data derived therefrom and other
financial and statistical information included therein, as to which such counsel
need express no opinion), comply as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations;
(10) The statements in the Prospectus under the caption
"Description of Capital Stock," and "Shares Eligible For Future Sale" and the
Registration Statement Item 15, to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is a fair summary of
such matters and conclusions;
(11) The description in the Registration Statement and
the Prospectus of the charter and bylaws of the Company and of statutes are
accurate and fairly present the information required to be presented by the Act
and the applicable Rules and Regulations;
(12) To such counsel's knowledge, there are no
agreements, contracts, leases or documents that are required to be described or
referred to in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described therein or filed
as exhibits thereto;
(13) The Company is not, nor with the giving of notice
or lapse of time or both will the Company be, in violation of or in default
under, its Certificate of Incorporation or ByLaws, except for violations and
defaults which individually and in the aggregate are not material to the
Company; the issue and sale of the Shares being delivered on the closing date,
and the performance by the Company of its obligations under the Underwriting
Agreement and the consummation of the transactions contemplated therein in
accordance with the terms thereof does not result in a breach of any of the
terms or provisions of, or constitute a default under, any agreement or
instrument set forth in Exhibit A, nor does any such action result in any
violation of the provisions of the Certificate of Incorporation or the Bylaws of
the Company or any applicable laws
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<PAGE> 25
(as defined in such opinion) or any order, writ or decree of any court or
governmental agency in which the Company is a named party.
(14) No consent, approval, authorization, order,
license, registration or qualification with any court, government or
governmental agency or body is required for the issue and sale of the Shares or
the consummation by the Company of the transactions herein contemplated, except
such consents as have been obtained under the Act and such as may be required
under state securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares or Option Shares, as the case may be, by the
Underwriters;
(15) Other than as set forth or contemplated in the
Registration Statement and Prospectus, to such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the Company or
any of its Subsidiaries that, if determined adversely to the Company, would
individually or in the aggregate have, or reasonably be expected to have, a
Material Adverse Effect;
(16) Each of the Company and its Subsidiaries is not,
and after giving effect to the offering and sale of the Shares will not be, an
"investment company,' or entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended.
(17) The conditions for use of Form S-2, as set forth in
the General Instructions thereto, have been satisfied.
In addition, such counsel shall state that such counsel has acted
as outside corporate legal counsel to the Company and participated in
conferences with officials and other representatives of the Company, the
Representative, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads such counsel to believe that, at the
time the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date and on any later date on which Option
Shares are to be purchased, the Registration Statement and any amendment or
supplement thereto (other than the financial statements including supporting
schedules, other financial information derived therefrom and other financial and
statistical information included therein, as to which such counsel need express
no opinion) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date on
which the Option Shares are to be purchased, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely, as to matters
of fact, to the extent such counsel deems proper, upon certificates of
responsible officers of the Company, and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation
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<PAGE> 26
or certificate. References to the Registration Statement and the
Prospectus in this subsection (d) shall include any amendment or supplement
thereto at the date of such opinion. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representative of the
Underwriters, and to Underwriters' Counsel.
References to the Registration Statement and the Prospectus in
this subsection (d) shall include any amendment or supplement thereto at the
date of such opinion.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
from Hopgood, Calimafde, Kalil & Judlowe, LLP, patent counsel for the Company,
dated the Closing Date or such later date on which Option Shares as the case may
be, are to be purchased and addressed to the Underwriters and with reproduced
copies or signed counterparts thereof for each of the Underwriters:
(A) Each of the patents applications listed in such
opinion (for purposes of this paragraph e, the "Patent Application") have been
properly filed in the United States Patent and Trademark Office (the "PTO").
Each of the foreign applications listed in such opinion (for purposes of this
paragraph (e), the "Foreign Applications") have been properly filed in the
respective appropriate foreign patent office. Each of the National Stage
Applications listed in such opinion (for purposes of this paragraph (e), the
"National Stage Applications") have been properly filed in the respective patent
offices.
(B) The Patents and the U.S. Applications were properly
assigned to the Company by the respective inventors of the Patents and the U.S.
Applications. Except as otherwise stated in such opinion, the Company is listed
in the records of the U.S. Patent and Trademark Office ("PTO") as the sole
assignee of record of each of the Patents and each of the U.S. Applications. The
Company is listed in the records of the appropriate foreign patent offices as
the sole assignee of record of each of the Foreign Applications.
References to the Registration Statement and the Prospectus
in this subsection (e) shall include any amendment or supplement thereto at the
date of such opinion.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Brobeck, Phleger & Harrison LLP, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of Whyte Hirschboeck Dudeck S.C. and Howard, Rice, Nemerovski,
Canady, Falk & Rabkin, A Professional Corporation, counsel for Pillar and
Hawkins, respectively, dated the Closing Date and any later date on which Option
Shares are to be purchased, as the case may be, to the effect that:
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<PAGE> 27
(1) Such Selling Securityholder has full corporate power
to enter into this Agreement, the Custody Agreement and to sell, transfer and
deliver the Securities being sold by such Selling Securityholder hereunder in
the manner provided in this Agreement and to perform its obligations under the
Custody Agreement. The execution and delivery of this Agreement and the Custody
Agreement have been duly authorized by all necessary action (corporate or other)
of each Selling Securityholder. This Agreement and the Custody Agreement have
been duly executed and delivered by each Selling Securityholder. Assuming due
authorization, execution and delivery by the Custodian, the Custody Agreement is
a legal, valid, binding and enforceable instrument of such Selling
Securityholder, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law);
(2) The delivery by such Selling Securityholder to the
several Underwriters of certificates for the Securities being sold hereunder by
such Selling Securityholder against payment therefor as provided herein, will
convey good and marketable title to such Securities to the several Underwriters,
free and clear of all; security interests, liens, encumbrances, equities, claims
or other defects; and
(3) The sale of the Securities to the several
Underwriters by such Selling Securityholder pursuant to this Agreement, the
compliance by such Selling Securityholder with the other provisions of this
Agreement, the Custody Agreement and the consummation of the other transactions
herein contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except such
as have been obtained and such as may be required under state securities or blue
sky laws, or (ii) conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under any indenture, mortgage,
deed of trust, lease or other agreement or instrument to which such Selling
Securityholder is a party or by which such Selling Securityholder or any of such
Selling Securityholder's respective properties are bound, or the charter
documents or by-laws of such Selling Securityholder, if applicable, or any
statute or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to such Selling
Securityholder.
In rendering such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials. Copies of such opinion
shall be delivered to the Representative and Underwriters' Counsel.
References to the Registration Statement and the Prospectus
in this subsection (g) shall include any amendment or supplement thereto at the
date of such opinion.
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter or
letters from KPMG, addressed to the Underwriters, dated the Closing Date or such
later date on which Option Shares are to be purchased, as the case may be (in
each case, the "Bring Down Letter"), confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations and based upon the
procedures described in the letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), dated the
date hereof, or such later date on which Option Shares are to be purchased, as
the
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<PAGE> 28
case may be, (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing Date
or such later date on which Option Shares are to be purchased, as the case may
be, and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter that are necessary to reflect any
changes in the facts described in the Original Letter since its date, or to
reflect the availability of more recent financial statements, data or
information. The Bring Down Letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. The Original
Letter from KPMG shall be addressed to or for the use of the Underwriters in
form and substance satisfactory to the Underwriters and shall (i) represent, to
the extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheets of the Company as of June
30, 1998 and June 30, 1997, respectively, and related consolidated statements of
income and common stockholders' equity (deficit) and cash flows for the years
ended June 30, 1998, June 30, 1997, and June 30, 1996, respectively, (iii) state
that KPMG has performed the procedures set out in Statement on Auditing
Standards No. 71 ("SAS 71") for a review of interim financial information and
providing the report of KPMG as described in SAS 71 on the financial statements
for the periods ended September 30, 1998, and December 31, 1998 (the "Quarterly
Financial Statements"), (iv) state that in the course of such review, nothing
came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, (v) state that nothing came
to their attention that caused them to believe that the financial statements
included in the Registration Statement and Prospectus do not comply as to form
in all material respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X and that any adjustments thereto have not been properly
applied to the historical amounts in the compilation of such statements, and
(vi) address other matters agreed upon by KPMG and you. In addition, you shall
have received from KPMG a letter addressed to the Company and made available to
you for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of June 30, 1998, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(i) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(1) The representations and warranties of the Company in
this Agreement are true and correct in all material respects, as if made on and
as of the Closing Date and such later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
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<PAGE> 29
satisfied at or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
(2) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(3) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations, and in all material respects conformed to
the requirements of the Act and the Rules and Regulations; the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(4) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company or any of
its Subsidiaries, (b) any transaction that is material to the Company or any of
its Subsidiaries, except transactions entered into in the ordinary course of
business, (c) any obligation, direct or contingent, that is material to the
Company or any of its Subsidiaries, incurred by the Company or any of its
Subsidiaries, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock or outstanding indebtedness of the Company
or any of its Subsidiaries that is material to the Company or such Subsidiary or
is out of the ordinary course of business of the Company or such Subsidiary ,
(e) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, or (f) any loss or damage (whether or not insured)
to the property of the Company or any of its Subsidiaries which has been
sustained or will have been sustained which has a Material Adverse Effect.
(j) The Representative shall have received a certificate from
each Selling Securityholder, signed by such Selling Securityholder, dated the
Closing Date and such any later date on which Option Shares are to be purchased,
as the case may be, to the effect that:
(1) The representations and warranties of such Selling
Securityholder in this Agreement are true and correct in all material respects
as if made on and as of the Closing Date, or the date on which Option Shares are
to be purchased, as the case may be;
(2) Such Selling Securityholder has performed all
covenants and agreements on its part to be performed or satisfied at or prior to
the Closing Date, or the date which Option Shares are to be purchased, as the
case may be;
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<PAGE> 30
(3) The information contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with information furnished
to the Company by such Selling Securityholder, as such information may be
amended or supplemented as of the Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading; such Selling Securityholder has
reviewed the Registration Statement and the Prospectus and, although such
Selling Securityholder has not independently verified the accuracy or
completeness of all the information contained therein, nothing has come to the
attention of such Selling Securityholder that would lead such Selling
Securityholder to believe that the Prospectus, as amended or supplemented as of
the Closing Date, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
(4) As to Pillar only, the Attorney-In-Fact of Pillar
has the authority and power to execute the Underwriting Agreement and all other
documents related thereto on behalf of Pillar.
(k) The Company shall have obtained and delivered to you an
agreement from each person set forth on Schedule B attached hereto and each
entity that is a stockholder and is affiliated with an officer or director of
the Company in writing prior to the date hereof that such person will not,
except as described below, during the Lock-up Period, effect the Disposition of
any Securities now owned or hereafter acquired by such person or with respect to
which such person has or hereafter acquires the power of disposition, otherwise
than (i) on the transfer of shares of Common Stock or Securities during such
person's lifetime by bona fide gift or upon death by will or intestacy, provided
that any transferee agrees in writing to be bound by the Lock-Up Agreement, and
(ii) on the transfer or other disposition of shares of Common Stock or
Securities as a distribution to limited partners or stockholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of the Lock-Up Agreement. The foregoing restriction shall have been expressly
agreed to preclude the holder of the Securities from engaging in any hedging,
pledge or other transaction which is designed to or may reasonably be expected
to lead to or result in a Disposition of Securities during the Lock-Up Period,
even if such Securities would be disposed of by someone other than the such
holder. Such prohibited hedging, pledge or other transactions would include,
without limitation, any short sale (whether or not against the box), any pledge
of shares covering an obligation that matures or could reasonably mature during
the Lock-Up Period, or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.
(l) The Company shall have delivered to you an executed copy of
the Susi Agreement;
(m) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company) as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
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<PAGE> 31
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
8. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company and Hawkins hereby grant to the several Underwriters, for the
purpose of covering over-allotments in connection with the distribution and sale
of the Firm Shares only, a nontransferable option to purchase up to an aggregate
of 144,000 Option Shares, of which up to 94,000 Option Shares will be sold by
the Company and 50,000 Option Shares will be sold by Hawkins, at the purchase
price per share for the Firm Shares set forth in Section 4 hereof (the
"Option"). The Option may be exercised by the Representative on behalf of the
several Underwriters on one (1) or more occasions in whole or in part during the
period of forty five (45) days after the date on which the Firm Shares are
initially offered to the public by giving written notice (the "Option Notice")
to the Company. The number of Option Shares to be purchased by each Underwriter
upon the exercise of the Option shall be the same proportion of the total number
of Option Shares to be purchased by the several Underwriters pursuant to the
exercise of the Option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representative in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares
to be purchased by the several Underwriters pursuant to the exercise of the
Option granted by this Section 7 shall be made against payment of the purchase
price therefor by the several Underwriters by certified or official bank check
or checks drawn in same day funds, payable to the order of the Company and
Hawkins, or by wire transfer in same day funds. In the event of any breach of
the foregoing, the Company shall reimburse the Underwriters for the interest
lost and any other expenses borne by them by reason of such breach. Such
delivery and payment shall take place at the offices of Howard, Rice, Nemerovski
Canady Falk & Rabkin, A Professional Corporation, 3 Embarcadero Center, 8th
Floor, San Francisco, California, or at such other place as may be agreed upon
between the Representative and the Company (i) on the Closing Date, if written
notice of the exercise of such option is received by the Company at least two
(2) full business days prior to the Closing Date, or (ii) on a date which shall
not be later than the third (3rd) full business day following the date the
Company receives written Notice of the Option, if such notice is received by the
Company after the date two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location, as you may
reasonably request for checking at least one (1) full business day prior to the
date of payment and delivery and will be in such names and denominations as you
may request, such request to be made at least two (2) full business days prior
to such date of payment and delivery. If the Representative so elects, delivery
of the Option Shares may be made
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<PAGE> 32
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 8(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 7 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of the Act or the Exchange Act, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject (including, without limitation, in its capacity as an
Underwriter or as a "qualified independent underwriter" within the meaning of
Schedule E of the Bylaws of the NASD), under the Act, the Exchange Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (iii) any untrue statement or alleged untrue statement
of any material fact contained in any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or (iv) any untrue statement or alleged untrue statement
of any material fact contained in any audio or visual materials used in
connection with the marketing of the Securities and furnished by the Company,
including without limitation, slides, videos, films and tape recordings, and
agrees to reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case
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to the extent that any such loss, claim, damage, liability or action arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any such amendment or supplement thereto, in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter, directly or through
the Representative, specifically for use in the preparation thereof and,
provided further, that the indemnity agreement provided in this Section 9(a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any losses, claims, damages,
liabilities or actions based upon any untrue statement or alleged untrue
statement of material fact or omission or alleged omission to state therein a
material fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time required by
the Act and the Rules and Regulations, unless such failure is the result of
noncompliance by the Company with Section 5(a)(4) hereof. This indemnity
agreement shall be in addition to any liabilities which the Company may
otherwise have.
(b) Pillar and Hawkins, as Selling Securityholders, severally
and not jointly agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act against any losses, claims, damages, damages or liabilities,
joint or several, to which such Underwriter or such controlling person may
become subject under the Act, the Exchange Act or otherwise, arising out of or
are based upon: (i) any breach of any representation, warranty, agreement or
covenant of such Selling Securityholder herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in (A) the
Registration Statement or any amendment thereto or any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto based upon information
furnished by or on behalf of such Selling Securityholders, or (iii) the omission
or alleged omission to state in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, a material fact required to be stated therein or necessary
to make the statements therein relating to such Selling Securityholders not
misleading, and agrees to reimburse, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Selling Securityholders
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omissions made in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any such Application
in reliance upon and in conformity with written information furnished to the
Selling Securityholder by any Underwriter through the Representative
specifically for use therein and (ii) the Company will not be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting to such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented) at or prior to the written confirmation or the sale of
such Securities to such person in any case where such delivery of the Prospectus
(as amended and supplemented) is required by the Act, unless such failure to
deliver to the Prospectus (as amended and supplemented) was a result of
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<PAGE> 34
noncompliance by the Company with Section 5(a)(4) of this Agreement. This
indemnity agreement shall be in addition to any liability which the Selling
Securityholders may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each of the Selling Securityholders
against any losses, claims, damages or liabilities, joint or several, to which
the Company may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 9(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or the Selling Shareholders by such
Underwriter, directly or through the Representative, specifically for use in the
preparation thereof, and agrees to reimburse the Company or the Selling
Securityholders for any legal or other expenses reasonably incurred by the
Company or the Selling Securityholders in connection with investigating or
defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 9(c) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any, who controls the Company within the
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 9, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 9 except to the extent that it has been
prejudiced by such omission. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of the indemnifying party's election so to
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<PAGE> 35
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 9(a,
9(b), or 9(c) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is a
party and indemnification could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on all claims that are the subject matter
of such proceeding.
(e) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
9 but it is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the public offering
price, and the Company and the Selling Securityholders are responsible for the
remaining portion, provided, however, that (i) no Underwriter shall be required
to contribute any amount in excess of the amount by which the underwriting
discount applicable to the Shares purchased by such Underwriter exceeds the
amount of damages which such Underwriter has otherwise been required to pay and
(ii) no person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. The contribution agreement
in this Section 9(d) shall extend upon the same terms and conditions to, and
shall inure to the benefit of, each person, if any, who controls any Underwriter
or the Company within the meaning of the Act or the Exchange Act and each
officer of the Company who signed the Registration Statement and each director
of the Company.
(f) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 9, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in
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<PAGE> 36
order to assure that adequate disclosure is made in the Registration Statement
and Prospectus as required by the Act and the Exchange Act.
(g) The liability of Pillar under this Section 9 shall not
exceed an amount equal to the total proceeds received by Pillar from the sale of
Firm Shares. The liability of Hawkins under this Section 9 shall not exceed an
amount equal to the total proceeds received by Hawkins from the sale of Option
Shares.
10. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Securityholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 9 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of the
Act or the Exchange Act, or by or on behalf of the Company, or any of its
officers, directors or controlling persons within the meaning of the Act or the
Exchange Act, and shall survive the delivery of the Shares to the several
Underwriters hereunder or termination of this Agreement.
11. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 11, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may
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<PAGE> 37
thereby be made necessary, and (ii) the respective number of Firm Shares to be
purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 11, then, other than as set forth in the
Letter Agreement, the Company shall not be liable to any Underwriter (except as
provided in Sections 5 and 8 hereof) nor shall any Underwriter (other than an
Underwriter who shall have failed, otherwise than for some reason permitted
under this Agreement, to purchase the number of Firm Shares agreed by such
Underwriter to be purchased hereunder, which Underwriter shall remain liable to
the Company and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company (except to the extent provided in Sections 6
and 9 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 11.
12. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., Pacific time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the public offering of
any of the Shares by the Underwriters after the Registration Statement becomes
effective. The time of the public offering shall mean the time of the release by
you, for publication, of the first newspaper advertisement relating to the
Shares, or the time at which the Shares are first generally offered by the
Underwriters to the public by letter, telephone, telegram or telecopy, whichever
shall first occur. By giving notice as set forth in Section 11 before the time
this Agreement becomes effective, you, as Representative of the several
Underwriters, or the Company, may prevent this Agreement from becoming effective
without liability of any party to any other party, except as provided in
Sections 5(a)(9) and hereof.
(b) You, as Representative of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse, and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus, or (ii) if additional governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
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<PAGE> 38
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the opinion of the
Representative, makes it impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 6 and 9 hereof. Any
termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Section
9 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 12, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
(c) Upon execution of this Agreement, that certain Letter of
Intent dated as of February 8, 1999 shall terminate and shall be of no further
force and effect.
13. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, or telecopied (and confirmed by letter) to you c/o Cruttenden
Roth Incorporated, 24 Corporate Plaza, Newport Beach, California 92660
telecopier number (714) 852-9603, Attention: General Counsel, with a copy to
Brobeck, Phleger & Harrison LLP, 550 West "C" Street, Suite 1300, San Diego, CA
92101-3532, telecopier number (619) 234-3848, Attention: Faye H. Russell, Esq.;
if sent to the Company, such notice shall be mailed, delivered, telegraphed or
telecopied (and confirmed by letter) to Invivo Corporation, 4900 Hopyard Road,
Suite 210, Pleasonton, California 94588, telecopier number (925) 468-7610,
Attention: President, with a copy to Howard Rice Nemerovski Canady Falk &
Rabkin, 3 Embarcadero Center, 8th Floor, San Francisco California 94111,
telecopier number (415) 217-5910, Attention: Daniel J. Winnike, Esq.; if sent to
the Selling Securityholders, such notice shall be mailed, delivered, telegraphed
(and confirmed by letter) or telecopied (and confirmed by letter) to the
addresses set forth below such Selling Securityholders' signature hereto.
14. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Securityholders
and their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 9 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators,
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<PAGE> 39
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or entity. No purchaser of any
of the Shares from any Underwriter shall be construed a successor or assign by
reason merely of such purchase.
In all dealings with the Company and the Selling Securityholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, the Company and the Selling Securityholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by Cruttenden Roth Incorporated on behalf of you.
15. APPLICABLE LAW. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by, and
construed in accordance with, the laws of the State of California.
16. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial
proceedings arising out of or relating to this Agreement shall be initiated and
tried exclusively in the state and federal courts located in the State of
California. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than that specified in this Section 16. The Company
and each Selling Securityholder accepts for itself and in connection with its
properties, generally and unconditionally, the nonexclusive personal
jurisdiction of the aforesaid courts and waives any defense of forum non
conveniens and irrevocably agrees to be bound by any final judgment rendered
thereby in connection with this Agreement. Each party hereby authorizes and
accepts service of process sufficient for personal jurisdiction in any action
against it as contemplated by this Section 16 by registered or certified mail,
return receipt requested, postage prepaid, to its address for the giving of
notices as set forth in this Agreement.
17. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 40
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between the Company, the Selling Securityholders and the several
Underwriters.
Very truly yours,
Invivo Corporation
--------------------------------------------
James B. Hawkins
President and Chief Executive Officer
THE PILLAR CHARITABLE REMAINDER
UNITRUST
--------------------------------------------
Ernest C. Goggio, Sole Trustee
Address:
------------------------------------
------------------------------------
JAMES B. HAWKINS
--------------------------------------------
Address:
------------------------------------
------------------------------------
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED, on its behalf
and on behalf of each of the several
Underwriters named in Schedule A hereto.
By: CRUTTENDEN ROTH INCORPORATED
By:
--------------------------------------
Authorized Signatory
For and on behalf of the Representative
[SIGNATURE PAGE TO UNDERWRITING AGREEMENT]
<PAGE> 41
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters To Be Purchased
<S> <C>
Cruttenden Roth Incorporated.....................
Gerard Klauer Mattison & Co., Inc................
TOTAL...............................
</TABLE>
A-1
<PAGE> 42
SCHEDULE B
LOCK-UP LETTERS
James B. Hawkins
Ernest C. Goggio
George S. Sarlo
Roger Susi
Laureen DeBuono
B-1
<PAGE> 1
EXHIBIT 3.01
RESTATED CERTIFICATE OF INCORPORATION
OF
INVIVO CORPORATION
(Originally incorporated on September 24, 1986
under the name Sensor Control Corporation)
1. The name of this corporation is
INVIVO CORPORATION
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is six million (6,000,000) of which stock five million
(5,000,000) shares of the par value of One Cent ($.01) each, amounting in the
aggregate to Fifty Thousand Dollars ($50,000.00) shall be Common Stock and of
which one million (1,000,000) shares of the par value of One Cent ($.01) each,
amounting in the aggregate to Ten Thousand Dollars ($10,000.00) shall be
Preferred Stock.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof may be determined at a later
date by the board of directors.
5. The corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the corporation.
7. Elections of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
-1-
<PAGE> 2
8. To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, a director of this
corporation shall not be personally liable to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director.
This Restated Certificate of Incorporation of Invivo Corporation (the
"Restated Certificate") has been adopted by the board of directors in accordance
with the provisions of Section 245 of the Delaware General Corporation Law
("Section 245"). It merely restates and integrates but does not further amend
the original Certifcate of Incorporation filed with the Secretary of State of
the State of Delaware on September 24, 1986 (the "Original Certificate") as
amended by subsequent amendments filed with the Secretary of State, except that
pursuant to Section 245, Article 5 of the Original Certificate, which stated the
name and mailing addressees of the incorporators, has been omitted, and
subsequent articles have been renumbered to reflect that change and amendments
to the Original Certificate. There is no discrepancy between the Corporation's
Certificate of Incorporation as heretofore amended or supplemented and this
Restated Certificate.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by John F. Glenn, its authorized officer, this 8th day of March, 1999.
/s/ John F. Glenn
-----------------------------------
John F. Glenn, Vice President of
Finance/Chief Financial Officer
-2-
<PAGE> 1
Exhibit 5.01
March 8, 1999
Invivo Corporation
4900 Hopyard Road, #210
Pleasanton, CA 94588
Re: 860,000 Shares of Common Stock, Par Value $0.01 Per Share
---------------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion of counsel for Invivo Corporation,
a Delaware corporation (the "Company"), in connection with the registration
statement on Form S-2 (together with all amendments and exhibits thereto, the
"Registration Statement") filed with the Securities and Exchange Commission with
respect to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of 860,000 shares of Common Stock of the Company (the
"Offered Shares").
We have examined originals or copies certified or otherwise
identified to our satisfaction as authentic copies of the Registration
Statement, the Restated Certificate of Incorporation and Amended and Restated
Bylaws of the Company, resolutions and unanimous written consents of the Board
of Directors of the Company, certificates of one or more officers of the
Company, and such other corporate records of the Company and other documents of
which we are aware as we considered necessary for purposes of enabling us to
render the opinion set forth below.
In connection with this opinion we have assumed the following:
(a) the authenticity of original documents and the genuineness of all
signatures; (b) the conformity to the originals of all documents submitted to us
as copies; and (c) the truth, accuracy and completeness of the information,
representations and warranties contained in the instruments, documents, records
and certificates we have reviewed. As to matters of fact material to our
opinions, we have relied on our review of the documents referred to above and
statements made to us by officers of the Company. We have not independently
verified any factual matters or any assumptions made by us in this letter and
disclaim any inference as to the reasonableness of any such assumption.
Based upon the foregoing and subject to the exceptions,
qualifications and limitations set forth hereinafter, we are of the opinion that
upon the issuance and sale of the Offered Shares in accordance with the terms of
the Registration Statement, the Offered Shares will be legally issued, fully
paid and non-assessable.
We are members of the bar of the State of California and are not
admitted to practice in any other jurisdiction. The opinions set forth above are
limited in all respects to matters governed by the federal laws of the United
States of America and the General Corporation Law of the State of Delaware.
The opinion set forth herein is given as of the date hereof and
is expressly limited to the matters stated. No opinion is implied or may be
inferred beyond what is explicitly stated in this letter. We disclaim any
obligation to notify you or any other person or entity after the date of this
letter if any change in fact or law should change our opinion with respect to
any matter on which we are expressing an opinion herein.
We are delivering this opinion to the Company solely to satisfy the requirement
of the Securities and Exchange Commission set forth in Item 601(a) and Item
601(b)(5)(i) of Regulation S-K under the Securities Act. Copies of this letter
may not be circulated or furnished to any other person or entity, and this
letter may not be referred to in any report or document furnished to any other
person or entity, without our prior written consent
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ HOWARD, RICE, NEMEROVSKI,
CANADY, FALK & RABKIN
A Professional Corporation
<PAGE> 1
EXHIBIT 23.02
CONSENT OF KPMG LLP
The Board of Directors and Shareholders
Invivo Corporation:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the Registration Statement of Invivo
Corporation.
Oakland, California
March 8, 1999
