<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1996
REGISTRATION NO. 333-06051
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VOXEL
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3823 33-0301060
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
26081 MERIT CIRCLE, SUITE 117
LAGUNA HILLS, CALIFORNIA 92653
(714) 348-3200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALLAN M. WOLFE, M.D.
26081 MERIT CIRCLE, SUITE 117
LAGUNA HILLS, CALIFORNIA 92653
(714) 348-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RANDOLF W. KATZ, ESQ. LAURA B. HUNTER, ESQ.
ARTER & HADDEN BROBECK, PHLEGER & HARRISON LLP
5 PARK PLAZA, SUITE 1000 4675 MACARTHUR COURT, SUITE 1000
IRVINE, CALIFORNIA 92714 NEWPORT BEACH, CALIFORNIA 92660
(714) 252-7500 (714) 752-7535
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, no par value............. 3,220,000 $5.25 $16,905,000 $5,829.00
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</TABLE>
(1) Includes 420,000 shares which may be purchased in whole or in part by the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for purposes of computing the registration fee, based upon
the average of the closing bid and ask prices on July 29, 1996, pursuant to
Rule 457(c).
(3) $6,785.79 previously paid.
------------------------
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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<PAGE> 2
VOXEL
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
REFERENCING ITEMS IN PART I OF FORM S-1 TO THE PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. AND CAPTION HEADING IN PROSPECTUS
------------------------------------------------------ --------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; Risk Factors; Use
of Proceeds; Selected Consolidated
Financial Data
4. Use of Proceeds................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................ Outside Front Cover Page of
Prospectus; Risk Factors; Underwriting
6. Dilution....................................... Risk Factors; Dilution
7. Selling Security Holders....................... Not Applicable
8. Plan of Distribution........................... Outside Front Cover Page of
Prospectus; Inside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to Be Registered..... Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting
10. Interests of Named Experts and Counsel......... Not Applicable
11. Information with Respect to the Registrant..... Outside Front Cover Page of
Prospectus; Prospectus Summary; Risk
Factors; Use of Proceeds; Price Range
of Common Stock; Dividend Policy;
Capitalization; Selected Consolidated
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal Shareholders;
Debt Financings; Description of
Securities; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Management
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, JULY 30, 1996
PROSPECTUS
2,800,000 SHARES
LOGO
COMMON STOCK
All of the 2,800,000 shares of common stock offered hereby are being sold
by Voxel (the "Company"). The Company's common stock (the "Common Stock") is
traded on the Nasdaq SmallCap Market under the symbol "VOXL." The Company has
applied for listing of the Common Stock on the Nasdaq National Market, effective
as of the effective date of this offering (the "Offering"). On July 29, 1996,
the last sale price of the Common Stock was $5.375 per share. See "Price Range
of Common Stock."
The several underwriters (the "Underwriters") have agreed to allocate up to
$1,000,000 of the shares offered hereby for purchase by The Travelers Insurance
Company and three of its affiliates (the "Travelers Companies"). The Travelers
Companies are current shareholders of the Company. See "Principal Shareholders."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED
ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
IN ADDITION, PURCHASERS OF THESE SECURITIES WILL SUFFER
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" COMMENCING ON PAGE 6 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share of Common Stock......... $ $ $
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Total (3)......................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Company has also agreed to sell to
Cruttenden Roth Incorporated, the representative (the "Representative") of
the Underwriters, for nominal consideration, warrants to purchase up to
224,000 shares of Common Stock exercisable at a per share price equal to
120% of the Price to Public (the "Representative's Warrants"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $506,500
(including the Representative's nonaccountable expense allowance). See
"Underwriting."
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an aggregate of 420,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If all shares subject to the over-allotment option are sold by the
Company, the total Price to Public, Underwriting Discounts and Commissions,
and Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters when, as, and if
delivered to and accepted by the Underwriters, subject to the right to reject
any order in whole or in part and certain other conditions. It is expected that
delivery of such shares will be made at the offices of Cruttenden Roth
Incorporated, Irvine, California or at the facilities of the Depository Trust
Company on or about , 1996.
CRUTTENDEN ROTH
INCORPORATED
THE DATE OF THIS PROSPECTUS IS JULY , 1996
<PAGE> 4
Voxcam(R) Imager
Voxbox(R) Lightbox Voxfilm(TM) Holographic Film
The Voxcam, Voxbox, and Voxfilm will not be commercially available for at least
four months and may differ in appearance from their depictions above.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR NASDAQ NATIONAL
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements appearing elsewhere in
this Prospectus. As used in this Prospectus, the term "Company" refers to
Voxel(TM) and its inactive subsidiary, Holoplex Systems Limited, a United
Kingdom corporation. This Prospectus contains forward-looking statements and
information which involve risks and uncertainties. The Company's actual results
could differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth under the caption "Risk
Factors" and elsewhere in this Prospectus.
THE COMPANY
Voxel is engaged in the development and marketing of a proprietary system
(the "Digital Holography System" or the "System") that produces
"three-dimensional X-rays" of the internal structure of the human body. The
System consists of the Voxcam(R) imager, an electro-optical instrument that
holographically images computed tomography ("CT") and magnetic resonance ("MR")
data on film; Voxbox(R) light boxes to view the film; and Voxfilm(TM), special
silver halide film to record the hologram. The proprietary process used by the
Voxcam to encode information makes it possible to record up to 200 or more
cross-sectional images from a CT or MR examination on a single sheet of Voxfilm.
The finished image is called a Voxgram(R). On September 29, 1995, the Company
received clearance from the United States Food and Drug Administration (the
"FDA") to market all three elements of its Digital Holography System.
The Voxgram image is an accurate, three-dimensional holographic replica of
the patient's anatomy which is projected through a six-inch deep volume in front
of the Voxbox. Conventional CT and MR display techniques provide a large number
of individual two-dimensional images, each representing a single cross-sectional
plane through the body. The physician is required either to mentally integrate
those many images or to examine computer generated renderings that simulate the
third dimension. However, these renderings can not and do not display accurate
volumetric information and are to be distinguished from Voxel's true
three-dimensional holographic images.
More than 40 medical centers have studied Voxgrams' clinical utility in
connection with conditions that affect anatomical regions most commonly targeted
by CT and MR examinations -- the head, spine, skeleton, and blood vessels. This
research has yielded more than 120 scientific presentations and papers and five
articles in medical journals. The results of these studies suggest that Voxgrams
provide for more accurate and comprehensive diagnosis of medical conditions and
improve surgical planning. The Company believes that Voxgrams may also save time
in the operating theatre and in the surgical planning process, and may enable
physicians to diagnose conditions that are extremely difficult or impossible to
detect with existing display techniques.
Voxel's principal strategic objective is to make it necessary for
diagnostic imaging sites to offer volumetric holographic images in addition to
cross-sectional images in order to be considered acceptable providers. The
Company's potential domestic market encompasses more than 5,000 hospital and
diagnostic imaging centers which, using more than 9,000 CT and MR scanners,
performed in excess of 26 million examinations in 1994. Each of these sites is a
potential purchaser of the System and each of these patient examinations is a
candidate to be printed on Voxfilm. The Company believes that Japanese
utilization of CT and MR scanners is comparable to that of the United States and
Europe's utilization of CT and MR scanners is growing.
Assimilating Voxel's technology will not require a major change in a
hospital's equipment or procedures. CT and MR data will continue to be collected
in the current format, without any modification in routine physician practice.
Additional scanner time will not be required and the patient's radiation dose
will not be changed. The data will be prepared for holographic printing using a
technique similar to that used to prepare two-dimensional images. After scanning
the patient, the technician will adjust brightness and contrast to get the most
useful images, which will then be printed by the Voxcam.
Voxel believes that its patent applications and granted patents provide a
meaningful proprietary position in all elements of the System including, most
importantly, the Voxfilm. The Company, together with its OEM manufacturing
partners, is completing initial pre-production Systems in preparation for
production of commercial Systems. Initial sales activities are underway,
focusing on institutions with active neurosurgery and/or orthopedic surgery
practices. The Company expects to work closely with its customers to broaden the
3
<PAGE> 6
clinical applications in which Voxgrams will be routinely used and thereby
increase Voxfilm utilization. The Company's objective is to make Digital
Holography(TM) a standard of medical imaging.
Voxel's technology is also potentially useful in a variety of other
non-medical settings where volumetric information is important, such as
non-destructive testing of airplane parts and volumetric visualization of oil
fields and atomic reactor cores. While the Company currently intends to pursue
these applications in the future, there can be no assurance that it will have
the resources to do so or that its efforts will be successful.
The Company's principal executive offices are located at 26081 Merit
Circle, Suite 117, Laguna Hills, California 92653 and its telephone number is
(714) 348-3200. The Company was incorporated in California in 1988.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................................... 2,800,000 shares(1)
Shares of Common Stock Outstanding Before the
Offering............................................. 5,349,198 shares(2)(3)
Shares of Common Stock Outstanding After the
Offering............................................. 8,149,198 shares(1)(2)
Use of Proceeds........................................ Completion of System development,
marketing and sales activities,
financing of revenue growth, and
general corporate purposes. See "Use
of Proceeds."
Nasdaq Symbol.......................................... VOXL
</TABLE>
- ---------------
(1) Assumes the Underwriters' over-allotment option is not exercised. See
"Underwriting."
(2) Does not include (i) 358,512 shares of Common Stock reserved for as yet
unissued options under the Company's 1992 Stock Plan and 1994 Executive
Stock Option Plan (collectively, the "Option Plans"), (ii) 353,077 shares of
Common Stock issuable upon exercise of outstanding vested stock options
under the Option Plans at a weighted average exercise price per share of
$1.17, (iii) 153,444 shares of Common Stock issuable upon exercise of
outstanding unvested stock options under the Option Plans at a weighted
average exercise price per share of $2.29, (iv) 18,140 shares of Common
Stock issuable upon exercise of outstanding warrants at an exercise price
per share of $3.09, (v) 70,000 shares of Common Stock issuable upon exercise
of outstanding warrants at an exercise price per share of $2.50 issued in
July 1994 in connection with a private financing (the "Bridge Warrants"),
(vi) 190,000 shares of Common Stock issuable upon exercise of an option to
purchase units, each unit consisting of one share of Common Stock and one
warrant (the "Unit Purchase Option") issued in connection with the Company's
initial public offering at an exercise price per unit of $8.80, (vii)
190,000 shares of Common Stock issuable upon exercise of the warrants
included within the units underlying the Unit Purchase Option at an exercise
price per share of $10.00, (viii) 1,900,000 shares of Common Stock issuable
upon exercise of a like number of outstanding warrants at an exercise price
per share of $6.25 (the "Class A Warrants"), and (ix) 224,000 shares of
Common Stock issuable upon exercise of the Representative's Warrants at an
exercise price per share equal to 120% of the Price to Public set forth on
the cover page of this Prospectus. See "Management -- Stock Option Plans,"
"Debt Financings," "Description of Securities," and "Underwriting."
(3) As of May 15, 1996.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk, including,
without limitation, risks relating to product development; the Company's lack of
product sales, history of operating losses which are expected to continue until
at least 1997, and potential need for additional funds; the delay until product
introduction; the uncertainty of obtaining patent protection; and the Company's
dependence on a single product system and on others for manufacture. See "Risk
Factors."
4
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15, 1988
THREE-MONTHS ENDED (DATE OF
YEAR ENDED DECEMBER 31, MARCH 31, INCEPTION) TO
------------------------------------------------- ------------------ MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1996
----- ------- ------- ------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Costs and expenses
Research and development........... $ 443 $ 699 $ 1,191 $ 2,924 $ 3,619 $ 973 $ 1,005 $ 10,134
General and administrative......... 95 795 1,183 1,484 2,124 413 497 6,496
----- ------- ------- ------- ------- ------- ------- --------
538 1,494 2,374 4,408 5,743 1,386 1,502 16,630
----- ------- ------- ------- ------- ------- ------- --------
Loss from operations............... (538) (1,494) (2,374) (4,408) (5,743) (1,386) (1,502) (16,630)
Interest expense................... (28) (31) (233) (408) (33) (10) (4) (805)
Interest income.................... 52 64 10 59 199 75 41 429
----- ------- ------- ------- ------- ------- ------- --------
Net loss............................. $(514) $(1,461) $(2,597) $(4,757) $(5,577) $(1,321) $(1,465) $ (17,006)
===== ======= ======= ======= ======= ======= ======= ========
Pro forma net loss(2)................ $(2,420) $(4,481)
======= =======
Net loss per share(2)................ $ (1.33) $ (0.32) $ (0.33)
======= ======= =======
Pro forma net loss per share(2)...... $ (1.18) $ (1.67)
======= =======
Shares used in computing net loss per
share(2)........................... 2,043,842 2,677,788 4,183,355 4,108,794 4,499,303
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
AS
ACTUAL ADJUSTED(3)
-------- ----------
<S> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents, and short-term investments......................................... $ 2,697 $ 16,187
Working capital............................................................................ 2,346 15,836
Total assets............................................................................... 3,308 16,798
Long-term lease obligation................................................................. 11 11
Deficit accumulated during the development stage........................................... (17,006) (17,006)
Total common shareholders' equity.......................................................... 1,411 14,901
Total shareholders' equity................................................................. 2,911 16,401
</TABLE>
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(1) The Company is a development-stage business and has generated no operating
revenues.
(2) Computed on the basis described in Note 1 to the Company's Consolidated
Financial Statements.
(3) Gives effect to the issuance of the 2,800,000 shares of Common Stock offered
hereby at an assumed offering price of $5.38 per share and the application
of the estimated net proceeds therefrom. Assumes no exercise of the
Underwriters' over-allotment option. See "Use of Proceeds" and
"Capitalization."
5
<PAGE> 8
RISK FACTORS
An investment in the Common Stock described hereby is speculative and
involves a high degree of risk. Investors should carefully consider the
following factors before investing in the Common Stock. These securities should
be considered only by persons who can afford the loss of their entire
investment.
Lack of Product Sales; Operating Losses Expected to Continue Until At Least
1997. The Company is in the development stage and has generated no operating
revenues. To date, the Company has been principally engaged in research and
development, product design work, and evaluation studies. The Company does not
expect to have its first product commercially available for at least four months
from the date hereof. At March 31, 1996, the Company had a deficit accumulated
during the development stage of approximately $17,006,000, and working capital
of approximately $2,346,000. Operating losses have continued to date. The
Company does not anticipate generating meaningful revenue until at least 1997,
if at all, and expects to continue to incur operating losses until at least the
third quarter of 1997 as the Company increases expenditures for product
development, continued United States and international patent prosecution and
enforcement, purchase of inventory, and marketing. There can be no assurance
that the Company will obtain revenues in an amount sufficient to achieve
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
No Assurance of Successful Product Development, Commercialization, or
Sales. To achieve profitable operations, the Company, alone or with others, must
successfully develop, introduce, market, and sell products. There can be no
assurance that the Digital Holography System will be successfully developed or,
if developed, will be successfully marketed, that the Company will realize
future revenues, or that the Company will achieve profitability. The Company's
products and operations are in development and are subject to the risks inherent
in the development of medical devices, including unforeseen delays, expenses,
and complications frequently encountered in the development and
commercialization of medical devices, the dependence on and attempts to apply
new and rapidly changing technology, and the competitive environment of the
medical device industry. Many of these events may be beyond the Company's
control, such as unanticipated development requirements and manufacturing
problems. Further, there can be no assurance that the Digital Holography System,
if successfully developed, will attain acceptance by health care providers,
payors, or patients. Any failure to develop successfully, or any delays in the
successful development of, the Digital Holography System will have a material
adverse effect on the Company's business, financial condition, and results of
operations. See "Business."
Dependence on Single Product System. The Company's efforts to date have
focused exclusively on the development of the Digital Holography System. Delays
in the commercialization of the System, or the failure to achieve acceptance
thereof in the marketplace, would have a material adverse effect on the
Company's business, financial condition, and results of operations. The Company
does not contemplate pursuing products other than the Digital Holography System,
in the near or intermediate future.
Need for Additional Financing. The development and commercialization of
medical devices require the expenditure of significant capital. Subsequent to
the Offering, the Company may require additional funding in order to achieve its
operating objectives. The timing of completion of the commercialization of the
Digital Holography System and the extent and timing of commercial acceptance of
the System may increase the Company's requirements for capital. If additional
capital is required, the Company may seek to obtain such additional funds
primarily through additional public or private equity or debt financings. Such
additional financing may result in dilution to current shareholders. There can
be no assurance that such additional financing, if required, can be obtained on
terms acceptable to the Company, if at all. If additional funds are not
available, the Company may be required to curtail significantly or to eliminate
some or all of its manufacturing or marketing programs or to obtain funds
through arrangements with corporate partners or others which may require the
Company to relinquish certain rights to its intellectual property or resulting
products. The Company currently has no established bank credit arrangements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Time Lapse Until Commercial Product Introduction. The Company does not
anticipate that commercial development of the System will be completed for at
least four months. To date, the Digital Holography
6
<PAGE> 9
System has been subject to research testing and will require successful field
testing of pre-production prototypes ("Beta Units") before it can be sold
commercially. The ongoing development and engineering activities with respect to
the Beta Units have required more time than was originally anticipated by the
Company and its primary engineering partner, General Scanning, Inc. This delay
in manufacturing of initial production units has increased the Company's
requirements for capital. The Beta Units will implement significant improvements
over the current laboratory prototypes of the Digital Holography System. Field
testing of the Beta Units is intended to confirm the proper implementation of
those improvements and the complete functionality of the System. There can be no
assurance as to the time required to complete such field testing efforts, or if
they can be successfully completed. The failure to complete this testing
successfully or to introduce the System commercially would have a material
adverse effect on the Company's business, financial condition, and results of
operations. See "Business."
No Assurance of Obtaining Patent Protection and Maintaining Confidentiality
of Proprietary Information. The Company's commercial success will depend in
large part upon its ability to obtain patent protection for the Digital
Holography System, maintain confidentiality of its trade secrets and know-how,
and operate without infringing upon the proprietary rights of third parties. In
1992, the Company filed a patent application relating to numerous aspects of the
Digital Holography System. There can be no assurance that any patent will issue
from this application or that, if issued, such patent will cover all or a
substantial portion of the claims currently set forth in the application.
Patents relating to the Voxbox have been granted in the United States and
certain foreign countries. There can be no assurance that any such patents will
provide the Company with any competitive advantages, will not be challenged by
any third parties, or that such third parties will not design a competitive
product around the patents. In addition, there can be no assurance that any of
the Company's patents would be held valid by a court of law of competent
jurisdiction or, if held valid, that the Company will have sufficient economic
resources to enforce or defend its patent rights. In the event the Company is
found to have infringed upon the patent rights of others, there can be no
assurance that the Company would be able to obtain a license to use any of such
patents.
The Company also relies on its trade secrets and proprietary know-how. The
Company has been, and will continue to be, required to disclose its trade
secrets and proprietary know-how not only to employees and consultants, but also
to potential corporate partners, collaborators, and contract manufacturers.
There can be no assurance that any confidentiality agreements that the Company
may enter into with such persons will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets and
proprietary know-how will not otherwise become known or be independently
discovered by competitors. See "Business -- Intellectual Property."
Uncertainty Relating to Third Party Reimbursement. In the United States,
health care providers, such as hospitals and physicians that purchase medical
devices and consumables, such as the Company's products, generally rely on
third-party payors, principally Medicare, Medicaid, health maintenance
organizations, and private health insurance plans to reimburse all or part of
the cost of the procedure in which the medical device or consumable is being
used. In addition, certain health care providers are moving toward a managed
care system in which such providers contract to provide comprehensive health
care for a fixed cost per person. Managed care providers may attempt to control
the cost of health care by authorizing fewer CT and MR examinations. To date, no
health care payor has determined to reimburse the usage costs of the System on a
consistent basis or as a matter of policy. As such, the Company is unable to
predict whether its customers will receive incremental reimbursement in respect
of their use of the System or what changes will be made in the reimbursement
methods utilized by third-party health care payors. Furthermore, the Company
could be adversely affected by changes in reimbursement policies of governmental
or private health care payors, particularly to the extent any such changes
affect reimbursement for procedures in which the Company's products are used.
Failure by physicians, hospitals, and other users of the Company's products to
obtain sufficient reimbursement from health care payors for procedures in which
the Company's products are used or adverse changes in government and private
third-party payors' policies toward reimbursement for such procedures could have
a material adverse effect on the Company's business, financial condition, and
results of operations. See "Business -- Third-Party Reimbursement."
7
<PAGE> 10
Dependence on Others for Manufacture. The Company does not have the
capability to internally manufacture the Digital Holography System in accordance
with the FDA's current good manufacturing practice ("GMP") requirements. Medical
devices intended for distribution in the United States must be manufactured in
compliance with those requirements. Accordingly, the Company expects to rely on
third parties to manufacture and assemble the Digital Holography System. There
can be no assurance that those manufacturers will meet either the Company's
requirements for quality, quantity, and timeliness or the GMP requirements. In
the event that the Company is unable to obtain or retain contract manufacturers
that can manufacture its products in compliance with the Company's requirements
or the FDA's GMP requirements, or to obtain manufacturing on commercially
acceptable terms, the Company may not be able to commercialize the Digital
Holography System as planned. See "Business -- Manufacturing" and "-- Government
Regulation."
Continued Regulatory Compliance Required. The preclinical and clinical
testing, manufacture, labeling, distribution, sale, marketing, advertising, and
promotion of medical devices are subject to extensive and rigorous regulation by
United States and foreign government authorities before and after
commercialization. In general, device products for human health are subject to
clearance requirements (which may include clinical testing) by the FDA and
comparable foreign regulatory authorities. Although the Digital Holography
System has received marketing (510(k)) clearance from the FDA as a supplement to
existing two-dimensional displays of CT and MR scan data, the System will
continue to be subject to compliance with applicable federal and state laws and
regulations. If the Company needs to make a modification to the System which
could significantly affect its safety or effectiveness, the Company will be
required to submit a new 510(k) and establish to the FDA's satisfaction that the
modified System is substantially equivalent before marketing the modified
System. Such a process could significantly delay (or prevent) commercialization
of a modified System, because obtaining a finding of substantial equivalence
from the FDA on a timely basis (or at all) could not be assured. If the Company
is not in compliance with federal or state regulatory requirements, the FDA or
the federal government and, in some cases, the state can order a recall, detain
the Company's products, institute proceedings to seize the Company's products,
prohibit marketing, manufacture, distribution, and sales of the Company's
products, and assess civil monetary penalties and impose criminal sanctions
against the Company, its officers, or its employees.
Other regulatory conditions are placed on a product's manufacture and the
quality control procedures in place, such as GMP. Manufacturing facilities are
subject to periodic inspections by the FDA to ensure compliance with GMP
requirements. Other applicable FDA requirements include the medical device
reporting regulations, which require that the Company provide information to the
FDA on deaths or serious injuries alleged to have been associated with the use
of its devices, as well as product malfunctions that would likely cause or
contribute to death or serious injury if the malfunction were to recur. Failure
to ensure compliance with these requirements could result in the Company's
inability to commercialize the Digital Holography System as planned. Also,
because the Voxcam will contain a laser, the Company will be required to comply
and certify compliance with the FDA's performance (safety) standard governing
laser products. See "Business -- Government Regulation."
Financial Exposure to Product Liability Claims and Uninsured Risks. The
Company may be exposed to liability resulting from the commercial use of the
System. Such liability might result from claims made directly by patients,
hospitals, clinics, or other end-users. The Company does not currently have
product liability insurance, and there can be no assurance that the Company will
be able to obtain or afford such insurance, if applied for, or that any
coverage, if obtained, will be adequate to protect the Company against potential
liabilities. A successful product liability claim or series of product liability
claims brought against the Company in excess of, or outside of, its insurance
coverage limits could have a material adverse effect on the Company's business,
financial condition, and results of operations. In addition, any product
liability litigation, regardless of merit or outcome, may divert management's
attention from operation of the business and may have a material adverse effect
on the reputation of the Company and market acceptance of the System.
Intense Competition and Rapid Technology Change. The medical device field
in which the Company is engaged has undergone rapid and significant
technological changes. The Company expects that the technologies associated with
its research and development will continue to develop rapidly. There can be no
assurance that the Company will be able to establish itself in such field or, if
established, that it will be able to maintain a
8
<PAGE> 11
competitive position. Further, there can be no assurance that the development by
others of new or improved products will not make the Company's products less
competitive or obsolete. The Digital Holography System may compete for market
share with currently available methodologies for viewing the results of CT and
MR scans. In addition, competition may arise from products currently in
development, or developed in the future, by other companies. Many of the current
and potential competitors are likely to have substantially greater capital
resources and research and development capabilities and may also have more
extensive experience with CT and MR procedures and technologies than the
Company. Potential purchasers of the System may determine that currently
available display techniques for CT and MR scans are sufficient for making
requisite diagnoses. The comparison of the incremental utility and marginal cost
of the System may also be influenced by future health care legislation and
insurance reimbursement determinations. Finally, a lack of significant physician
acceptance of the Digital Holography System will have a material adverse effect
on the Company. See "Business -- Competition."
Dependence on Key Personnel. The Company is dependent upon the active
participation of its Chief Executive Officer, Dr. Allan M. Wolfe, its Director
of Research and Development, Stephen J. Hart, and other key technical personnel.
The loss to the Company of the services of any of such individuals could have a
material adverse effect on the Company's future operations. The Company is the
sole beneficiary of term life insurance policies, each in the face amount of one
million dollars, covering Dr. Wolfe and Mr. Hart. The Company's success also may
depend on its ability to attract and retain other qualified scientific and
management personnel. The Company competes for such persons with other
companies, academic institutions, government entities, and other organizations,
some of which have substantially greater capital resources and facilities than
the Company. There can be no assurance that the Company will be successful in
recruiting or retaining personnel of the requisite caliber or in adequate
numbers to enable it to conduct its business as proposed. Furthermore, the
Company's expected expansion into activities requiring additional expertise in
manufacturing and marketing will place increased demands on the Company's
resources and management skills. See "Management."
No Sales and Marketing Capability. The Company does not have any experience
in sales, marketing, or distribution. To market the Digital Holography System
directly, the Company must develop a marketing and sales force with technical
expertise and supporting distribution capability. Alternatively, the Company may
seek to obtain the assistance of enterprises with a large distribution system
and a large direct sales force. There can be no assurance that the Company will
be able to establish sales and distribution capabilities or to obtain the
assistance of another enterprise in such efforts. See "Business -- Sales and
Marketing."
Control by Directors, Executive Officers, and Affiliated
Entities. Following completion of the Offering, directors, executive officers,
and affiliated entities of the Company will beneficially own approximately 22.9%
of the Company's outstanding Common Stock. Accordingly, these persons, as a
group, may be able to exert significant influence over the direction of the
Company's affairs and business, including any determination with respect to the
acquisition or disposition of assets by the Company, future issuances of Common
Stock or other securities by the Company, and the election of directors. Such
concentration of ownership may also have the effect of delaying, deferring, or
preventing a change in control of the Company. See "Principal Shareholders."
Dilution. Purchasers of the Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares. Additional dilution may occur upon the exercise of outstanding warrants
and options. See "Dilution," "Capitalization," "Management -- Stock Option
Plans," "Debt Financings," and "Description of Securities."
Potential Volatility of Stock Price. The price of the Common Stock has
been, and is likely to continue to be, highly volatile. Announcements of
technological innovations or new commercial products by the Company or its
competitors, developments concerning proprietary rights, public concern as to
the safety of medical products, and period-to-period fluctuations in revenues
and financial results may have a significant impact on the Company's business
and on the market price of the Company's securities. In addition, stock markets
in general, and the market for shares of health care stocks in particular, have
experienced extreme price and volume fluctuations in recent years that have
frequently been unrelated to the operating performance of the
9
<PAGE> 12
affected companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. There can be no assurance that the market
price of the Common Stock will not decline below the Offering price or that it
will not experience significant fluctuations in the future, including
fluctuations that are unrelated to the Company's performance. See "Price Range
of Common Stock."
Adverse Consequences Associated with Substantial Shares of Common Stock
Reserved for Issuance. The Company has reserved 1,900,000 shares of Common Stock
for issuance upon exercise (at an exercise price per share of $6.25) of Class A
Warrants, 190,000 shares of Common Stock for issuance upon exercise of the Unit
Purchase Option that was issued in connection with the Company's initial public
offering (the "IPO"), 190,000 shares of Common Stock for issuance upon exercise
of warrants included within the units underlying the Unit Purchase Option, and
18,140 shares of Common Stock issuable upon exercise of warrants at an exercise
price of $3.09. As of May 15, 1996, the Company had granted outstanding options
to purchase an aggregate of 506,521 shares of Common Stock (subject to vesting
requirements in certain cases) at a weighted average exercise price per share of
$1.51 to employees and other individuals under the Option Plans. As of May 15,
1996, the Company has also reserved 70,000 shares of Common Stock for issuance
upon exercise (at an exercise price per share of $2.50) of a like number of
Bridge Warrants. In addition, the Company has reserved an aggregate of 358,512
shares of Common Stock for issuance upon exercise of options which may be
granted in the future under the Option Plans. Holders of any such warrants and
options are likely to exercise them when, in all likelihood, the Company could
obtain additional capital on terms more favorable than those provided thereby.
Furthermore, such warrants and options may adversely affect the terms on which
the Company could obtain additional capital. Should a significant portion of
such warrants and options be exercised, the resulting increase in the amount of
Common Stock in the public market may have the effect of reducing the per share
market price thereof. See "Management -- Stock Option Plans," "Debt Financings,"
"Description of Securities," and "Shares Eligible for Future Sale."
Substantial Number of Shares Eligible for Future Sale; Potential Expense of
Registration Rights. Approximately 2,170,089 of the Company's outstanding shares
of Common Stock are, and 506,521 shares issuable on exercise of stock options
will be, "restricted securities" and may in the future be sold upon registration
or in compliance with an exemption from registration such as Rule 144 adopted
under the Securities Act. Rule 144 generally provides that beneficial owners of
shares who have held such shares for two years may sell within a three-month
period a number of shares not exceeding the greater of 1% of the total
outstanding shares or the average trading volume of the shares during the four
calendar weeks preceding such sale. In the absence of agreements with the
Representative, holders of substantially all of the outstanding restricted
shares of Common Stock could sell such shares in accordance with Rule 144 at any
time. Pursuant to the terms of the Underwriting Agreement, the Representative
has required that sales of the restricted securities referenced above may not
commence until 180 days from the date of this Prospectus without prior written
consent of the Representative. Future substantial sales of restricted securities
under Rule 144 or otherwise could negatively impact the market price of the
Common Stock. See "Shares Eligible for Future Sale."
In addition, 1,900,000 shares of Common Stock issuable upon exercise of
Class A Warrants, 380,000 shares of Common Stock issuable upon exercise of the
Unit Purchase Option and the related warrants, and 70,000 shares of Common Stock
issuable upon exercise of the Bridge Warrants are included within a registration
statement that the Company has previously filed with the Securities and Exchange
Commission. Subject to maintaining the effectiveness of such registration
statement, all such shares (if issued) may be sold in the public market at any
time. Furthermore, holders of approximately 1,325,000 of the restricted shares
referred to in the preceding paragraph and up to 224,000 shares of Common Stock
issuable upon exercise of the Representative's Warrants have certain demand and
piggyback registration rights which could require the Company to register such
shares. Exercise of these registration rights could involve substantial expense
to the Company. Any substantial sale in the public market of the shares
referenced in this paragraph could negatively impact the market price of the
Common Stock. See "Description of Securities -- Registration Rights."
Potential Adverse Effect of Issuance of Preferred Stock. The Company's
Articles of Incorporation allow the Company to issue up to 10,000,000 shares of
preferred stock, no par value (the "Preferred Stock"),
10
<PAGE> 13
without further shareholder approval and upon such terms and conditions, and
having such rights, preferences, privileges, and restrictions as the Board of
Directors (the "Board") may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of holders of
any Preferred Stock that may be issued in the future. In addition, the issuance
of Preferred Stock could have the effect of making it more difficult for a third
party to acquire control of, or of discouraging bids for, the Company. This
could limit the price that certain investors might be willing to pay in the
future for shares of Common Stock. The Company has no present plans to issue any
additional shares of Preferred Stock. See "Description of Securities."
Dividends Not Likely. The Company has not paid any cash dividends on the
Common Stock. For the foreseeable future, it is anticipated that earnings, if
any, that may be generated from the Company's operations will be used to finance
the operations of the Company and that cash dividends will not be paid to
holders of Common Stock. See "Dividend Policy."
Forward Looking Statements. This Prospectus contains forward-looking
statements and information that are based on management's belief and
assumptions, as well as information currently available to management. When used
in this document, the words "anticipate," "estimate," "expect," and similar
expressions are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Such statements are subject to certain risks, uncertainties
and assumptions. Should one or more of these risks or uncertainties materialize,
or should the underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or expected. Among the key factors
that may have a direct bearing on the Company's operating results are
fluctuations in the economy, the degree and nature of competition, acceptance
of, and demand for, the Digital Holography System, and the Company's ability to
successfully complete the development and commercialization of the Digital
Holography System, generate significant revenues from sales of the System,
recruit additional technical and marketing personnel, develop new market
opportunities for the Digital Holography System, and develop and maintain a
sufficient profit margin.
11
<PAGE> 14
DILUTION
As of March 31, 1996, the net tangible book value per share of the
Company's Common Stock was $0.28. "Net tangible book value per share" represents
the amount of the Company's tangible assets, less the amount of its liabilities,
divided by the number of shares of Common Stock outstanding.
After giving effect to the issuance of the 2,800,000 shares of Common Stock
offered hereby at an assumed offering price of $5.38 per share and after
deduction of estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company, and the receipt of the proceeds
therefrom and assuming no exercise of any outstanding stock options or warrants,
the net tangible book value per share of Common Stock as of March 31, 1996 would
have been $1.92. This would result in dilution to the new investors, i.e., the
difference between the purchase price of the shares and the net tangible book
value per share after the Offering, of $3.46 per share. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share(1)................... $5.38
Net tangible book value per share as of March 31, 1996....... $ .28
Increase per share attributable to the sale by the Company of
the shares offered hereby.................................. 1.64
-----
Net tangible book value per share after the Offering(2)...... 1.92
-----
Dilution of net tangible book value per share to new
investors.................................................. $3.46
=====
</TABLE>
- ---------------
(1) Before deducting estimated underwriting discounts and commissions and
estimated offering expenses to be paid by the Company.
(2) Assumes no exercise of the warrants or options to purchase Common Stock that
were outstanding at March 31, 1996. Outstanding options, all of which were
issued under the Option Plans prior to March 31, 1996, cover the purchase of
an aggregate of 506,521 shares at a weighted average exercise price of
$1.51. If these options are exercised, they will be dilutive to the
Company's shareholders, including the new investors. Outstanding warrants
include warrants to purchase an aggregate of 18,140 shares at an exercise
price of $3.09 and Bridge Warrants to purchase 70,000 shares at an exercise
price of $2.50. If these warrants are exercised, they will be dilutive to
the Company's shareholders, including the new investors. Exercise of the
1,900,000 Class A Warrants, the Representative's Warrants, and the Unit
Purchase Option (and the related warrants) will be anti-dilutive to the new
investors.
Giving effect to the exercise of all warrants and options referenced, with
the exception of the anti-dilutive warrants and option in footnote (2) above,
the adjusted net tangible book value of the Common Stock as of March 31, 1996
after the Offering would have been $1.90. This would result in dilution to the
new investors of $3.48.
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,800,000 shares of
Common Stock offered hereby are estimated to be approximately $13,490,000
($15,589,475 if the Underwriters' over-allotment option is exercised in full),
at an assumed offering price of $5.38 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company expects to use approximately $2.0 million of such net proceeds
for completion of development of the Digital Holography System, $4.0 million of
such net proceeds for expansion of marketing and sales activities for the System
through 1997, and $5.0 million of such net proceeds to finance revenue growth
and the accompanying increases in inventory and accounts receivable. The
remaining net proceeds will be used for general corporate purposes and working
capital. To the extent that additional proceeds are available, uses will include
(i) expansion of ongoing medical evaluation activities which examine additional
potential clinical applications for Voxgrams and (ii) engineering of follow-on
products and investigation of non-medical applications of Digital Holography.
Pending such uses, the Company intends to invest the net proceeds of the
Offering in government securities and insured, short-term, interest-bearing
investments of varying maturities.
Completion of development of the System encompasses the construction of
additional Beta Units, their successful field testing, and the initiation of
manufacturing of production units. These activities will necessitate
expenditures for Beta Unit parts, engineering design services, field support for
Beta Unit sites, and purchases of tooling. The proceeds allocated to System
completion also are intended to fund the Company's ongoing research, clinical
evaluation, and administrative functions until meaningful revenue is achieved.
Expansion of marketing and sales activities will entail commencement of
advertising, public relations, user training, and customer support efforts, as
well as increases in sales staff headcount, tradeshow attendance, and related
travel expenditures.
The largest use of proceeds will be to finance increases in inventory and
accounts receivable. The cash demands of revenue growth will depend upon the
rate of sales growth, the timeliness of customer payments for purchases, the
availability of receivables and inventory financing from third parties, and the
extent to which the Company offers (and customers select) financing arrangements
for the acquisition of Systems other than payment upon delivery. The terms of
the arrangements (including payment timing) between Voxel and any third party
finance company, and the frequency with which the Company offers and customers
select such arrangements, will impact the Company's working capital needs. There
can be no assurance that the Company will be able to offer such third-party
financing, or that potential customers will elect to acquire Systems on such
terms.
The foregoing represents the Company's estimate of the allocation of the
net proceeds of the Offering. Future events, including the problems, delays,
expenses, and complications frequently encountered by development stage
companies, as well as changes in economic, regulatory, or competitive
conditions, or changes in the Company's planned business and the success or lack
thereof, or changes in the Company's product development activities, may require
reallocation of funds or may require the delay, abandonment, or reduction of the
Company's efforts. There can be no assurance that the Company's estimates will
prove accurate, that product introduction efforts will not require considerable
additional expenditures, or that unforeseen expenses will not occur.
13
<PAGE> 16
PRICE RANGE OF COMMON STOCK
The Company's Common Stock, Class A Warrants, and units consisting of one
share of Common Stock and one Class A Warrant (the "Units") have been listed and
traded on the Nasdaq SmallCap Market since the IPO closed on November 1, 1994.
The Common Stock and Class A Warrant components of each Unit are also separately
transferable. The Company has applied for listing of the Common Stock on the
Nasdaq National Market, effective as of the closing of the Offering. There can
be no assurance that the Common Stock will be listed on the Nasdaq National
Market or, if listed, will maintain such listing. According to records of the
Company's transfer agent, the Company had approximately 104 shareholders of
record as of June 11, 1996. On July 29, 1996 the closing sales prices for the
Company's Common Stock, Class A Warrants, and Units were $5.375, $1.63, and
$6.75, respectively. The following table sets forth the high and the low sales
prices of the Common Stock since November 1, 1994.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
----
Fourth Quarter (From November 1, 1994)..................... $ 9.25 $ 5.69
1995
----
First Quarter.............................................. 7.00 4.63
Second Quarter............................................. 9.38 6.75
Third Quarter.............................................. 9.00 4.50
Fourth Quarter............................................. 7.00 1.75
1996
----
First Quarter.............................................. 7.69 2.38
Second Quarter............................................. 8.63 4.88
Third Quarter (Through July 29, 1996)...................... 7.50 5.25
</TABLE>
DIVIDEND POLICY
The Company has not paid cash dividends since inception. The Company
currently intends to retain all of its earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.
14
<PAGE> 17
CAPITALIZATION
The following table sets forth (a) the capitalization of the Company as of
March 31, 1996 and (b) the capitalization as of such date, as adjusted to
reflect the sale by the Company of the 2,800,000 shares of Common Stock offered
hereby at an assumed offering price of $5.38 per share.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term portion of capitalized lease obligations.................... $ 11 $ 11
Shareholders' equity:
Convertible Series C preferred stock, no par value,
authorized -- 4,000,000 shares; issued and outstanding
1,666,668(2)........................................................ 1,500 1,500
Common stock, no par value, authorized -- 15,000,000 shares; issued
and outstanding -- 4,956,817 shares (actual), 7,756,817 (as
adjusted)(3)........................................................ 18,447 31,937
Deficit accumulated during the development stage...................... (17,006) (17,006)
Notes receivable from shareholders.................................... (30) (30)
-------- -----------
Total shareholders' equity....................................... 2,911 16,401
-------- -----------
Total capitalization........................................ $ 2,922 $ 16,412
======== =========
</TABLE>
- ---------------
(1) Assumes receipt of estimated net proceeds of $13,490,000 after deduction of
underwriting discounts and commissions and estimated offering expenses
payable by the Company. Assumes no exercise of the Underwriters'
over-allotment option.
(2) As of May 15, 1996, all of the remaining 1,666,668 shares of convertible
Series C Preferred Stock had been converted into 384,404 shares of Common
Stock.
(3) Does not include (i) 358,512 shares of Common Stock reserved for as yet
unissued options under the Option Plans, (ii) 350,012 shares of Common Stock
issuable upon exercise of outstanding vested stock options under the Option
Plans at a weighted average exercise price per share of $1.14, (iii) 156,509
shares of Common Stock issuable upon exercise of outstanding unvested stock
options under the Option Plans at a weighted average exercise price per
share of $2.32, (iv) 18,140 shares of Common Stock issuable upon exercise of
outstanding warrants at an exercise price per share of $3.09, (v) 70,000
shares of Common Stock issuable upon exercise of the Bridge Warrants at an
exercise price per share of $2.50, (vi) 190,000 shares of Common Stock
issuable upon exercise of the Unit Purchase Option at an exercise price per
unit of $8.80, (vii) 190,000 shares of Common Stock issuable upon exercise
of the warrants included within the units underlying the Unit Purchase
Option at an exercise price per share of $10.00, (viii) 1,900,000 shares of
Common Stock issuable upon exercise of a like number of outstanding Class A
Warrants, and (ix) 224,000 shares of Common Stock issuable upon exercise of
the Representative's Warrants. See "Management -- Stock Option Plans," "Debt
Financing," "Description of Securities," and "Underwriting."
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's statements of operations for each of the three years in the period
ended December 31, 1995, and with respect to the Company's balance sheets at
December 31, 1994 and 1995 are derived from the Consolidated Financial
Statements which are included elsewhere in this Prospectus and which have been
audited by Ernst & Young LLP, independent auditors, as indicated in their report
included elsewhere in this Prospectus. The statement of operations data for the
year ended December 31, 1991 and 1992 and the balance sheet data at December 31,
1991, 1992, and 1993 are derived from consolidated financial statements audited
by Ernst & Young LLP which are not included herein. The financial data for the
three months ended March 31, 1995 and March 31, 1996 and for the period from
April 15, 1988 (inception) to March 31, 1996 are derived from unaudited
consolidated financial statements included elsewhere in this Prospectus. The
unaudited consolidated financial statements include all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for a
fair presentation of the financial position and results of operations for these
periods. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related Notes
thereto included elsewhere in this Prospectus.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
THREE-MONTHS ENDED APRIL 15, 1988
(DATE
YEAR ENDED DECEMBER 31, MARCH 31, OF INCEPTION)
---------------------------------------------------- ------------------- TO MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1996
----- ------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Costs and expenses:
Research and development..... $ 443 $ 699 $ 1,191 $ 2,924 $ 3,619 $ 973 $ 1,005 $ 10,134
General and administrative... 95 795 1,183 1,484 2,124 413 497 6,496
----- ------- ------- ------- ------- ------- ------- --------
538 1,494 2,374 4,408 5,743 1,386 1,502 16,630
----- ------- ------- ------- ------- ------- ------- --------
Loss from operations......... (538) (1,494) (2,374) (4,408) (5,743) (1,386) (1,502) (16,630)
Interest expense............. (28) (31) (233) (408) (33) (10) (4) (805)
Interest income.............. 52 64 10 59 199 75 41 429
----- ------- ------- ------- ------- ------- ------- --------
Net loss....................... $(514) $(1,461) $(2,597) $(4,757) $(5,577) $(1,321) $(1,465) $(17,006)
===== ======= ======= ======= ======= ======= ======= ========
Pro forma net loss(2).......... $(2,420) $(4,481)
======= =======
Net loss per share(2).......... $ (1.33) $ (0.32) $ (0.33)
======= ======= =======
Pro forma net loss per
share(2)..................... $ (1.18) $ (1.67)
======= =======
Shares used in computing net
loss per share(2)............ 2,043,842 2,677,788 4,183,355 4,108,794 4,499,303
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents, and short-term investments..... $ 2,386 $ 1,116 $ 160 $ 5,708 $ 4,398 $ 2,697
Working capital (deficit).............................. 2,319 905 (1,924) 5,408 3,822 2,346
Total assets........................................... 2,791 1,648 945 6,419 4,980 3,308
Short-term notes payable............................... -- -- 1,857 -- 105 --
Long-term lease obligation............................. -- 173 168 108 28 11
Deficit accumulated during the development stage....... (1,129) (2,590) (5,187) (9,964) (15,541) (17,006)
Convertible redeemable preferred stock(3).............. 3,799 3,799 3,799 -- -- --
Total common shareholders' equity (deficit)............ (1,085) (2,546) (5,143) 5,984 742 1,411
Total shareholders' equity (deficit)................... (1,085) (2,546) (5,143) 5,984 4,342 2,911
</TABLE>
- ---------------
(1) The Company is a development-stage business and has generated no operating
revenue.
(2) Computed on the basis described in Note 1 to the Consolidated Financial
Statements.
(3) See "Description of Securities -- Preferred Stock."
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Since its inception in 1988, the Company has been engaged in the design,
development, and medical evaluation of a sophisticated system that yields
film-based, hard copy images of the internal structure of the human body. The
Company's Digital Holography System consists of the Voxcam, an electro-optical
instrument that holographically images CT and MR data on film; Voxboxes, light
boxes to view the film; and Voxfilm, special silver halide film to record the
hologram.
The Company has not yet developed products for sale, has not earned
revenues, and has incurred substantial losses since inception. The Company
expects to continue to incur substantial operating losses through at least the
third quarter of 1997 as product development and marketing activities expand.
Certain prerequisites need to be fulfilled prior to initial commercial
sales of the Digital Holography System. One of these prerequisites was
accomplished on September 29, 1995, when the Company received 510(k) clearance
from the FDA to market the Digital Holography System as an adjunct to current
two-dimensional display techniques for diagnostic imaging data. The remaining
prerequisites to initial commercial sales include completion and successful
field testing of Beta Units, manufacturing of production units, and achievement
of market acceptance for the Digital Holography System. There can be no
assurance that, on a timely basis or at all, any or all of the remaining
prerequisites will be satisfied.
The Company currently anticipates that initial production units of the
Digital Holography System will be available for commercial sale no earlier than
the fourth quarter of 1996. The ongoing development and engineering activities
with respect to pre-production prototypes of the Voxcam have required more time
than was originally anticipated by the Company and its primary engineering
partner, General Scanning, Inc. This delay in manufacturing of initial
production units has increased the Company's requirements for capital. See "Risk
Factors -- No Assurance of Successful Product Development, Commercialization, or
Sales" and "-- Time Lapse Until Commercial Product Introduction."
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and March 31, 1995
The Company had no revenues during the first quarter of 1996 and 1995. Loss
from operations for 1996 increased by 8% to $1,502,000 from $1,386,000 for 1995,
primarily as a consequence of augmented marketing activities. Specific sources
of expenditure growth included increased sales and marketing staff, promotional
materials, and trade show costs. As a result, general and administrative expense
(which includes marketing) rose 20% to $497,000 from $413,000 in 1995. Research
and development expense ("R&D") expense increased 3% to $1,005,000 from $973,000
in 1995. The modest increase was attributable to the offsetting impact of
several factors. Payments to design firms for development and engineering
activities decreased significantly, while parts purchases with respect to
pre-production prototypes of the Voxcam increased equally. Savings in the cost
of operating the clinical research program were offset by an increase in the
resources devoted to the design and manufacture of pre-production units of the
Voxbox. Net loss for 1996 increased by 11% to $1,465,000 from $1,321,000.
Interest expense for 1996 was $4,000 compared to $10,000 in 1995. The decrease
resulted from smaller principal balances on capital lease obligations due to the
maturity of certain capital leases during 1995. Interest income for 1996 was
$41,000 compared to $75,000 in 1995 because a smaller balance of funds was
available for investment in marketable securities.
Years Ended December 31, 1995 and 1994
The Company had no revenues during 1995 and 1994. Loss from operations for
1995 increased by 30% to $5,743,000 from $4,408,000 for 1994. R&D expense
increased by 24% to $3,619,000 from $2,924,000. Payments to design firms for
development and engineering activities (including parts purchases) with respect
to pre-production prototypes of the Voxcam and Voxbox accounted for virtually
all of the increase in R&D
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<PAGE> 20
costs. General and administrative ("G&A") expense (which includes marketing
activities) increased by 43% to $2,124,000 from $1,484,000. This increase
resulted primarily from an intensified focus on marketing. In preparation for
product introduction, the Company augmented its trade show presence, clinical
exhibit support, and market research activities. Also contributing to the G&A
increase were modestly increased costs of administrative support for the growing
organization (e.g. rent, insurance, and office activities). Net loss for 1995
increased by 17% to $5,577,000 from $4,757,000 in 1994. Net interest income for
1995 was $166,000 compared to net interest expense of $349,000 in 1994. This
difference resulted from interest income on IPO proceeds that were invested in
short-term securities.
Years Ended December 31, 1994 and 1993
The Company had no revenues during 1994 and 1993. Loss from operations for
1994 increased by 86% to $4,408,000 from $2,374,000 for 1993. R&D expense
increased by 146% to $2,924,000 from $1,191,000. This increase was primarily
attributable to costs of design engineering services for development of the
commercial Voxcam and, to a much lesser extent, to increased headcount of
technical employees. G&A expense (which includes marketing activities) increased
by 25% to $1,484,000 from $1,183,000. This increase resulted primarily from (i)
non-cash compensation expense of $117,000 recognized in connection with stock
option grants in 1994 and (ii) increased marketing activity, including support
for the presentation of papers at medical meetings by the Company's research
collaborators. Net loss for 1994 increased by 83% to $4,757,000 from $2,597,000
in 1993. Net interest expense for 1994 was $349,000 compared to $224,000 in
1993. The increase resulted from interest expense on a larger outstanding
principal amount of notes used to fund the Company's operations until closing of
the IPO.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through private and
public sales of equity securities and the private placement of debt securities
and, to a far lesser extent, through equipment lease financing. As of March 31,
1996 the Company had raised net proceeds of $9,000,000 from the IPO, $3,799,000
from the sale of convertible redeemable Series A and Series B Preferred Stock,
$3,600,000 from the sale of Series C Preferred Stock, and $4,660,000 from the
sale of debt securities. The Series A and Series B Preferred Stock and
$2,460,000 of the debt (together with accrued interest thereon) were converted
to Common Stock at the closing of the IPO on November 1, 1994. The remaining
$2,200,000 of the debt securities (together with accrued interest thereon) was
repaid from the proceeds of the IPO. The Company had a capital lease obligation
of $90,000 as of March 31, 1996. See "Debt Financings."
The Company's net cash used in operating activities during the periods
ended March 31, 1996 and 1995 was $1,627,000 and $1,296,000, respectively. The
increase in cash used in operations was due primarily to an increase in R&D and
marketing activities. The Company's net cash used in operating activities during
the years ended December 31, 1995, 1994, and 1993 was $4,993,000, $4,354,000,
and $2,480,000, respectively. The increases in cash used in operations were due
primarily to increased R&D, medical evaluation activity, and marketing. As of
March 31, 1996, the Company had cash and short-term investments totaling
$2,698,000. This compares with cash and short-term investments totaling
$4,398,000, $5,708,000, and $160,000 at December 31, 1995, 1994, and 1993,
respectively. The decrease in cash at March 31, 1996 was due to the use of cash
for operations. The decrease in cash at year end 1995 was due to the use of cash
for operating activities, partially offset by the receipt of $3,600,000 of net
proceeds from the placement of Series C Preferred Stock. The increase in cash
balance from 1993 to 1994 is the result of the completion of the IPO and the
receipt of $9,000,000 of net proceeds therefrom. As of March 31, 1996, the
Company had working capital of $2,347,000 as compared to working capital of
$3,822,000 at December 31, 1995. This compares with working capital of
$5,408,000 at December 31, 1994 and a working capital deficit of $1,924,000 at
December 31, 1993. Working capital at March 31, 1996 is primarily the result of
the net proceeds received from the Series C Preferred Stock, offset by cash used
for operating activities. Working capital at December 31, 1995 is primarily the
result of the net proceeds received from the sale of the Series C Preferred
Stock. The working capital at December 31, 1994 is a consequence of the receipt
of IPO proceeds and their investment in short-
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<PAGE> 21
term securities. The working capital deficit in 1993 was primarily the result of
the Company's use of short-term notes to fund operating expenses.
The Company has no material commitments for capital expenditures. However,
the Company has entered into agreements with design engineering firms pursuant
to which the Company has paid and will continue to pay a substantial portion of
the cost of developing a commercial version of the Digital Holography System.
These contracts include some fixed price provisions, as well as time and
materials payments. See "Use of Proceeds." The Company anticipates that its
aggregate future commitments under these agreements will exceed $750,000.
The Company believes that the net proceeds of the Offering, together with
available cash, will be sufficient to meet the Company's operating expenses and
capital requirements for at least 12 months following completion of the
Offering. However, the Company may require additional funding in order to
achieve its operating objectives. The amount and timing of the Company's future
capital requirements will depend upon many factors, including progress of the
Company's research and development and the extent and timing of acceptance of
the Digital Holography System. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all, when
required by the Company. See "Risk Factors -- Need for Additional Financing."
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<PAGE> 22
BUSINESS
OVERVIEW
Voxel is engaged in the development and marketing of a proprietary system,
the Digital Holography System, that produces "three-dimensional X-rays" of the
internal structure of the human body. The System consists of the Voxcam(R)
imager, an electro-optical instrument that holographically images CT and MR data
on film; Voxbox(R) light boxes to view the film; and Voxfilm(TM), special silver
halide film to record the hologram. The proprietary process used by the Voxcam
to encode information makes it possible to record up to 200 or more
cross-sectional images from a CT or MR examination on a single sheet of Voxfilm.
The finished image is called a Voxgram(R). On September 29, 1995, the Company
received clearance from the FDA to market all three elements of its Digital
Holography System.
The Voxgram image is an accurate, three-dimensional holographic replica of
the patient's anatomy which is projected through a six-inch deep volume in front
of the Voxbox. Conventional CT and MR display techniques provide a large number
of individual two-dimensional images, each representing a single cross-sectional
plane through the body. The physician is required either to mentally integrate
those many images or to examine computer generated renderings that simulate the
third dimension. However, these renderings can not and do not display accurate
volumetric information and are to be distinguished from Voxel's true three-
dimensional holographic images.
More than 40 medical centers have studied Voxgrams' clinical utility in
connection with conditions that affect anatomical regions most commonly targeted
by CT and MR examinations -- the head, spine, skeleton, and blood vessels. This
research has yielded more than 120 scientific presentations and papers and five
articles in relevant medical journals. The results of these studies suggest that
Voxgrams provide for more accurate and comprehensive diagnosis of medical
conditions and improve surgical planning. The Company believes that Voxgrams may
also save time in the operating theatre and in the surgical planning process,
and may enable physicians to diagnose conditions that are extremely difficult or
impossible to detect with existing display techniques.
Voxel's principal strategic objective is to make it necessary for
diagnostic imaging sites to offer volumetric holographic images in addition to
cross-sectional images in order to be considered acceptable providers. The
Company's potential United States market encompasses more than 5,000 hospital
and diagnostic imaging centers which, using more than 9,000 CT and MR scanners,
performed in excess of 26 million examinations in 1994. Each of these sites is a
potential purchaser of the System and each of these patient examinations could
potentially be printed on Voxfilm. The Company believes that Japanese
utilization of CT and MR scanners is comparable to that of the United States and
Europe's utilization of CT and MR scanners is growing.
Assimilating Voxel's technology will not require a major change in a
hospital's equipment or procedures. CT and MR data will continue to be collected
in the current format, without any modification in routine physician practice.
Additional scanner time will not be required and the patient's radiation dose
will not be changed. The data will be prepared for holographic printing using a
technique similar to that used to prepare two-dimensional images. After scanning
the patient, the technician will adjust brightness and contrast to get the most
useful images, which will then be printed by the Voxcam.
Voxel believes that its patent applications and granted patents provide a
meaningful proprietary position in all elements of the System including, most
importantly, the Voxfilm. The Company, together with its OEM manufacturing
partners, is completing initial pre-production Systems in preparation for
production of commercial Systems. Initial sales activities are underway,
focusing on institutions with active neurosurgery and/or orthopedic surgery
practices. The Company expects to work closely with its customers to broaden the
clinical applications in which Voxgrams will be routinely used and thereby
increase Voxfilm utilization. The Company's objective is to make Digital
Holography(TM) a standard of medical imaging.
MEDICAL IMAGING
The ability to examine and comprehend the internal workings of the human
body is a critical element of diagnostic medicine. Before the discovery of
X-rays, a physician's ability to understand internal human
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<PAGE> 23
anatomy was limited to indirect visual and acoustic techniques or exploratory
surgery. The critical importance of discovering what was occurring inside the
patient led to the adoption of a series of increasingly advanced medical imaging
modalities: first X-ray, then CT, then MR. Management believes that these
improvements in the means for collecting information about the inside of the
body have not been matched by corresponding progress in techniques for
displaying the data.
The more advanced medical imaging modalities, CT and MR, are highly
specialized. These modalities can be crucial to accurate diagnosis and
successful treatment, and are now in general use. However, the complexity of
their images limits the degree to which doctors can appreciate and utilize the
information they contain. Unlike the conventional X-ray films familiar to most
physicians, the complicated CT and MR displays may be fully understood only by
radiologists.
Two-Dimensional Data Acquisition: X-rays
X-rays were discovered in 1895. For the first time, physicians were able to
see inside the human body without performing surgery. The images were simple
projections of the anatomy onto one plane created by the differential absorption
of X-rays by the various body tissues. The physician used his or her prior
knowledge and experience to mentally generate the third dimension.
Three-Dimensional Data Acquisition: CT and MR
All forms of medical imaging collect information from volumetric targets.
All depth information is lost in conventional X-ray images. CT, the first
practical system to provide more data about the third dimension, was developed
during the late 1960s. CT scanners employ a mathematical technique to derive
images from a series of measurements taken with a rotating X-ray source and
electronic detectors. Each of the resulting images shows a "slice" through the
patient. A sequence of such slices is obtained by repeating the imaging process
while moving the patient along the axis of the scanner. The resulting stack of
slices contains detailed information about the three-dimensional structure of
the patient. The slices are printed next to each other on a flat piece of film.
MR imaging was developed in the early 1980s. MR measures radio waves
emitted by a chemical element in the body which is selectively excited in the
presence of a strong magnetic field. The signals emitted are influenced by their
environment, which is important for tissue differentiation. Because the body is
primarily made up of water and fat (both of which contain abundant quantities of
the needed element), a great many signals are produced. The computers in MR
scanners use complex mathematical formulae to convert these signals into slice
images. An advantage of using MR is that anatomical structures can be observed
from any orientation. Nonetheless, the data are displayed in two-dimensional
form on flat film or a video terminal.
In order to benefit from CT and MR technologies, radiologists have had to
learn to interpret changes through the volume of the patient's anatomy from sets
of two-dimensional slices, attempting three-dimensional reconstruction in their
minds.
Interpreting CT and MR Data
The medical imaging process involves several steps. Initially, a patient
will have seen a primary physician who will have made a provisional diagnosis
prior to referring the patient to a radiologist. The radiologist will consider
the provisional diagnosis in deciding how to examine the patient. Selection of
the appropriate modality, i.e., CT or MR, the specific techniques to be used in
collecting the data, and whether to use contrast agents to enhance the data,
requires considerable skill and experience. A radiological technologist conducts
the CT or MR examination, reviews the images to confirm their quality, and
routes them to a camera (sometimes referred to as a printer) that makes black
and white film copies.
The radiologist examines the CT and MR images on a light box and dictates a
report for the referring physician. In arriving at a conclusion, the radiologist
attempts to integrate the information from all of the slices to create a single
mental picture of the relevant portion of the patient's anatomy. Mental
reconstruction can be subjective. Different examiners may "see" different
pictures. Radiologists sometimes find it difficult to
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<PAGE> 24
visualize the third dimension accurately. Referring physicians (who have had
less training and experience examining images) may be at an even greater
disadvantage. These limitations arise from a key problem: a patient's body is a
complex volumetric structure, an assembly of tissues and organs which
intermingle and combine in three dimensions, while conventional displays are
two-dimensional. A better display technique could enhance the efficiency -- and
the accuracy -- of interpretation, treatment planning, and therapeutic
intervention. In addition, patients would benefit from seeing a more
recognizable representation of their condition, so that they could better
understand the advice of their physicians and provide more fully informed
consents.
THE VOXEL SOLUTION
Digital Holography
Unlike traditional two-dimensional displays of CT and MR data, the Digital
Holography System provides an accurate, life-size three-dimensional image of the
patient's anatomy. The System, of which pre-production prototypes are currently
being constructed, consists of three components -- the Voxcam, the Voxbox, and
Voxfilm. Together, they enable a user to produce and examine Voxgrams. The
Voxcam is a laser-driven optical camera that receives electronic images
collected by CT and MR scanners, projects them using a liquid crystal display
(similar to those used in certain video projection systems), and records them on
Voxfilm. Each image from a scan is individually exposed in sequential fashion
and in its proper location. All of these exposures are recorded on a single
piece of Voxfilm, which is then developed in an attached automatic processor.
Once the Voxfilm has been processed, it is displayed on a special lightbox
called a Voxbox. The Voxbox is an inexpensive, compact, self-contained, portable
unit. Although the Voxbox contains proprietary technology to illuminate the
Voxgram, it is similar in appearance to the light boxes currently used
throughout medicine for viewing conventional two-dimensional film. The Voxbox
uses ordinary white light to reconstruct the hologram instead of requiring a
laser as is usually the case. The Voxbox can be rotated or tilted, allowing the
user to view a Voxgram from a variety of different perspectives.
Voxfilm shares many characteristics with ordinary X-ray film, but its
composition and the proprietary process used to encode information make it
possible to record, when appropriate, more than 200 slices from a CT or MR
examination on a single sheet. An exposed and developed Voxgram is a 14" by 17"
sheet of film which reveals only a faint glow when held up to ambient light.
When placed upon a Voxbox, it displays a detailed three-dimensional image
stretching through a six-inch deep volume.
Assimilating Voxel's technology will not require a major change in a
hospital's equipment or procedures. The CT and MR examination procedures are
unchanged. Additional scanner time will not be required and the patient's
radiation dose will not be changed. The data will be prepared for printing using
a technique similar to that used to prepare two-dimensional images. After
scanning the patient, the technician will adjust brightness and contrast to get
the most useful images, which will then be printed.
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<PAGE> 25
[ARTWORK]
The Digital Holography System as it is expected to be used in a typical
radiology suite. The Voxcam and Voxboxes are analogous to conventional
two-dimensional cameras and light boxes.
Holography
Holography is similar to photography. In both, light illuminates an object
and the reflected light is recorded in a thin photosensitive layer on a sheet of
film. There are, however, substantial differences between photography and
holography. The lens of a photographic camera forms a single image of an object,
flattening it to a two-dimensional picture. When looking at a photograph, one
can only see this flat picture as it appeared from the original vantage point of
the camera lens. A holographic camera, on the other hand, uses a laser in place
of a lens and records the entire wave front emanating from an object. This wave
front contains intensity, distance, and directional information. The object is
recorded and displayed three-dimensionally, and one can view the object as it
would have appeared from a whole range of different vantage points by simply
moving one's head.
Conventional Holography
A conventional hologram is made by splitting a laser beam in half, shining
one part, the "reference beam," onto the holographic film and directing the
other, the "object beam," to reflect off the object to be holographed.
Information about the object's appearance and position are recorded when the
beams intersect on film.
Multiple Exposure Holography
Reflecting light off of an object is not feasible when the "object" is
inside a patient's body. Thus, a Voxgram cannot be a conventional hologram.
Instead, the "object" for a Voxgram is a projection screen which sequentially
shows slices from a CT or MR scan. A hologram of the first slice is made, then
the screen is moved back a distance corresponding to the gap between the slices,
the next slice is projected onto it, and a second hologram is superimposed on
the first. More slices are encoded by repeating this procedure with
appropriately greater distances between the screen and the film. The process is
similar to multiple-exposure photography where several exposures are made on a
single piece of film, but the holograms encode the location
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<PAGE> 26
as well as the intensity of each exposure. When reconstructed, each holographic
exposure appears at a different distance from the film; the slices are suspended
in space with the correct separation between them.
[ARTWORK]
Schematic for making a volumetric multiple-exposure hologram of an MR or CT scan
(simplified).
A large number of exposures (up to 200 or more) can be combined with proper
selection of holographic angles, intensities, and processing chemicals.
Management believes that without Voxel's proprietary technology one cannot
combine more than a small number of slices.
The Company has expended substantial resources developing the Digital
Holography System, including research and development expenses totaling
$699,000, $1,191,000, $2,924,000, $3,619,000, and $1,005,000 for the years ended
December 31, 1992, 1993, 1994, and 1995, and the three months ended March 31,
1996, respectively.
Holographic Display Systems
A hologram must be illuminated correctly to be seen as a bright,
undistorted image without any compromise in its three-dimensionality. To achieve
correct illumination, the classic method is to use laser light identical to that
with which the hologram was made. However, suitable lasers are expensive and
inconvenient; they generally are not found outside optics laboratories. There
are several alternatives which use white light instead of a laser:
- One approach uses the hologram as a filter to reduce the incoming light
to one color: the image becomes sharper but dimmer. Medical images require a
sharp, bright image.
- Another approach is to sacrifice the vertical information in a hologram,
which causes the image to disappear when viewed from above or below. Medical
images must be viewable from vertical as well as horizontal perspectives.
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- The proprietary Voxbox solves the current limitations inherent in white
light displays by pre-spliting the light into an inverted spectrum enabling the
hologram to recombine the light into a bright, sharp image while preserving both
vertical and horizontal perspectives.
[ARTWORK]
Schematic for the prototype Voxbox, a white-light viewer for holograms
(simplified).
CLINICAL APPLICATIONS RESEARCH
Evaluations of Voxel's proposed system have been conducted, and are
continuing, at medical centers throughout the United States, including Harvard
University, George Washington University, the Mallinckrodt Institute of
Radiology, and the University of New Mexico. These programs have concentrated on
the parts of the body (i.e., the head, spine, skeleton, and blood vessels) and
the kinds of conditions (i.e., tumors, trauma, and vascular abnormalities) that
are commonly examined with CT and MR scanners. The studies are designed to
determine if the Digital Holography System will (i) allow diagnosis of
conditions that are extremely difficult or impossible to detect with existing
technology; (ii) provide for more accurate and comprehensive diagnosis and
understanding of conditions that are difficult to characterize fully with
existing technology; (iii) increase the radiologist's confidence in the
diagnosis made; (iv) reduce the time required to arrive at a diagnosis; (v)
facilitate communication of relevant information to referring physicians; (vi)
improve surgical planning; and (vii) allow for more fully informed patient
consent to treatment.
Studies of the System began in the Spring of 1992. In practice, the Voxcam
is intended to be directly connected to CT and MR scanners so that the digital
data from the scanners can be made into Voxgrams on site. In order to conserve
the Company's financial resources, a program was designed to simulate the
presence of a Voxcam in each participating institution. Participating
institutions transmit data from study cases to the Company by sending relevant
tapes or disks. Voxel's personnel produce the corresponding Voxgrams and return
them to the institutions by overnight courier. Because each site has been
provided with Voxboxes, physicians can examine the Voxgrams in the same manner
as if they had been produced on site. The Company does not pay for the CT or MR
scan or the interpretation and has rarely paid for the costs of the research
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<PAGE> 28
study. No other payments have been made to investigators or their institutions.
Participants are free to publish their findings.
Voxel's research collaborators have presented over 120 oral papers and
scientific exhibits reporting on the usefulness of the Company's technology at
domestic and international meetings of medical and scientific organizations.
Several additional papers have been accepted for presentation in the near future
and more are under consideration for meetings scheduled through November 1996.
The principal forum for scientific reports on medical imaging is the annual
meeting of the Radiological Society of North America ("RSNA") which is attended
by more than 20,000 physicians and health professionals. Many of the
aforementioned papers and exhibits have been presented at RSNA meetings and
others have been given at meetings of radiologic subspecialists (e.g., American
Society of Neuroradiology, European Society of Neuroradiology, British Society
of Neuroradiology, and American Society of Emergency Radiology). Referring
physicians, especially neurosurgeons, orthopedists, and cardiologists, have also
made presentations to their peers at their own professional meetings.
Presentations have been made at the Congress of Neurosurgeons, the American
Academy of Neurological Surgeons, the American Academy of Orthopedic Surgeons,
the American Heart Association, and the American College of Cardiology.
The reports by Voxel's research collaborators at domestic and international
meetings suggest that the Company's technology is useful in diverse settings and
in support of the indications most commonly targeted by CT and MR procedures,
including neurological, orthopedic, and cardiac conditions. Most of the data for
these submissions were collected using traditional CT or MR techniques, but
these submissions also included studies using leading edge scanner applications
such as (i) non-invasive MR visualization of blood vessels, (ii) MR
visualization of the nervous system, (iii) high speed, high resolution CT, and
(iv) three-dimensional ultrasound.
SALES AND MARKETING
Voxel's principal strategic objective is to make it necessary for
diagnostic imaging sites to offer volumetric holographic images in addition to
cross-sectional images in order to be considered acceptable providers. In 1994,
approximately 5,000 sites in the United States, using more than 9,000 CT and MR
scanners, performed approximately 26 million procedures. When the Digital
Holography System becomes available for sale, management expects to participate
in this market through the sale of Voxcams and Voxboxes, as well as through
continuing sales of Voxfilm and development chemicals. The Company believes that
Japanese utilization of CT and MR scanners is comparable to that of the United
States and Europe's utilization of CT and MR scanners is growing. The Company
expects to participate in those markets after the Digital Holography System has
been introduced in the United States. However, there can be no assurance that
the Digital Holography System will be accepted for general use in connection
with any of the illnesses which are commonly examined with CT or MR scanners.
The Company's initial marketing efforts will focus on institutions with CT
or MR scanners that have active neurosurgery and orthopedic surgery practices.
These practices are responsible for prescribing the majority of CT and MR
studies performed and they use the resulting images in the planning and
execution of surgical procedures. After an institution has purchased the Digital
Holography System, the Company intends to expand the System's utilization and
increase film consumption by promoting the technology to other of the
institution's medical specialists.
The Company plans to use a direct sales force to call on potential
customers who will have been qualified by virtue of the scanners they use, the
number of neurosurgical and orthopedic procedures they perform, and their
geographic proximity to System installations then in place. The sales effort is
expected to include intensive after-sale customer service to facilitate the
routine use of Voxgrams for the aforementioned conditions and the use of
Voxgrams for new medical applications which may be revealed by ongoing research.
Several companies currently distribute film to the medical marketplace.
Voxel has had initial discussions with certain of those companies regarding
distribution of Voxfilm. A quality field service program is another prerequisite
to the Company's success. Established national organizations have expressed
interest in perform-
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<PAGE> 29
ing field service on the Company's behalf. Discussions are underway which Voxel
anticipates may result in acceptable arrangements. However, there can be no
assurance that the Company will be able to obtain either film distribution or
field service on commercially desirable terms or at all.
The Company has no experience in marketing, sales, or distribution, and no
facilities or resources with which to conduct such activities. To market the
Digital Holography System, the Company must develop a marketing and sales force
with technical expertise and the Company must arrange for a supporting
distribution capability. There can be no assurance that the Company will be able
to establish suitable sales, distribution or support capabilities.
INTELLECTUAL PROPERTY
The Company's success is dependent in large measure on its ability to
obtain patent protection for the System, maintain confidentiality of its trade
secrets and proprietary know-how, and operate without infringing upon the
proprietary rights of third parties.
The Digital Holography System has three main components: the Voxcam, the
Voxbox, and Voxfilm. Two patents relating to the Voxbox have been granted in the
United States, and corresponding patents have issued in Japan, Canada, the
United Kingdom, Australia, and numerous European countries. The United States
patents will expire in 2003.
The Company believes that it will be granted proprietary protection for
both the individual elements of the Digital Holography System and for the system
as a whole. The Company's intellectual property derives in large part from a
unique method for making a multiple exposure hologram which may contain 200 or
more individual images. This method requires an understanding of a variety of
factors that control how many exposures a given piece of film can accommodate
(the film's image capacity) as well as the ability to make each of the exposures
in the hologram so that it uses the appropriate portion of that image capacity.
The Company filed a comprehensive patent application in 1992 which covers
substantially all aspects of this method, the Voxcam, the wet-chemical
processing of holograms, the film employed in the process, and numerous other
technological advancements developed by the Company. The application was filed
in the United States, preserving all applicable rights to file timely
corresponding applications throughout the world. The Company has received and
responded to preliminary communication from the U.S. Patent and Trademark
Office.
There can be no assurance that this or any future patent applications filed
by the Company will be granted or that, if a patent is granted as a result of
the current application, such patent will cover all or a substantial portion of
the proposed claims. With respect to patents held by the Company or issued to
the Company in the future, there can be no assurance that such patents will
provide competitive advantages or will not be challenged by third parties or
that patents issued to others will not have an adverse effect on the ability of
the Company to conduct its business. In addition, there can be no assurance that
the Company's patents would be held valid by a court of law of competent
jurisdiction or, if held valid, the Company would have sufficient resources to
enforce its patent rights. In the event the Company is found to have infringed
upon the patent rights of others, there can be no assurance that Voxel would be
able to obtain licenses to any of such patents.
The Company also relies on trade secrets and proprietary know-how. The
Company has been, and will continue to be, required to disclose its trade
secrets and proprietary know-how not only to employees and consultants, but also
to potential corporate partners, collaborators, and contract manufacturers.
Although the Company seeks to protect its trade secrets and proprietary
know-how, in part by entering into confidentiality agreements with such persons,
there can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach, or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by competitors. See "Risk Factors -- No Assurance of
Obtaining Patent Protection and Maintaining Confidentiality of Proprietary
Information."
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<PAGE> 30
THIRD-PARTY REIMBURSEMENT
The cost of a significant portion of medical care in the United States is
funded by government and private insurance programs, such as Medicare, Medicaid,
health maintenance organizations, and private insurers, including Blue
Cross/Blue Shield plans. Governmental imposed limits on reimbursement of
hospitals and other health care providers have significantly impacted their
budgets. Under certain government insurance programs, a health care provider is
reimbursed a fixed sum for services rendered in treating a particular condition,
regardless of the actual costs of such treatment. Private third-party
reimbursement plans and health maintenance organizations are also developing
increasingly sophisticated methods of controlling health care costs through
redesign of benefits and exploration of more cost-effective methods of
delivering health care. In general, these government and private
cost-containment measures have caused health care providers to be more selective
in the purchase of medical products.
The availability and magnitude of third party reimbursement for the costs
of use of Digital Holography may vary as a function of the identity of the
payor, the setting in which the CT or MR examination is performed, and the
billing practices of the entity that uses the System. The Company will attempt
to provide its customers with guidance as to the appropriate methods to seek
third-party reimbursement for use of Digital Holography. To facilitate
reimbursement, the Company has initiated efforts directed towards obtaining a
modification to existing codes for reporting medical procedures to explicitly
reference holographic imaging or a new code specific to holographic display of
CT or MR data. The process to amend coding guidelines is lengthy and there can
be no assurance that the Company's efforts in this regard will be successful.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and there can be no assurance that adequate
third-party reimbursement will be available. Neither Medicare nor any other
third party payor has considered the reimbursement status of the System.
Limitations imposed by government and private insurance programs and the failure
of certain third-party payors to fully or substantially reimburse health care
providers for the procedures associated with use of the System could have a
material adverse effect on the Company. See "Risk Factors -- Uncertainty
Relating to Third Party Reimbursement."
MANUFACTURING
Voxel manages the development and engineering of its products but will use
original equipment manufacturers to produce the Voxcam, Voxbox, and Voxfilm. To
date, development and engineering activities with respect to pre-production
prototypes of the Voxcam have been performed for the Company by General Scanning
Inc. ("GSI"), a firm that has designed and manufactured medical imaging devices
for major domestic and international suppliers. These development and
engineering activities have focused on implementing significant improvements
over the current laboratory prototypes of the Voxcam. The Company believes that
these improvements are necessary to create a commercial product that would
satisfy potential customers. Areas of improvement include shape, size, user
interface, extent of automation, component cost, and ability to withstand
hostile environments. There can be no assurance that a sufficient number of
these improvements will be achieved to create a viable commercial product. In
August 1994, the Company entered into a development and supply contract for the
Voxcam with GSI. The Company continues to take steps to foster its manufacturing
program. For example, in January 1995, Voxel agreed to provide increased
financial support to GSI and GSI agreed to increase resource allocation for
Voxcam development. GSI is currently constructing the Beta Units in anticipation
of commencement of field testing to confirm their proper operation. Upon
successful completion of field testing, of which there can be no assurance, GSI
will commence production of Voxcams for commercial sale.
Voxel is evaluating a number of potential suppliers for the Voxbox. The
Company currently purchases Voxfilm from Agfa Gevaert, one of the world's
leading manufacturers of silver halide film products. There can be no assurance
that manufacturers with which the Company is currently cooperating will meet the
Company's requirements for quality, quantity, and timeliness and the FDA's GMP
requirements or that, in the future, the Company would be able to find a
substitute manufacturer for the elements of the Digital Holography System. The
System must be manufactured in compliance with GMP in order for it to be
28
<PAGE> 31
distributed in the United States. The Company's dependence on others for the
manufacture of its products may adversely affect the future profit margin, if
any, on the sale of the System and the Company's ability to develop and deliver
products on a timely and competitive basis. See "Risk Factors -- Dependence on
Others for Manufacture" and "Business -- Government Regulation."
COMPETITION
Voxel is not aware of any academic or commercial institution actively
developing multiple exposure holography to display medical images.
The Digital Holography System may compete in the future for market share
with currently available methodologies for viewing the results of CT and MR
scans. Potential purchasers of the Digital Holography System may determine that
currently available display techniques for CT and MR with which they are already
familiar (including unaided visual examination of the slice images) are
sufficient to make requisite diagnoses and facilitate treatment. The perceived
value of the Digital Holography System may be influenced by future health care
legislation, insurance reimbursement policies, and cost-containment measures
adopted by health care providers and payors. In addition, competition may arise
from products currently in development, or that may be developed in the future,
by other companies. Many of the current and potential competitors are likely to
have substantially greater capital resources, research and development staffing,
and facilities than the Company. In addition, many potential competitors have
extensive experience with CT and MR procedures and technologies.
One currently available alternative approach to volumetric display is to
use computer graphics technology. A single pseudo-three-dimensional picture is
synthesized from the individual two-dimensional images. Traditional artistic
effects (e.g., shading, perspective) are used to convey an impression of depth.
The Company believes that one of the limitations of computer-generated
pseudo-three-dimensional images is that only psychological depth cues can be
used. Psychological cues depend on surfaces; computer-generated surfaces
introduce certain compromises and distortions. Moreover, substantial computer
hardware and software skill, experience, time, and effort are required to
produce these pictures. A variety of suppliers of CT and MR scanners as well as
independent companies offer software and workstations that generate pseudo-
three-dimensional pictures. These systems also have other uses; they enable
radiologists to interact with the data that have been collected by scanners and
they may facilitate the production of "what if " images which some surgeons have
found useful in surgical planning. When used for that purpose, the workstations
can serve as a source of data for Voxgrams so true volumetric displays can be
made after the data have been manipulated. The Company believes that Voxgrams
may, therefore, add value to users of workstations. While the Company views
workstations as complementary, some physicians may find them to be an acceptable
alternative to the Digital Holography System. See "Risk Factors -- Intense
Competition and Rapid Technology Change."
GOVERNMENT REGULATION
The medical devices currently under development by the Company are
regulated by the FDA under the Federal Food, Drug and Cosmetic Act (the "FDC
Act") and require regulatory clearance prior to commercialization in the United
States. Under the FDC Act, the FDA regulates preclinical and clinical testing,
manufacturing, labeling, distribution, sale, marketing, advertising, and
promotion of medical devices in the United States. Noncompliance with applicable
requirements can result in fines, injunctions, civil penalties, detention,
recall or seizure of products, total or partial suspension of production,
distribution, sales and marketing, withdrawal of marketing approvals or
clearances, a recommendation by the FDA that the manufacturer or distributor not
be permitted to enter into government contracts, and criminal prosecution. In
certain circumstances, the FDA also has the authority to order the manufacturer
or distributor of a device to repair, replace, or refund the cost of the device.
Various states and other countries in which the Digital Holography System may be
sold in the future may impose additional regulatory requirements.
Following the enactment of the Medical Device Amendments of 1976 to the FDC
Act, the FDA classified medical devices in commercial distribution at the time
of enactment into one of three classes --
29
<PAGE> 32
Class I, II, or III. This classification is based on the controls necessary to
reasonably ensure the safety and effectiveness of medical devices. Class I
devices are those whose safety and effectiveness can reasonably be ensured
through general controls, such as labeling, the pre-market notification
("510(k)") process, and adherence to FDA-mandated GMP. Class II devices are
those whose safety and effectiveness can reasonably be ensured through the use
of general controls together with special controls, such as performance
standards, post-market surveillance, patient registries, and FDA guidelines.
Generally, Class III devices are devices that must receive pre-market approval
by the FDA to ensure their safety and effectiveness. They are typically life-
sustaining, life-supporting, or implantable devices, and also include most
devices that were not on the market before May 28, 1976 and for which the FDA
has not made a finding of substantial equivalence based upon a 510(k).
If a manufacturer or distributor of medical devices can establish to the
FDA's satisfaction that a new device is substantially equivalent to a legally
marketed Class I or Class II medical device or to a Class III device for which
the FDA has not yet required pre-market approval, the manufacturer or
distributor may market the device. In the 510(k), a manufacturer or distributor
makes a claim of substantial equivalence, which the FDA may require to be
supported by various types of information showing that the device is as safe and
effective for its intended use as the legally marketed predicate device.
Following submission of the 510(k), the manufacturer or distributor may not
place the new device into commercial distribution until an order is issued by
the FDA finding the new device to be substantially equivalent.
On September 6, 1995, the Company submitted a 510(k) to the FDA covering
the Voxcam, Voxbox, and Voxfilm. On September 29, 1995, the Company received
findings of substantial equivalence from the FDA covering the Voxcam, Voxbox,
and Voxfilm, permitting the commercial distribution of the Digital Holography
System as an adjunct to current two dimensional display techniques for
diagnostic image data.
If the Company needs, either before or after commercial release of the
Digital Holography System, to make a modification (e.g., in design or intended
use) which could significantly affect the safety or effectiveness of the Digital
Holography System, the Company will be required to submit a new 510(k) and
establish to the FDA's satisfaction that the Digital Holography System, as
modified, is substantially equivalent. The need to obtain FDA clearance of a new
510(k) (which would not be assured) could significantly delay (or prevent)
commercialization of a modified Digital Holography System. The Company does not
currently intend to take any action to modify the System or its intended use in
a fashion which would make it unsuitable for 510(k) clearance. See "Risk
Factors -- Continued Regulatory Compliance Required."
The Company will also be required to register as a medical device
manufacturer with the FDA and state agencies, such as the California Department
of Health Services ("CDHS"), and to file a listing of its products
semi-annually. The Company or its contract manufacturer (see "Risk
Factors -- Dependence on Others for Manufacture") will be inspected on a routine
basis by both the FDA and the CDHS for compliance with the FDA's GMP and other
requirements including the medical device reporting regulation and various
requirements for labeling and promotion. The FDA's GMP regulation requires,
among other things, that (i) the manufacturing process be regulated and
controlled by the use of written procedures, and (ii) the ability to produce
devices which meet the manufacturer's specifications be validated by extensive
and detailed testing of every aspect of the process. The regulation also
requires investigation of any deficiencies in the manufacturing process or in
the products produced and detailed record keeping. The FDA has proposed changes
to the GMP regulation that would, if finalized, likely increase the cost of
complying with GMP requirements. The medical device reporting regulation
requires that the device manufacturer provide information to the FDA on deaths
or serious injuries alleged to have been associated with the use of its marketed
devices, as well as product malfunctions that would likely cause or contribute
to a death or serious injury if the malfunction were to recur. Also, because the
Voxcam will contain a laser, the Company will be required to comply and certify
compliance with the FDA's performance (safety) standard governing laser
products. Changes in existing requirements or interpretations (on which
regulations heavily depend) or adoption of new requirements or policies could
adversely affect the ability of the Company to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. Compliance with such laws and regulations now or in the
future could require substantial expenditures by the Company.
30
<PAGE> 33
OTHER POTENTIAL MARKETS
Voxel's technology is also potentially useful in a variety of other
non-medical settings where volumetric information is important, such as
non-destructive testing of airplane parts and volumetric visualization of oil
fields and atomic reactor cores. In order for the Digital Holography System to
be useful for these applications, potential customers would have to collect data
in an appropriate format. Collecting appropriate data could be expensive and
time consuming and, as a result, potential customers may consider the System
unsuitable. Proving that the Digital Holography System is suitable for these
applications will involve additional applications research. While the Company
currently intends to pursue these applications in the future, there can be no
assurance that it will have the resources to do so or that its efforts will be
successful.
EMPLOYEES
As of March 31, 1996, the Company employed 22 persons on a full-time basis,
of whom 14 were engaged in research and development, three in marketing, and
five in administration. The Company's ability to attract and retain qualified
personnel will be a significant factor in its potential for success. None of the
Company's employees is covered by collective bargaining agreements and
management considers the Company's relations with its employees to be good. See
"Risk Factors -- Dependence on Key Personnel."
FACILITIES
The Company leases approximately 11,000 square feet of laboratory and
office space in a business park in Laguna Hills, California. The leases for this
facility expire in February 1998. The Company believes that this facility should
be sufficient to meet the Company's needs for at least 12 months from the date
of this Prospectus. The Company anticipates that sufficient additional space
will be available within the same office park to meet its needs at acceptable
rents for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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<PAGE> 34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ------------------------------------------
<S> <C> <C>
Allan M. Wolfe, M.D.(1) 58 Chief Executive Officer, President, and
Chairman of the Board
Stephen J. Hart 35 Director of Research and Development and
Secretary
Michael N. Dalton 36 Director of Technical Business Development
Murray E. Rudin 33 Chief Financial Officer and Director of
Business Development
James B. Anderson, Ph.D. 46 Director
Alan S. Dishlip(1)(2) 44 Director
James C. Dreyfous(1)(2) 41 Director
John M. Holliman, III(2) 42 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Allan M. Wolfe, M.D. has been President, Chief Executive Officer, and a
director of the Company since he co-founded the Company in April 1988. From 1983
to 1988, Dr. Wolfe was a general partner (and co-founder) of the Life Science
Ventures division of Hambrecht & Quist Venture Partners. From 1980 to 1983, Dr.
Wolfe was a consultant offering management, strategic, and technical expertise
to several companies in the life science industry, including American Hospital
Supply Corporation, Alza Corporation, and W.R. Grace & Co. From 1975 to 1980,
Dr. Wolfe was a Vice President at McGaw Laboratories, a division of American
Hospital Supply Corporation, with responsibility for research and development
and strategic and operational planning. Dr. Wolfe holds an M.D. from New York
University School of Medicine and was Chief Resident in Medicine at State
University of New York, Downstate Medical Center. Dr. Wolfe has also been a
general partner of the general partner of Utah Ventures since 1988 and a special
limited partner of Crosspoint Venture Partners, a venture capital firm, since
1989.
Stephen J. Hart has been Director of Research and Development of the
Company since he co-founded the Company in April 1988 and Secretary of the
Company since June 1992. From 1985 to 1988, Mr. Hart performed research in
astrophysics and applied optics at Imperial College of Science and Technology,
University of London. In 1984 and 1985, Mr. Hart was (i) a project leader at
Icon Holographics Limited in London and (ii) a co-founder of Holoplex Systems, a
United Kingdom company which acquired the intellectual property of Icon
Holographics and is now an inactive subsidiary of Voxel. From 1981 to 1984, Mr.
Hart performed graduate work in astrophysics at Imperial College of Science and
Technology. Mr. Hart received a B.Sc. in Physics and Astronomy from Queen Mary
College, University of London.
Michael N. Dalton has been Director of Technical Business Development of
the Company since July 1995 and, prior to that date, was Director of Computing
since co-founding the Company in April 1988. From 1986 to 1988, Mr. Dalton was a
research associate in the Department of Photogrammetry at University College,
London developing software for analysis and synthesis of terrain imagery from
satellite data. From 1985 to 1986, Mr. Dalton was a software designer for Virgin
Computer Graphics in London. In 1984 and 1985, Mr. Dalton was (i) computer
systems manager at Icon Holographics Limited where he was involved in developing
certain of the technology on which the Voxcam is based and (ii) a co-founder of
Holoplex Systems. From 1981 to 1984, Mr. Dalton performed graduate work in
interplanetary atmospheric physics at Imperial College of Science and
Technology, University of London. Mr. Dalton received a B.Sc. in Physics from
Queen Mary College, University of London.
32
<PAGE> 35
Murray E. Rudin has been Chief Financial Officer and Director of Business
Development of the Company since June 1994, after having served as Director of
Finance and Business Development of the Company from January 1993 to June 1994.
From 1990 to December 1992, Mr. Rudin was a principal of Valley National
Investors, Inc., the venture capital subsidiary of Valley National Bank of
Arizona, where he was engaged in investment origination, evaluation,
structuring, and monitoring. From 1986 to 1990, Mr. Rudin was a corporate
attorney with the firm of Riordan & McKinzie in Los Angeles and Costa Mesa,
California, with a practice emphasizing private and public securities
transactions. Mr. Rudin holds a J.D. from Harvard Law School and a B.S. in
electrical engineering from the University of Rochester.
James B. Anderson, Ph.D. has served as a director of the Company since
1991. Dr. Anderson is currently the Second Vice President responsible for the
venture capital portfolio at The Travelers Insurance Companies. He was promoted
to his current position from Investment Officer in January 1994. Prior to
joining The Travelers Insurance Companies in 1987, Dr. Anderson was employed as
the Vice President of Research for Technology Assessment for Advest, Inc. from
1983 to 1987. Dr. Anderson holds a Ph.D. in Materials Science from the
University of Connecticut and a B.S. in Physics from Worcester Polytechnic
Institute. He is the co-author of 32 scientific articles and two books. He
currently serves on the Board of Directors of Molten Metal Technology, Inc., an
environmental services company and Biofield, Inc., a medical device company.
Alan S. Dishlip has served as a director of the Company since 1990. Mr.
Dishlip is Senior Vice President of First Portland Corporation, an equipment
leasing enterprise. Prior to joining First Portland Corporation in February
1995, Mr. Dishlip was a limited partner of Shaw Venture Partners since 1983 and
a general partner of Shaw Venture Partners II since 1987. Both Shaw entities are
venture capital firms. Mr. Dishlip serves on the Board of Directors of Protocol
Systems, Inc., a medical instrumentation company.
James C. Dreyfous has served as a director of the Company since 1991. For
the past twelve years, Mr. Dreyfous has served in various capacities for Utah
Ventures, a venture capital fund, and currently serves as Managing General
Partner of its general partner.
John M. Holliman, III has served as a director of the Company since 1993,
and previously from April 1990 through July 1991. Mr. Holliman has been a
general partner of the general partner of Valley Ventures L.P. (and its
predecessor, Arizona Growth Partners, L.P.), a Phoenix-based venture capital
investment partnership, since February 1993. From 1985 to February 1993, Mr.
Holliman served in various capacities, lastly as Senior Managing Director, of
Valley National Investors, Inc., the venture capital subsidiary of Valley
National Bank of Arizona. Mr. Holliman is also a director of Express America
Holdings Corporation, a financial services company, DenAmerica Corporation, a
restaurant services company, and OrthoLogic Corporation, a medical device
company.
Pursuant to the terms of a written agreement between the Company and A.R.
Baron & Co., Inc. ("Baron"), the Company has agreed, until November 1, 1999, to
nominate for election to the Board, upon Baron's request, one person to be
designated by Baron and to use the Company's best efforts to cause such
individual to be elected a director of the Company. The election of such person
may result in an increase in the number of directors to six. As of the date of
this Prospectus, Baron has not exercised such right.
All directors and executive officers of the Company have been elected to
serve until their successors have been duly elected and qualified. The next
election of directors is anticipated to occur at the Company's 1997 annual
meeting of shareholders.
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<PAGE> 36
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below sets forth information regarding compensation paid by the
Company during each of the Company's last three fiscal years to each executive
officer (the "Named Officer") of the Company who received salary and bonus
payments in excess of $100,000 during the year ended December 31, 1995.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL AWARDS(1)
COMPENSATION ----------------------
------------------ SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(#)
--------------------------------------------- ---- --------- ----------------------
<S> <C> <C> <C>
Allan M. Wolfe, M.D. 1995 175,000 0
President and Chief Executive Officer 1994 152,083 148,289
1993 150,000 0
</TABLE>
- ---------------
(1) The Company has no stock appreciation rights plan or long-term incentive
plan.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
The table below sets forth information regarding (i) the exercise of stock
options by the Named Officer during the fiscal year ended December 31, 1995,
(ii) the number of unexercised options held by the Named Officer as of December
31, 1995, and (iii) the value as of December 31, 1995 of unexercised
in-the-money options held by the Named Officer.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---------------------- ----------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Allan M. Wolfe, M.D. 0 0 228,355/0 $834,026/$0
</TABLE>
- ---------------
(1) Value per share is determined based on the spread between the option
exercise price per share and the closing bid price for Common Stock as of
December 29, 1995, the last business day of the 1995 calendar year ($4.50
per share).
DIRECTOR COMPENSATION
Pursuant to separate option agreements, the Company granted to each of the
non-employee directors (Dr. Anderson and Messrs. Dishlip, Dreyfous, and
Holliman) an option to acquire 3,239 shares of Common Stock. With respect to
Messrs. Dishlip and Dreyfous, the option agreements are dated as of October 29,
1992 and provide for an exercise price of $0.51 per share. Dr. Anderson's
agreement is dated as of February 25, 1994 and provides for an exercise price of
$0.51 per share. Mr. Holliman's agreement is dated as of March 17, 1994 and
provides for an exercise price of $1.03 per share.
As of January 12, 1995, the Company granted to each of the non-employee
directors an option to acquire 5,000 shares of Common Stock. Each of such option
grants was made pursuant to a separate option agreement as of that date and each
grant provided for an exercise price of $5.31 per share. As of January 25, 1996,
the Company granted to each of the non-employee directors an option to acquire
3,761 shares of Common Stock. Each of such option grants was made pursuant to a
separate option agreement as of that date and each grant provided for an
exercise price of $2.625 per share.
All of the option agreements with directors referenced above in this
section provide for a ten-year term commencing on the date of grant and provide
that one-half of the options awarded thereby vest as of the date of the
respective agreement and the remaining options vest on the one year anniversary
thereof.
Except as described above, the Company's directors do not receive fees for
their services as directors but are reimbursed for expenses incurred by them in
connection with attendance at Board meetings.
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<PAGE> 37
EMPLOYMENT AGREEMENTS
In June 1994, the Company entered into an employment agreement with Dr.
Wolfe for a term of three years, renewable upon the agreement of the Company and
Dr. Wolfe. The employment agreement provides for (i) an initial annual base
salary of $150,000, subject to annual review and increase and (ii) such
incentive bonus payments as the Board may from time to time determine. See
"Executive Compensation -- Summary Compensation Table." Dr. Wolfe's base salary
for 1996 is $175,000. During the term of the employment agreement and for three
years after its termination, Dr. Wolfe has agreed not to participate in any
business engaged in the development, manufacturing, or marketing of volumetric
image display systems for radiologic applications or holographic imaging
systems. Mr. Hart has also agreed to a similar non-compete provision for the
duration of his employment by Voxel and three years thereafter.
The Company enters into confidentiality agreements with its full-time
employees (including its executive officers) that prohibit disclosure of
confidential information to anyone outside of the Company both during and
subsequent to employment. Such agreements also require disclosure to the Company
of ideas, discoveries and inventions relating to or resulting from the
employee's work for the Company and assignment to the Company of all proprietary
rights to such ideas, discoveries, or inventions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to February 1994, the Company did not have a compensation committee
or other committee of its Board performing equivalent functions. During the year
ended December 31, 1993, the entire Board (including Dr. Wolfe) participated in
deliberations concerning executive compensation. None of such deliberations
concerned the compensation of Dr. Wolfe because Dr. Wolfe's compensation was
unchanged during that period. In February 1994, the Board created a Compensation
Committee consisting of Dr. Wolfe and Messrs. Dishlip and Dreyfous. Dr. Wolfe's
employment agreement and 1994 option grant were considered and approved by the
Board, in which consideration and approval process neither Dr. Wolfe nor Mr.
Dreyfous participated or voted.
Dr. Wolfe and Mr. Dreyfous are general partners of the general partner of
Utah Ventures, a shareholder of the Company. Dr. Wolfe and Mr. Dreyfous each
participate in the determination of the other's compensation for services to
Utah Ventures in the following manner: Dr. Wolfe, Mr. Dreyfous, and a third
individual not affiliated with Voxel comprise the Management Committee of Utah
Ventures. Compensation of Management Committee members is determined by a
unanimous vote of the Management Committee, with the member whose compensation
is being determined not voting.
STOCK OPTION PLANS
The Company's 1992 Stock Plan (the "1992 Plan") was adopted by the Board in
1992 and approved by the Company's shareholders in 1993 to attract and retain
the best available personnel for positions of substantial responsibility, to
provide additional incentive to employees and consultants of the Company, and to
promote the success of the Company's business. Options granted under the 1992
Plan may be either incentive stock options as defined in Section 422A of the
Internal Revenue Code of 1986, as amended, or non-qualified stock options, at
the discretion of the Board, and in either case may contain performance-based
vesting criteria. The Company has reserved 563,616 shares of Common Stock for
issuance under the 1992 Plan. As of May 15, 1996, options to purchase an
aggregate of 432,360 shares were outstanding under the 1992 Plan at a weighted
average exercise price of $1.39, of which options to purchase an aggregate of
349,639 shares were immediately exercisable at a weighted average exercise price
of $1.16.
The Company's 1994 Executive Stock Option Plan (the "1994 Plan") was
adopted by the Board and approved by the Company's shareholders in 1994 for the
same purposes as the 1992 Plan. Option recipients under the 1994 Plan are
limited to executive officers of the Company. Options granted under the 1994
Plan may be either incentive stock options as defined in Section 422A of the
Internal Revenue Code of 1986, as amended, or non-qualified stock options, at
the discretion of the Board, and in either case may contain performance-based
vesting criteria. The Company has reserved 310,961 shares of Common Stock for
issuance under the 1994 Plan. As of May 15, 1996, options to purchase an
aggregate of 74,161 shares were outstanding
35
<PAGE> 38
at a weighted average exercise price of $2.15, of which options to purchase an
aggregate of 3,438 shares were immediately exercisable at a weighted average
exercise price of $1.50.
Both plans may be administered by the Board or a committee of the Board,
which committee is required to be constituted to comply with Section 16(b) of
the Securities Exchange Act of 1934, as amended, and applicable laws. Both plans
are currently administered by the Board. The entity administering each plan has
the power to determine the terms of any options granted thereunder, including
the exercise price, the number of shares subject to the option, and the
exercisability thereof. Options granted under either plan are generally not
transferable, and each option is exercisable during the lifetime of the optionee
only by such optionee. The exercise price of all incentive stock options granted
under either plan must be at least equal to the fair market value of the shares
of Common Stock on the date of grant, and non-qualified stock options granted
under the 1992 Plan must have an exercise price of at least 85% of the fair
market value of the shares of Common Stock on the date of grant. With respect to
any participant who owns stock possessing more than 10% of the voting power of
all classes of stock of the Company, the exercise price of any stock option
granted under the 1992 Plan and any incentive stock option granted under the
1994 Plan must equal at least 110% of the fair market value on the grant date
and the maximum term of any option granted under either plan must not exceed
five years. The term of all other options granted under either plan may not
exceed ten years. The specific terms of each option grant are approved by the
Board and are reflected in a written stock option agreement.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation (i) eliminate the liability of the
directors of the Company for monetary damages to the fullest extent permitted by
California law and (ii) authorize the Company to indemnify its officers and
directors to the fullest extent permitted by California law. The Company has
entered into indemnification agreements with its directors and executive
officers. Such agreements provide broad indemnification against expenses
(including legal fees, judgments, and Company-approved settlements) incurred in
connection with any civil or criminal action which arises from the performance
of duties for the Company. The agreements also provide that the Company will
indemnify such persons to the fullest extent permitted by law, notwithstanding
that such indemnification is not specifically authorized by the agreement, the
Company's Articles of Incorporation, the Company's Bylaws or statute. The
indemnification agreements apply to any action taken by the indemnitee while
serving as an officer or director of the Company, whether occurring before or
after the date of the agreement. The agreements do not provide indemnification
for any acts or omissions from which a director may not be relieved of liability
under the California Corporations Code.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
KEY MAN INSURANCE
The Company is the sole beneficiary of term life insurance policies, each
in the face amount of one million dollars, covering Dr. Wolfe and Mr. Hart.
CERTAIN TRANSACTIONS
In April 1993, the Company issued unsecured convertible promissory notes in
the aggregate principal amount of $2,460,000 (the "Investor Notes"). In exchange
for the Investor Notes, the Company received total cash proceeds equal to their
principal amount, funded through several drawdowns during the period from May
1993 through April 1994. These notes and the accrued interest thereon were
exchanged for shares of Common Stock at the closing of the IPO. The Investor
Notes were sold to the following shareholders (collectively, the "Institutional
Shareholders") in the following principal amounts: The Travelers Companies
($1,000,000), U.S. Bancorp Capital Corporation ($500,000), Valley Ventures, L.P.
($500,000), New Era Investors ($300,000), and Utah Ventures ($160,000). Each
Institutional Shareholder, other than New Era
36
<PAGE> 39
Investors, is a beneficial holder of 5% or more of the Common Stock. See "Debt
Financings -- Investor Notes."
In May 1994, the Company issued unsecured promissory notes in the aggregate
principal amount of $400,000 in exchange for cash proceeds equal to the
principal amount. In June 1994, the Company issued additional similar unsecured
promissory notes in the aggregate principal amount of $800,000 in exchange for
cash proceeds equal to the principal amount. The aggregate principal amount of
$1,200,000 of these notes and the accrued interest thereon were repaid from
proceeds of the IPO. These notes were sold to the Institutional Shareholders in
the following principal amounts: The Travelers Companies ($630,000), U.S.
Bancorp Capital Corporation ($195,000), Valley Ventures, L.P. ($195,000), Utah
Ventures ($120,000), and New Era Investors ($60,000). See "Debt
Financings -- Supplemental Investor Notes."
Certain directors and officers of the Company are affiliated with the
Institutional Shareholders. Dr. Anderson, a director of the Company, is
affiliated with The Travelers Companies. Mr. Holliman, a director of the
Company, is a general partner of the general partner of Valley Ventures, L.P.
Dr. Wolfe, President, Chief Executive Officer, and a director of the Company,
and Mr. Dreyfous, a director of the Company, are general partners of the general
partner of Utah Ventures. See "Management -- Executive Officers and Directors."
37
<PAGE> 40
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information May 15, 1996 concerning
stock ownership of (i) all persons known by the Company to own beneficially 5%
or more of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) the Named Officer as defined in the Summary Compensation Table
under the caption "Executive Compensation" above, and (iv) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF CLASS
NATURE OF ------------------------
BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OWNERSHIP(1) OFFERING OFFERING(2)
- ----------------------------------------------------------- ------------ -------- -----------
<S> <C> <C> <C>
U.S. Bancorp Capital Corporation........................... 565,438 10.6% 6.9%
111 Southwest Fifth Avenue, Suite 1090
Portland, OR 97204
The Travelers Companies(3)................................. 561,312 10.5 9.2
One Tower Square
Hartford, CT 06183
Valley Ventures, L.P....................................... 343,736 6.4 4.2
6115 N. Scottsdale Road, Suite 100
Scottsdale, AZ 85250
Utah Ventures.............................................. 300,091 5.6 3.7
419 Wakara Way
Salt Lake City, UT 84108
Allan M. Wolfe, M.D.(4).................................... 605,700 10.9 7.2
Voxel
26081 Merit Circle, Suite 117
Laguna Hills, CA 92653
Bernard Levine, M.D........................................ 386,400 7.2 4.7
P.O. Box 2635
La Jolla, CA 92038
John M. Holliman, III(5)................................... 353,856 6.6 4.3
Valley Ventures, L.P.
6115 N. Scottsdale Road, Suite 100
Scottsdale, AZ 85250
James C. Dreyfous(6)....................................... 320,211 6.0 3.9
Utah Ventures
419 Wakara Way
Salt Lake City, UT 84108
Alan S. Dishlip(7)......................................... 10,120 * *
First Portland Corporation
7145 Southwest Varns Street
Portland, OR 97223
James B. Anderson, Ph.D.(7)................................ 10,120 * *
The Travelers Companies
One Tower Square
Hartford, CT 06183
All directors and executive officers
as a group (8 persons)(8)................................ 1,194,191 21.1 14.1
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options and warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the person holding such option but are not
outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
38
<PAGE> 41
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Beneficial ownership prior to the Offering represents 29,317 shares of
Common Stock held by The Travelers Insurance Company, 404,830 shares of
Common Stock held by The Travelers Indemnity Company, 115,295 shares of
Common Stock held by The Travelers Life and Annuity Company, and 11,870
shares of Common Stock held by The Phoenix Insurance Company, which together
comprise a group within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended. Percentage ownership after the Offering
assumes the purchase in the Offering by the Travelers Companies of an
aggregate of $1,000,000 of Common Stock at an assumed offering price of
$7.50 per share. See "Underwriting."
(4) Includes (i) 77,254 shares of Common Stock, (ii) 228,355 shares of Common
Stock subject to stock options exercisable as of May 15, 1996 or within 60
days thereafter, and (iii) 300,091 shares of Common Stock held of record by
Utah Ventures. Dr. Wolfe is a general partner of the general partner of Utah
Ventures. Dr. Wolfe disclaims beneficial ownership of the shares of Common
Stock held of record by Utah Ventures, except to the extent of his pecuniary
interest therein.
(5) Includes 343,736 shares of Common Stock held of record by Valley Ventures,
L.P. and 10,120 shares of Common Stock subject to stock options exercisable
as of May 15, 1996 or within 60 days thereafter. Mr. Holliman is a general
partner of the general partner of Valley Ventures, L.P. Mr. Holliman
disclaims beneficial ownership of the shares of Common Stock held of record
by Valley Ventures, L.P., except to the extent of his pecuniary interest
therein.
(6) Includes (i) 300,091 shares of Common Stock held of record by Utah Ventures,
(ii) 5,000 shares of Common Stock held of record by trusts for the benefit
of Mr. Dreyfous' children, of which he is a co-trustee, (iii) 10,120 shares
of Common Stock subject to stock options exercisable as of May 15, 1996 or
within 60 days thereafter, and (iv) 5,000 shares held by Mr. Dreyfous. Mr.
Dreyfous is the Managing General Partner of the general partner of Utah
Ventures. Mr. Dreyfous disclaims beneficial ownership of the shares of
Common Stock held of record by Utah Ventures and by the trusts for the
benefit of his children, except to the extent of his pecuniary interest
therein.
(7) Represents 10,120 shares of Common Stock subject to stock options
exercisable as of May 15, 1996 or within 60 days thereafter.
(8) Includes (i) with respect to Drs. Wolfe and Anderson and Messrs. Dishlip,
Dreyfous, and Holliman, the shares of Common Stock identified in footnotes
(4), (5), (6), and (7) as held by such person or subject to options
exercisable by such person as of May 15, 1996 or within 60 days thereafter,
(ii) with respect to the executive officers other than Dr. Wolfe, a total of
194,275 shares of Common Stock held by such persons or subject to options
exercisable by such persons as of May 15, 1996 or within 60 days thereafter,
and (iii) the shares of Common Stock held of record by Valley Ventures,
L.P., Utah Ventures, and the trusts for the benefit of Mr. Dreyfous'
children.
DEBT FINANCINGS
INVESTOR NOTES
In April 1993, the Company entered into a bridge financing arrangement with
certain of its shareholders pursuant to which the Company was entitled to borrow
an aggregate of $2,460,000. During the subsequent 12 months, the Company
borrowed the full available amount in four installments. These Investor Notes
accrued interest consisting of (i) 4% on the amount of each principal borrowing,
accruing on the date of each such borrowing, (ii) 4% on the outstanding balance
on the 90th, 180th, and 270th day anniversaries of the first principal
borrowing, and (iii) 6% per annum interest on outstanding balances through the
one-year anniversary of the first principal borrowing and 9% per annum interest
thereafter. On November 1, 1994, in connection with the closing of the IPO, all
principal and accrued interest on the Investor Notes were converted to Common
Stock.
39
<PAGE> 42
SUPPLEMENTAL INVESTOR NOTES
In April 1994, the Company entered into a financing agreement (the "Note
Purchase Agreement") with certain of its shareholders pursuant to which the
Company borrowed $400,000 and issued notes in exchange therefor (the
"Supplemental Investor Notes"). In June 1994, the Company and the holders of the
Supplemental Investor Notes modified the Note Purchase Agreement to enable the
Company to borrow additional amounts thereunder on the same terms. Additional
Supplemental Investor Notes were issued in the aggregate principal amount of
$800,000. On November 1, 1994, all principal and accrued interest on the
Supplemental Investor Notes was repaid with proceeds from the IPO.
BRIDGE FINANCING
On July 25, 1994, the Company consummated a financing pursuant to which the
Company issued notes in the aggregate principal amount of $1,000,000 and Bridge
Warrants to acquire an aggregate of 200,000 shares of Common Stock. Such notes
carried an interest rate of 9% per annum, were due on the fifth business day
following the closing of the IPO, and were retired with proceeds therefrom. The
Bridge Warrants are exercisable for five years after their issuance date at an
exercise price of $2.50 per share. As of May 15, 1996, Bridge Warrants covering
130,000 shares of Common Stock had been exercised. Holders of Bridge Warrants
are entitled to certain demand and piggyback registration rights with respect to
the underlying shares of Common Stock. See "Description of
Securities -- Registration Rights."
DESCRIPTION OF SECURITIES
The following statements are qualified in their entirety by reference to
the detailed provisions of the Company's charter documents, copies of which have
been heretofore filed with the Commission.
COMMON STOCK
The Company is authorized to issue 15,000,000 shares of Common Stock, of
which 5,349,198 shares were issued and outstanding at May 15, 1996 and held of
record by 104 shareholders. The record holders of validly issued and outstanding
shares of Common Stock are entitled to one vote per share on all matters to be
voted on by shareholders. Under California law (with limited exceptions not
currently applicable to the Company), cumulative voting in the election of
directors is mandatory upon notice given by a shareholder at a shareholder's
meeting at which directors are to be elected. In order to cumulate votes, a
shareholder must give notice at the meeting, prior to the voting, of the
shareholder's intention to vote cumulatively. If any one shareholder gives such
a notice, all shareholders may cumulate their votes. Cumulative voting permits
the holder of each share of stock entitled to vote in the election of directors
to cast that number of votes which equals the number of directors to be elected.
The holder may allocate all votes represented by one share to a single candidate
or may allocate those votes among as many candidates in any manner that the
holder chooses. Thus, under cumulative voting a shareholder with a significant
minority percentage of the outstanding shares of voting stock may be able to
elect one or more directors.
The holders of Common Stock are entitled to such dividends, if any, as may
be declared by the Board in its discretion out of funds legally available for
that purpose, and to participate pro rata in any distribution of the Company's
assets upon liquidation. In the event of liquidation of the Company, all assets
available for distribution are distributable among the holders of the Common
Stock according to their respective holdings.
The holders of Common Stock do not have any pre-emptive or conversion
rights, nor are there any redemption rights with respect to the Common Stock.
The outstanding shares of Common Stock are, and the shares of Common Stock being
offered hereby, when issued and paid for, will be, validly issued, fully paid,
and non-assessable and not subject to further call or assessment by the Company.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock, of
which no shares were issued and outstanding at May 15, 1996. The Board has the
authority to issue Preferred Stock from time to time in
40
<PAGE> 43
series and to fix the number of shares of any series of Preferred Stock and to
determine the designation of any such series. The Board is also authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and to increase
or decrease (but not below the amount then outstanding) the number of shares of
any such series subsequent to the issue of shares of that series. The Company
has heretofore issued 492,904 shares of convertible redeemable Series A
Preferred Stock and 6,322,291 shares of convertible redeemable Series B
Preferred Stock (collectively, the "Prior Preferred"). All outstanding shares of
Prior Preferred were converted to Common Stock in connection with the closing of
the IPO.
On December 29, 1995 the Company completed a $4.0 million ($3.6 million,
net of offering expenses) financing by issuing 4,000,000 shares of Series C
Preferred Stock to several investors in a private financing. As of May 15, 1996,
all of the shares of Series C Preferred Stock (together with accrued dividends)
had been converted to an aggregate of 1,110,329 shares of Common Stock and no
shares of Series C Preferred Stock remained outstanding.
The flexibility vested in the Company's Board to issue Preferred Stock in
one or more series can enhance the Board's bargaining capability on behalf of
the Company's shareholders in the event of a possible takeover and could, under
some circumstances, be used to render more difficult or discourage a merger,
tender offer, or proxy contest, the assumption of control by a holder of a large
block of the Company's securities, or the removal of incumbent management, even
if such a transaction were favored by the holders of the requisite number of the
then-outstanding shares, in that the rights, privileges, and preferences of one
or more series of Preferred Stock, which Preferred Stock could be privately
placed, could involve provisions as to voting, redemption, conversion, or other
rights that could deter such action. Accordingly, shareholders of the Company
might be deprived of an opportunity to consider a takeover proposal that a third
party might otherwise consider making, because the Company has a class of
Preferred Stock authorized. In addition, the issuance of Preferred Stock may
discourage bids for the Common Stock at a premium over the market price, could
adversely affect the voting rights of holders of Common Stock, and could
adversely affect the market price of the Common Stock. The Company currently
does not have any plans or commitments that would involve the issuance of shares
of its Preferred Stock.
CLASS A WARRANTS
An aggregate of 1,900,000 Class A Warrants were issued at the closing of
the IPO pursuant to a warrant agreement (the "Warrant Agreement") among the
Company, Baron, and American Stock Transfer & Trust Company (the "Warrant
Agent"), and are evidenced by warrant certificates in registered form. The
following summary is qualified in its entirety by the text of the Warrant
Agreement, a copy of which has been filed with the Commission.
Each Class A Warrant entitles the registered holder thereof to purchase one
share of Common Stock at a price of $6.25, subject to adjustment, at any time
until the close of business on September 27, 1999, unless previously redeemed.
The Class A Warrants are subject to redemption by the Company at $.05 per Class
A Warrant on 30 days' prior written notice provided that either (i) the average
closing bid price (or last sales price) of the Common Stock as reported by
Nasdaq (or on such exchange on which the Common Stock is then traded) exceeds
$9.00 per share for 20 consecutive business days ending not less than 15 days
prior to the date of the notice of redemption, or (ii) the Company shall have
obtained written consent from Baron to redeem the Class A Warrants.
The exercise price of the Class A Warrants and the number and kind of
shares of Common Stock or other securities issuable upon the exercise thereof
are subject to adjustment in certain circumstances, including any stock dividend
on the Common Stock, any subdivision, combination, or reclassification of the
Common Stock, or any distribution of rights or warrants to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock),
assets, or evidences of indebtedness of the Company. Additionally, an adjustment
would be made upon a merger where the Company is not the surviving entity or the
sale of all or substantially all of the assets of the Company, so as to enable
warrantholders to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable in such event by a holder of
the number of shares of Common Stock that might otherwise have been purchased
upon exercise of such Class A Warrant. The adjustment right described in the
foregoing sentence shall not apply to a merger or sale of assets
41
<PAGE> 44
transaction in which the consideration per share of Common Stock is at least
$10.00; in such event, the Class A Warrants shall expire upon consummation of
the merger or sale transaction. No adjustment for previously paid cash
dividends, if any, will be made upon exercise of the Class A Warrants.
The exercise price of the Class A Warrants bears no relation to any
objective criteria of value and should not be regarded as an indication of the
future market price of the securities offered hereby.
The Class A Warrants do not confer upon the holders any voting rights or
any rights as shareholders of the Company. Upon written notice to the
warrantholders, the Company has the right to reduce the exercise price or extend
the expiration date of the Class A Warrants.
The Class A Warrants may be exercised upon surrender of the Class A Warrant
certificate on or prior to the expiration date (or earlier redemption date) of
such Class A Warrants at the offices of the Warrant Agent, with the
"Subscription Form" on the reverse side of the Class A Warrant certificate
completed as indicated, accompanied by payment of the full exercise price (by
cashier's or certified check payable to the order of the Warrant Agent) for the
number of Warrants being exercised. Upon the expiration date, the Class A
Warrants will become void and of no value. So long as a market for the Class A
Warrants continues to exist, the holder may sell the Class A Warrants instead of
exercising them. There can be no assurance, however, that a market for the Class
A Warrants will continue to exist. If the Company is unable to qualify for sale
in certain states the Common Stock underlying the Class A Warrants, holders of
Class A Warrants desiring to exercise the Class A Warrants who reside in those
states will have no choice but either to sell such Class A Warrants or let them
expire.
UNITS
Each Unit consists of one share of Common Stock and one Class A Warrant.
The Common Stock and the Class A Warrant components may be traded together as
Units, but are also separately transferable.
BRIDGE WARRANTS
The terms of the Bridge Warrants are identical in all material respects to
those of the Class A Warrants except that (i) the Bridge Warrants' exercise
price per share is $2.50 and (ii) the Bridge Warrants are not subject to
redemption by the Company.
REGISTRATION RIGHTS
Upon the request of holders of 25% or more of the shares of Common Stock
acquired upon conversion of the Prior Preferred (the "Conversion Stock"), the
Company will register under the Securities Act and applicable state securities
laws any shares of Conversion Stock owned by holders thereof. Holders of
Conversion Stock shall be entitled to such demand registration rights on two
separate occasions. The Company is obligated to keep such registration statement
effective until the earlier of the date all shares registered thereunder are
sold or nine months from the effective date of the registration statement. Such
demand registration rights are subject to certain limitations in the event of
(i) the availability of Rule 144(k) for resales of Conversion Stock, (ii) the
Company's exercise of its right to delay a registration for up to 90 days upon
its written certification of certain conditions, or (iii) a substantially
contemporaneous Company-initiated registration. The expenses of both demand
registrations initiated by holders of Conversion Stock shall be borne by the
Company. Holders of Conversion Stock also have piggyback registration rights,
i.e., the right to include such shares in any registration statement that may be
filed by the Company.
The Company has granted certain demand and piggyback registration rights to
the holders of Common Stock issuable upon exercise of the Bridge Warrants. The
Company has also granted certain demand and piggyback registration rights to the
holders of the Unit Purchase Option, the units issuable upon exercise thereof,
the Common Stock and warrants included within such units, and the Common Stock
issuable upon exercise of such warrants. Furthermore, the Company has granted
certain demand and piggyback registration rights to the Representative with
respect to the Common Stock issuable upon exercise of the Representative's
Warrants. See "Underwriting."
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<PAGE> 45
TRANSFER AGENT
The transfer agent and registrar for the Common Stock and Class A Warrants
is American Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,149,198 shares of
Common Stock outstanding. Of this amount, the 2,800,000 shares sold in the
Offering (plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) and approximately 3,161,707 other shares will be
available for immediate sale in the public market as of the date of this
Prospectus.
Holders of 2,170,089 shares of Common Stock have agreed that they will not,
without the Representative's written consent, sell, transfer, or assign any of
such shares for a period of 180 days (the "180-day Lockup Period") commencing
upon the closing of the Offering. See "Underwriting."
Upon the expiration of the 180-day Lockup Period, approximately 2,170,089
shares of Common Stock (subject in certain cases to the volume and other
limitations of Rule 144 promulgated under the Securities Act ("Rule 144")) will
become available for sale in the public market. An additional 17,402 shares of
Common Stock will become available for sale in the public market pursuant to
Rule 144 during the twelve months following the date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who holds restricted shares as that term is defined
in Rule 144, including persons who may be deemed to be "affiliates" of the
Company under Rule 144, is entitled to sell within any three-month period a
number of restricted shares beneficially owned for at least two years that does
not exceed the greater of (i) one percent of the then-outstanding shares of
Common Stock or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with the Commission with respect to such sale. Sales under Rule 144 are
also subject to certain requirements as to the manner of sale, notice, and the
availability of current public information about the Company. However, a person
who is not an affiliate at any time during the 90-day period preceding such sale
and has beneficially owned such shares for at least three years is entitled to
sell such shares without regard to the volume or other requirements pursuant to
Rule 144(k).
In addition, the Commission has published a notice of proposed rulemaking
which, if adopted as proposed, would shorten the applicable holding periods
under Rule 144(d) and Rule 144(k) to one and two years, respectively (from the
current two and three-year periods). The Company cannot predict whether such
amendments will be adopted or the effect thereof on the trading market for its
Common Stock. The Company is unable to estimate the number of shares that will
be sold under Rule 144, since this will depend on the market price for the
Common Stock, the personal circumstances of the sellers, and other factors.
Following the expiration of the lock-up and/or restrictive periods
described above, a substantial sale of securities pursuant to Rule 144 or
otherwise could occur and might have an adverse effect on the market price of
the Common Stock.
An additional 2,350,000 shares of Common Stock (the "Underlying Registered
Stock") that may be issued upon exercise of certain warrants and options
outstanding at May 15, 1996 are the subject of a previously filed registration
statement under the Securities Act (the "Prior Registration"). The Company has
covenanted to maintain the effectiveness of the Prior Registration. Subject to
such effectiveness, all of the shares of Underlying Registered Stock, if, when,
and as issued, will be immediately eligible for sale in the public market.
Regardless of such effectiveness, the Underlying Registered Stock may become
eligible for sale in the public market pursuant to the provisions of Rule 144.
The Underlying Registered Stock comprises (i) 1,900,000 shares underlying the
Class A Warrants, (ii) 380,000 shares underlying the Unit Purchase Option and
the warrants contained therein, and (iii) 70,000 shares underlying the Bridge
Warrants. See "Risk Factors -- Adverse Consequences Associated with Substantial
Shares of Common Stock Reserved for Issuance" and "-- Substantial Number of
Shares Eligible for Future Sale; Potential Expense of Registration Rights."
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<PAGE> 46
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cruttenden Roth
Incorporated is acting as representative, have agreed to purchase from the
Company the following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Cruttenden Roth Incorporated..............................................
----------
Total........................................................... 2,800,000
==========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to conditions precedent and that the Underwriters are committed to
purchase all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if the Underwriters purchase any
shares.
The Representative has advised the Company that the Underwriters propose to
offer the shares of Common Stock directly to the public at the Price to Public
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow and such dealers may reallow a concession not in excess of $
per share to certain other dealers. After the shares of Common Stock offered
hereby are released for sale to the public, the Underwriters may change the
initial Price to Public and other selling terms. No change in such terms shall
change the amount of proceeds to be received by the Company, as set forth on the
cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable no later
than 45 days after the date of this Prospectus, to purchase up to an aggregate
of 420,000 additional shares of Common Stock solely to cover over-allotments, if
any, at the Price to Public set forth on the cover page of this Prospectus, less
the underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed to pay the Representative a nonaccountable expense
allowance equal to one and one-half percent of the aggregate Price to Public
(including with respect to shares of Common Stock underlying the over-allotment
option, if and to the extent it is exercised) set forth on the front cover of
this Prospectus for expenses in connection with the Offering, of which the sum
of $30,000 has been paid. The Representative's expenses in excess of such
allowance will be borne by the Representative. To the extent that the expenses
of the Representative are less than such allowance, the excess may be deemed to
be compensation to the Representative.
The Company has agreed to sell to the Representative, for $184, the
Representative's Warrants to purchase up to 224,000 shares of Common Stock at an
exercise price per share equal to 120% of the Price to Public set forth on the
cover page of this Prospectus. The Representative's Warrants are exercisable for
a period of four years beginning one year from the date of this Prospectus and
are not transferable for a period of one year from the date of this Prospectus
except to officers of the Representative or any successor thereto. The
Representative's Warrants include a net exercise provision permitting the
holder(s) to pay the exercise price by cancellation of the exercisability of a
number of shares with a fair market value equal to the aggregate
44
<PAGE> 47
exercise price of the Representative's Warrants then being exercised. In
addition, the Company has granted certain rights to the holders of the
Representative's Warrants to register the Representative's Warrants and the
Common Stock underlying the Representative's Warrants under the Securities Act.
The Underwriters have agreed to allocate up to $1,000,000 of the shares
offered hereby for purchase by the Travelers Companies, who are current
shareholders of the Company. See "Principal Shareholders."
Holders of 2,170,089 shares of Common Stock have agreed that they will not
sell, directly or indirectly, without the Representative's prior written
consent, any of the shares owned by them for a period of 180 days from the
closing of the Offering. See "Shares Eligible for Future Sale." The Company has
agreed that it will not, without the prior written consent of the
Representative, purchase, sell, or otherwise dispose of any shares of Common
Stock or issue any warrants or options for a period of 12 months from the
closing of the Offering, except that the Company may grant additional options
under its existing option plans, issue shares upon the exercise of outstanding
stock options, and issue shares in connection with acquisition transactions.
In connection with this Offering, certain Underwriters and selling group
members (if any) who are qualified registered market makers on the Nasdaq
SmallCap market may engage in passive market making transactions in the Common
Stock on the Nasdaq SmallCap market in accordance with Rule 10b-6A under the
Securities Exchange Act of 1934 during the two business day period before
commencement of sales in this Offering. The passive market making transactions
must comply with applicable volume and price limits and be identified as such.
In general, a passive market maker may display its bid at a price not in excess
of the highest independent bid for the security. If all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded. Net purchases by a passive
market maker on each day are generally limited to a specified percentage of the
passive market making average daily trading volume in the Common Stock during a
price period and must be discontinued when such limit is reached. Passive market
making may stabilize the market price of the Common Stock at a level above that
which might otherwise prevail, and, if commenced, may be discontinued at any
time.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of five percent of the Common Stock offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Arter & Hadden, Irvine, California. Certain legal matters will be
passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Newport
Beach, California.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and December 31, 1995 and for each of the three years in the period ended
December 31, 1995, appearing in this Prospectus and Registration Statement, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
45
<PAGE> 48
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement, of
which this Prospectus constitutes a part, under the Securities Act with respect
to the shares of Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained herein concerning the provisions of any documents are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements, and other information with the
Commission. Reports, proxy statements, and other information filed by the
Company with the Commission pursuant to the Exchange Act and the Registration
Statement, including exhibits and schedules filed therewith, may be inspected
without charge at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, at prescribed
rates. The Common Stock of the Company is quoted on the Nasdaq SmallCap Market.
Reports and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc. at 9513 Key West Avenue,
Rockville, Maryland 20850.
46
<PAGE> 49
VOXEL
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Convertible Redeemable Preferred Stock and Shareholders'
Equity (Deficit).................................................................. F-5
Consolidated Statements of Cash Flows................................................ F-8
Notes to Consolidated Financial Statements............................................. F-9
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Voxel
We have audited the accompanying consolidated balance sheets of Voxel (a
development stage company) as of December 31, 1994 and 1995, and the related
consolidated statements of operations, convertible redeemable preferred stock
and common shareholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1995 and for the period from April 15,
1988 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Voxel (a
development stage company) at December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 and for the period from April 15, 1988
(inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Orange County, California
February 12, 1996
F-2
<PAGE> 51
VOXEL
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Currents assets:
Cash and cash equivalents....................... $ 612,801 $ 4,398,193 $ 174,821
Short-term investments.......................... 5,094,946 -- 2,522,509
Other current assets............................ 27,776 33,751 35,580
----------- ------------ ------------
Total current assets.............................. 5,735,523 4,431,944 2,732,910
Property and equipment:
Furniture and equipment......................... 916,099 995,861 1,054,082
Leasehold improvements.......................... 200,935 200,935 222,473
----------- ------------ ------------
1,117,034 1,196,796 1,276,555
Less accumulated depreciation and
amortization................................. (463,384) (671,065) (720,874)
----------- ------------ ------------
653,650 525,731 555,681
Other assets (net of accumulated amortization of
$57,226 in 1994, $65,573 in 1995, and $67,661 in
1996)........................................... 30,311 21,964 19,876
----------- ------------ ------------
Total assets...................................... $ 6,419,484 $ 4,979,639 $ 3,308,467
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........... $ 184,347 $ 424,204 $ 307,567
Short-term note payable......................... -- 104,500 --
Current portion of lease obligation............. 142,994 81,276 79,308
----------- ------------ ------------
Total current liabilities......................... 327,341 609,980 386,875
Long-term lease obligation........................ 108,392 27,964 11,034
Commitments
Shareholders' equity:
Convertible Series C preferred stock,
no par value:
Authorized shares -- 4,000,000;
Issued and outstanding shares -- none in
1994, 4,000,000 in 1995, and
1,666,668 in 1996.......................... -- 3,600,000 1,500,001
Common stock, no par value:
Authorized shares -- 15,000,000;
Issued and outstanding shares -- 4,099,017
in 1994, 4,228,869 in 1995, and 4,956,817
in 1996.................................... 15,977,587 16,312,571 18,446,531
Deficit accumulated during the development
stage........................................ (9,963,836) (15,540,876) (17,005,974)
Notes receivable from shareholders.............. (30,000) (30,000) (30,000)
----------- ------------ ------------
Total shareholders' equity........................ 5,983,751 4,341,695 2,910,558
----------- ------------ ------------
Total liabilities and shareholders' equity........ $ 6,419,484 $ 4,979,639 $ 3,308,467
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 52
VOXEL
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 15, 1988 APRIL 15, 1988
(DATE OF THREE MONTHS ENDED (DATE OF
YEAR ENDED DECEMBER 31, INCEPTION) TO MARCH 31, INCEPTION) TO
--------------------------------------- DECEMBER 31, ------------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
----------- ----------- ----------- -------------- ----------- ----------- --------------
----------- (UNAUDITED) --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development............ 1,190,959 2,923,938 3,618,857 9,128,770 972,569 1,004,821 10,133,591
General and
administrative......... 1,182,637 1,484,002 2,123,918 5,999,046 413,355 496,875 6,495,921
----------- ----------- ----------- -------------- ----------- ----------- --------------
2,373,596 4,407,940 5,742,775 15,127,816 1,385,924 1,501,696 16,629,512
----------- ----------- ----------- -------------- ----------- ----------- --------------
Loss from operations..... (2,373,596) (4,407,940) (5,742,775) (15,127,816) (1,385,924) (1,501,696) (16,629,512)
Interest expense......... (233,532) (407,449) (33,069) (801,056) (10,417) (4,225) (805,281)
Interest income.......... 10,020 58,613 198,804 387,996 75,632 40,823 428,819
----------- ----------- ----------- -------------- ----------- ----------- --------------
Net loss................... $(2,597,108) $(4,756,776) $(5,577,040) $ (15,540,876) $(1,320,709) $(1,465,098) $ (17,005,974)
============ ============ ============ ============= ============ ============ =============
Pro forma net loss......... $(2,419,575) $(4,480,789)
============ ============
Net loss per share......... $ (1.33) $ (0.32) $ (0.33)
============ ============ ============
Pro forma net loss per
share.................... $ (1.18) $ (1.67)
============ ============
Shares used in computing
net loss per share....... 2,043,842 2,677,788 4,183,355 4,108,794 4,499,303
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 53
VOXEL
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED STOCK
------------------- ------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $.26 per
share in exchange for notes............ -- $ -- -- $ -- -- $ -- 38,870
Issuance of common stock at $.26 per
share in exchange for shares of
Holoplex stock and cancellation of
indebtedness of $35,454 .............. -- -- -- -- -- -- 349,831
Net loss................................ -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1988............ -- -- -- -- -- -- 388,701
Repurchase of common stock for cash at
$.26 per share...................... -- -- -- -- -- -- (97,175)
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1989............ -- -- -- -- -- -- 291,526
Issuance of Series A preferred stock
at $.10 per share in exchange for
cash of $16,000 and cancellation of
indebtedness of $33,081............. 490,801 49,081 -- -- -- -- --
Issuance of Series A preferred stock
at $.10 per share in exchange for
cancellation of accrued interest of
$210................................ 2,103 210 -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1990............ 492,904 49,291 -- -- -- -- 291,526
Issuance of Series B preferred stock
at $.10 per share in exchange for
cancellation of indebtedness........ -- -- 87,500 8,750 -- -- --
Issuance of common stock at $.26 per
share in exchange for notes
receivable.......................... -- -- -- -- -- -- 77,740
Issuance of Series B preferred stock
at $.60 per share in exchange for
cash of $3,130,000 and cancellation
of indebtedness and related interest
of $610,875......................... -- -- 6,234,791 3,740,875 -- -- --
Repurchase of common stock at $.26 per
share for cash of $3,523 and
cancellation of advances receivable
of $17,727.......................... -- -- -- -- -- -- (82,599)
Contribution to capital -- forgiveness
of indebtedness by shareholders..... -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1991............ 492,904 49,291 6,322,291 3,749,625 -- -- 286,667
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1992............ 492,904 49,291 6,322,291 3,749,625 -- -- 286,667
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1993............ 492,904 49,291 6,322,291 3,749,625 -- -- 286,667
<CAPTION>
DEFICIT NOTES
ACCUMULATED RECEIVABLE
DURING THE FROM
DEVELOPMENT SHARE-
AMOUNT STAGE HOLDERS TOTAL
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock at $.26 per
share in exchange for notes............ $ 10,000 $ -- $ (10,000) $ --
Issuance of common stock at $.26 per
share in exchange for shares of
Holoplex stock and cancellation of
indebtedness of $35,454 .............. 90,000 -- -- 90,000
Net loss................................ -- (142,845) -- (142,845)
----------- ------------ ---------- -----------
Balance at December 31, 1988............ 100,000 (142,845) (10,000) (52,845)
Repurchase of common stock for cash at
$.26 per share...................... (25,000) -- -- (25,000)
Net loss.............................. -- (253,632) -- (253,632)
----------- ------------ ---------- -----------
Balance at December 31, 1989............ 75,000 (396,477) (10,000) (331,477)
Issuance of Series A preferred stock
at $.10 per share in exchange for
cash of $16,000 and cancellation of
indebtedness of $33,081............. -- -- -- --
Issuance of Series A preferred stock
at $.10 per share in exchange for
cancellation of accrued interest of
$210................................ -- -- -- --
Net loss.............................. -- (238,560) -- (238,560)
----------- ------------ ---------- -----------
Balance at December 31, 1990............ 75,000 (635,037) (10,000) (570,037)
Issuance of Series B preferred stock
at $.10 per share in exchange for
cancellation of indebtedness........ -- -- -- --
Issuance of common stock at $.26 per
share in exchange for notes
receivable.......................... 20,000 -- (20,000) --
Issuance of Series B preferred stock
at $.60 per share in exchange for
cash of $3,130,000 and cancellation
of indebtedness and related interest
of $610,875......................... -- -- -- --
Repurchase of common stock at $.26 per
share for cash of $3,523 and
cancellation of advances receivable
of $17,727.......................... (21,250) -- -- (21,250)
Contribution to capital -- forgiveness
of indebtedness by shareholders..... 20,000 -- -- 20,000
Net loss.............................. -- (513,771) -- (513,771)
----------- ------------ ---------- -----------
Balance at December 31, 1991............ 93,750 (1,148,808) (30,000) (1,085,058)
Net loss.............................. -- (1,461,144) -- (1,461,144)
----------- ------------ ---------- -----------
Balance at December 31, 1992............ 93,750 (2,609,952) (30,000) (2,546,202)
Net loss.............................. -- (2,597,108) -- (2,597,108)
----------- ------------ ---------- -----------
Balance at December 31, 1993............ 93,750 (5,207,060) (30,000) (5,143,310)
</TABLE>
F-5
<PAGE> 54
VOXEL
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED STOCK
------------------- ------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............ 492,904 $ 49,291 6,322,291 $ 3,749,625 -- $ -- 286,667
Stock option exercise at $.51 per
share............................... -- -- -- -- -- -- 834
Amortization of deferred
compensation........................ -- -- -- -- -- -- --
Conversion of Series A preferred stock
to common stock at the rate of
5.145346 shares of preferred to one
share of common..................... (492,904) (49,291) -- -- -- -- 95,796
Conversion of Series B preferred stock
to common stock at the rate of
5.145346 shares of preferred to one
share of common..................... -- -- (6,322,291) (3,749,625) -- -- 1,228,740
<CAPTION>
DEFICIT NOTES
COMMON ACCUMULATED RECEIVABLE
STOCK DURING THE FROM
----------- DEVELOPMENT SHARE-
AMOUNT STAGE HOLDERS TOTAL
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............ $ 93,750 $ (5,207,060) $ (30,000) $(5,143,310)
Stock option exercise at $.51 per
share............................... 429 -- -- 429
Amortization of deferred
compensation........................ 117,242 -- -- 117,242
Conversion of Series A preferred stock
to common stock at the rate of
5.145346 shares of preferred to one
share of common..................... 49,291 -- -- 49,291
Conversion of Series B preferred stock
to common stock at the rate of
5.145346 shares of preferred to one
share of common..................... 3,749,625 -- -- 3,749,625
<CAPTION>
COMMON
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED STOCK
------------------- ------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 1,900,000 Units at $5.50
per Unit in initial public offering
for cash of $10,400,005 and
cancellation of indebtedness of
$49,995, net of underwriting
discounts and commissions and
offering expenses................... -- -- -- -- -- -- 1,900,000
Issuance of unit purchase option for
$100................................ -- -- -- -- -- -- --
Conversion of promissory notes
($2,460,000 of principal and
$453,520 of interest) to common
stock at the rate of $5.00 per
share............................... -- -- -- -- -- -- 582,704
Issuance of common stock in payment
for services totaling $21,380....... -- -- -- -- -- 4,276
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1994............ -- -- -- -- -- -- 4,099,017
Amortization of deferred
compensation........................ -- -- -- -- --
Bridge Warrant exercise of 120,000
shares at $2.50 per share........... -- -- -- -- -- -- 120,000
Stock option exercise at $.51 per
share............................... -- -- -- -- -- -- 6,139
Issuance of common stock in payment
for services totaling $9,000........ -- -- -- -- -- -- 1,143
Stock option exercise at $1.03 per
share............................... -- -- -- -- -- -- 2,570
Issuance of Series C preferred stock
at $1.00 per share, net of
underwriting commissions and
expenses............................ -- -- -- -- 4,000,000 3,600,000 --
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1995............ -- -- -- -- 4,000,000 3,600,000 4,228,869
<CAPTION>
DEFICIT NOTES
COMMON ACCUMULATED RECEIVABLE
STOCK DURING THE FROM
----------- DEVELOPMENT SHARE-
AMOUNT STAGE HOLDERS TOTAL
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Issuance of 1,900,000 Units at $5.50
per Unit in initial public offering
for cash of $10,400,005 and
cancellation of indebtedness of
$49,995, net of underwriting
discounts and commissions and
offering expenses................... 9,032,250 -- -- 9,032,250
Issuance of unit purchase option for
$100................................ 100 -- -- 100
Conversion of promissory notes
($2,460,000 of principal and
$453,520 of interest) to common
stock at the rate of $5.00 per
share............................... 2,913,520 -- -- 2,913,520
Issuance of common stock in payment
for services totaling $21,380....... 21,380 -- -- 21,380
Net loss.............................. -- (4,756,776) -- (4,756,776)
----------- ------------ ---------- -----------
Balance at December 31, 1994............ 15,977,587 (9,963,836) (30,000) 5,983,751
Amortization of deferred
compensation........................ 20,205 -- -- 20,205
Bridge Warrant exercise of 120,000
shares at $2.50 per share........... 300,000 -- -- 300,000
Stock option exercise at $.51 per
share............................... 3,131 -- -- 3,131
Issuance of common stock in payment
for services totaling $9,000........ 9,000 -- -- 9,000
Stock option exercise at $1.03 per
share............................... 2,648 -- -- 2,648
Issuance of Series C preferred stock
at $1.00 per share, net of
underwriting commissions and
expenses............................ -- -- -- 3,600,000
Net loss.............................. -- (5,577,040) -- (5,577,040)
----------- ------------ ---------- -----------
Balance at December 31, 1995............ 16,312,571 (15,540,876) (30,000) 4,341,695
</TABLE>
F-6
<PAGE> 55
VOXEL
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED STOCK
------------------- ------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ -- $ -- -- $ -- 4,000,000 $3,600,000 4,228,869
Amortization of deferred compensation
(unaudited)......................... -- -- -- -- -- -- --
Bridge warrant exercise of 10,000
shares at $2.50 per share
(unaudited)......................... -- -- -- -- -- -- 10,000
Conversion of Series C preferred stock
to common stock (unaudited)......... -- -- -- -- (2,333,332) (2,099,999) 717,948
Net loss (unaudited).................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at March 31, 1996 (unaudited)... -- $ -- -- $ -- 1,666,668 $1,500,001 4,956,817
======== ======== ========= ========== ========= ========= ========
<CAPTION>
DEFICIT NOTES
COMMON ACCUMULATED RECEIVABLE
STOCK DURING THE FROM
----------- DEVELOPMENT SHARE-
AMOUNT STAGE HOLDERS TOTAL
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............ $16,312,571 $(15,540,876) $ (30,000) $ 4,341,695
Amortization of deferred compensation
(unaudited)......................... 8,961 -- -- 8,961
Bridge warrant exercise of 10,000
shares at $2.50 per share
(unaudited)......................... 25,000 -- -- 25,000
Conversion of Series C preferred stock
to common stock (unaudited)......... 2,099,999 -- -- --
Net loss (unaudited).................. -- (1,465,098) -- (1,465,098)
----------- ------------ ---------- -----------
Balance at March 31, 1996 (unaudited)... $18,446,531 $(17,005,974) $ (30,000) $ 2,910,558
========== =========== ======== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE> 56
VOXEL
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
PERIOD FROM -----------
APRIL 15, 1988 1995
YEAR ENDED DECEMBER 31, (DATE OF INCEPTION) -----------
-------------------------------------------- TO DECEMBER 31,
1993 1994 1995 1995 (UNAUDITED)
----------- ------------ ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $(2,597,108) $ (4,756,776) $(5,577,040) $ (15,540,876) $(1,320,709)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation.............................. 138,988 188,298 207,681 671,065 40,499
Amortization.............................. 8,754 8,348 8,347 65,573 2,088
Amortization of deferred compensation..... -- 138,622 20,205 158,827 --
Change in operating assets and
liabilities:
Other current assets.................... (25,995) 9,642 (5,975) (61,478) 10,325
Accounts payable and accrued expenses... (4,769) 58,121 248,857 582,960 (27,901)
Short-term note payable................. -- -- 104,500 104,500 --
----------- ------------ ----------- ------------- -----------
Net cash used in operating activities...... (2,480,130) (4,353,745) (4,993,425) (14,019,429) (1,295,698)
INVESTING ACTIVITIES
Purchases of property and equipment........ (375,409) (132,702) (79,762) (1,037,788) (23,905)
Increase in other assets................... -- -- -- (32,992) --
Decrease (increase) in short-term
investments............................... -- (4,969,946) 5,094,946 -- 1,260,564
----------- ------------ ----------- ------------- -----------
Net cash provided by (used in) investing
activities................................ (375,409) (5,102,648) 5,015,184 (1,070,780) 1,236,659
FINANCING ACTIVITIES
Sale of common stock, net of registration
costs..................................... -- 8,982,684 305,779 9,259,940 50,000
Sale of unit purchase option............... -- 100 -- 100 --
Increase in notes payable.................. 1,857,075 3,256,445 -- 5,682,706 --
Payments on notes payable.................. -- (2,150,005) -- (2,150,577) --
Proceeds from issuance of preferred stock,
net of offering costs..................... -- -- 3,600,000 6,746,000 --
Proceeds from sale/leaseback transaction... 142,945 105,262 -- 406,104 --
Payments on capital lease obligation....... (100,646) (160,233) (142,146) (455,871) (70,598)
----------- ------------ ----------- ------------- -----------
Net cash provided by financing
activities................................ 1,899,374 10,034,253 3,763,633 19,488,402 (20,598)
----------- ------------ ----------- ------------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (956,165) 577,860 3,785,392 4,398,193 (79,637)
Cash and cash equivalents at the beginning
of period................................. 991,106 34,941 612,801 -- 612,801
----------- ------------ ----------- ------------- -----------
Cash and cash equivalents at end of
period.................................... $ 34,941 $ 612,801 $ 4,398,193 $ 4,398,193 $ 533,164
=========== ============ =========== ============= ===========
Cash paid for interest..................... $ 56,457 $ 70,185 $ 33,069 $ 190,489 $ 10,417
=========== ============ =========== ============= ===========
Cash paid (refund received) for income
taxes..................................... $ 3,620 $ (2,000) $ 800 $ 5,750 $ 800
=========== ============ =========== ============= ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in exchange for
cancellation of indebtedness.............. $ -- $ 2,963,515 $ -- $ 2,998,969 $ --
Issuance of Series A preferred stock in
exchange for cancellation of
indebtedness.............................. $ -- $ -- $ -- $ 33,291 $ --
Issuance of Series B preferred stock in
exchange for cancellation of
indebtedness.............................. $ -- $ -- $ -- $ 619,625 $ --
Conversion of Series A preferred stock to
common stock.............................. $ -- $ 49,291 $ -- $ 49,291 $ --
Conversion of Series B preferred stock to
common stock.............................. $ -- $ 3,749,625 $ -- $ 3,749,625 $ --
Conversion of Series C preferred stock to
common stock.............................. $ -- $ -- $ -- $ -- $ 2,099,989
Forgiveness of indebtedness by
shareholders.............................. $ -- $ -- $ -- $ 20,000 $ --
Capital lease transaction for equipment.... $ 3,871 $ -- $ -- $ 260,710 $ --
Issuance of common stock in exchange for
cancellation of payable................... $ -- $ -- $ 9,000 $ 9,000 $ --
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED APRIL 15, 1988
MARCH 31, (DATE OF INCEPTION)
1996 TO MARCH 31, 1996
------------------ -------------------
------------(UNAUDITED)-------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $(1,465,098) $ (17,005,974)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation.............................. 49,809 720,874
Amortization.............................. 2,088 67,661
Amortization of deferred compensation..... 8,961 167,788
Change in operating assets and
liabilities:
Other current assets.................... (1,829) (63,307)
Accounts payable and accrued expenses... (116,637) 466,323
Short-term note payable................. (104,500) --
----------- ------------
Net cash used in operating activities...... (1,627,206) (15,646,635)
INVESTING ACTIVITIES
Purchases of property and equipment........ (79,759) (1,117,547)
Increase in other assets................... -- (32,992)
Decrease (increase) in short-term
investments............................... (2,522,509) (2,522,509)
----------- ------------
Net cash provided by (used in) investing
activities................................ (2,602,268) (3,673,048)
FINANCING ACTIVITIES
Sale of common stock, net of registration
costs..................................... 25,000 9,284,940
Sale of unit purchase option............... -- 100
Increase in notes payable.................. -- 5,682,706
Payments on notes payable.................. -- (2,150,577)
Proceeds from issuance of preferred stock,
net of offering costs..................... -- 6,746,000
Proceeds from sale/leaseback transaction... -- 406,104
Payments on capital lease obligation....... (18,898) (474,769)
----------- ------------
Net cash provided by financing
activities................................ 6,102 19,494,504
----------- ------------
Net increase (decrease) in cash and cash
equivalents............................... (4,223,372) 174,821
Cash and cash equivalents at the beginning
of period................................. 4,398,193 --
----------- ------------
Cash and cash equivalents at end of
period.................................... $ 174,821 $ 174,821
=========== =============
Cash paid for interest..................... $ 4,225 $ 194,714
=========== =============
Cash paid (refund received) for income
taxes..................................... $ 800 $ 6,550
=========== =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in exchange for
cancellation of indebtedness.............. $ -- $ 2,998,969
Issuance of Series A preferred stock in
exchange for cancellation of
indebtedness.............................. $ -- $ 33,291
Issuance of Series B preferred stock in
exchange for cancellation of
indebtedness.............................. $ -- $ 619,625
Conversion of Series A preferred stock to
common stock.............................. $ -- $ 49,291
Conversion of Series B preferred stock to
common stock.............................. $ -- $ 3,749,625
Conversion of Series C preferred stock to
common stock.............................. $ 3,099,999
Forgiveness of indebtedness by
shareholders.............................. $ -- $ 20,000
Capital lease transaction for equipment.... $ -- $ 260,710
Issuance of common stock in exchange for
cancellation of payable................... $ -- $ 9,000
</TABLE>
See accompanying notes.
F-8
<PAGE> 57
VOXEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Voxel (the "Company") was incorporated in the State of California on April
15, 1988. The Company is developing a system for producing and viewing
volumetric holograms which will interface with existing medical scanning
equipment and yield authentic three-dimensional images.
Basis of Presentation
The accompanying consolidated financial statements have been prepared
assuming the Company will continue to operate as a going concern. The Company
has lost approximately $2.6 million, $4.8 million, and $5.6 million in 1993,
1994, and 1995, respectively, and has an accumulated deficit of approximately
$15.5 million at December 31, 1995. The Company lost approximately $1.5 million
in the first quarter of 1996 and has an accumulated deficit of approximately
$17.0 million at March 31, 1996 (unaudited). The Company's operations have
mainly consisted of research and development, marketing and capital raising
activities. The Company has not completed the development of its products.
Through December 31, 1995, the Company has financed the development of its
products primarily through the issuance of approximately $7.4 million ($6.7
million net of underwriting commissions and offering expenses) in preferred
stock, approximately $3.0 million in common stock in exchange for cancellation
of indebtedness, and approximately $10.4 million ($9.0 million net of
underwriting commissions and offering expenses) in units (each consisting of a
share of common stock and a warrant to purchase an additional share of common
stock). The units were sold in the Company's initial public offering.
Ultimately, the Company's success will be dependent upon its ability to
achieve profitable operations. Management's plans include the successful
completion of the development, production, and marketing of its products,
achieving profitable operations and obtaining additional financing through the
public and private placement markets as needed. The Company believes that
available cash will be sufficient to meet the Company's operating expenses and
capital requirements for the first three quarters of 1996. However, the Company
will require additional funding on one or more occasions in order to achieve its
operating objectives. The delay in manufacturing of initial production units has
increased the Company's requirements for capital. The amount and timing of the
Company's future capital requirements will depend upon many factors, including
progress of the Company's research and development and the extent and timing of
acceptance of the Company's products. There can be no assurance that any
additional financing will be available to the Company on acceptable terms, or at
all, when required by the Company. In the event the Company is unable to obtain
additional funding in 1996, management will reduce or postpone certain product
development and marketing activities in order to maintain cash liquidity through
the fourth quarter of 1996.
Interim Financial Information
The consolidated financial statements as of March 31, 1996 and for the
three-month periods ended March 31, 1995 and 1996 are unaudited but include all
adjustments, (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of its consolidated financial
position, operating results, and cash flows. Results for interim periods are not
necessarily indicative of results to be expected for the entire year.
F-9
<PAGE> 58
VOXEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investments
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The adoption did not have a significant impact on
the Company's consolidated financial statements. Management determines the
appropriate classification of such securities at the time of purchase and
reevaluates such classification as of each balance sheet date. Based on its
intent, the Company's investments are classified as available-for-sale and are
carried at fair value, with unrealized gains and losses, net of tax, reported as
a separate component of shareholders' equity. The investments are adjusted for
amortization of premiums and discounts to maturity and such amortization is
included in interest income. Short-term investments held by the Company have
consisted of certificates of deposit, U.S. government securities, and commercial
paper. As of December 31, 1994 and 1995, there were no material gross unrealized
gains or losses as the carrying value of the portfolio approximated fair value.
Gross unrealized gains and losses on sales of securities for the years ended
December 31, 1994 and 1995, were not material. The cost of securities sold is
based on the specific identification method.
Long-Lived Assets
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121") in March
1995. The Company will adopt SFAS No. 121 during 1996. Such adoption will not
have a material effect on the Company's consolidated results of operations or
financial position.
Stock Option Plans
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123") in October 1995. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based compensation plans and to transactions in
which an entity issues its equity instruments to acquire goods and services from
nonemployees. The new accounting standards prescribed by SFAS No. 123 are
optional, and the Company may continue to account for its plans under previous
accounting standards. The Company does not expect to adopt the new accounting
standards, consequently, SFAS No. 123 will not have an impact on the Company's
consolidated results of operations or financial position. However, appropriate
pro forma disclosures will be made in 1996.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of cash and short-term investments. The Company
maintains its cash and short-term investments with one major bank and one major
securities firm. At December 31, 1994 and December 31, 1995, the Company had
cash totaling $49,622 and $0, respectively, in excess of Federal Deposit
Insurance Corporation insurance limits. At December 31, 1994, the Company had
cash and cash equivalents totaling $488,172 in excess of Securities Investors
Protection Corporation ("SIPC") limits and short-term investments totaling
$4,520,870 in excess of SIPC limits. Also, at December 31, 1995 the Company had
cash and cash equivalents totaling $4,268,533 in excess of SIPC limits.
Stock Split
On June 17, 1994, the Company's Board of Directors approved a
one-for-5.145346 reverse stock split of its common stock, which became effective
on June 24, 1994. Unless otherwise indicated, the accompanying consolidated
financial statements have been adjusted retroactively to reflect the stock
split.
F-10
<PAGE> 59
VOXEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and Holoplex Systems, an inactive subsidiary chartered in the United
Kingdom. All significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful life of the property or
equipment which is from five to seven years.
Other Assets
Other assets include patent rights which are being amortized on a
straight-line basis over their estimated useful life of ten years.
Per Share Information
Net loss per share has been calculated using the weighted average number of
shares of common stock outstanding.
Pro forma net loss per share is computed using: (1) the weighted average
number of shares of common stock outstanding; (2) the dilutive effects of common
equivalent shares from stock options and warrants; (3) pursuant to the
requirements of the Securities and Exchange Commission (the "SEC"), common
equivalent shares issued during the twelve-month period prior to the initial
public offering, whether dilutive or antidilutive, are presumed to have been
issued in contemplation of the public offering and have been included in the
calculation as if they were outstanding for all periods prior to the initial
public offering (using the treasury stock method for stock options and warrants
and the initial public offering price assumed to be allocated to the common
stock portion of the Unit of $5.00 per share); (4) the pro forma effect of
conversion of all outstanding shares of Series A and Series B convertible
redeemable preferred stock into common stock which occurred upon the closing of
the Company's initial public offering of securities; and (5) the pro forma
effect of conversion of convertible subordinated notes payable to shareholders
into common stock, determined using the if-converted method, which occurred upon
the closing of the Company's initial public offering of securities.
Additionally, net loss is adjusted for the related interest expense incurred
during the period.
Supplemental pro forma net loss per share is computed based on the number
of shares used to compute pro forma earnings per share, as described above,
adjusted to give effect to the issuance of common shares to retire amounts
outstanding on the Company's notes payable to shareholders at the beginning of
the period. Additionally, net loss is adjusted for the related interest expense
incurred during the period.
Supplemental pro forma net loss per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Supplemental pro forma net loss per share.................... $(1.55)
=========
Number of shares used in computing supplemental pro forma net
loss per share............................................. 2,842,288
=========
</TABLE>
F-11
<PAGE> 60
VOXEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. CONVERTIBLE PREFERRED STOCK
On December 29, 1995 the Company completed a $4.0 million ($3.6 million,
net of offering expenses) financing by issuing 4,000,000 shares of Series C
convertible preferred stock (the "Series C Stock") to several institutional
investors in a private financing.
The Series C Stock carries an 8% annual dividend payable only in common
stock at the time of conversion, a liquidation preference for a period of 105
days after the initial issuance date of Series C Stock (the "Issuance Date"),
and voting rights as required by law. Each holder of Series C Stock may convert
its shares into common stock as follows: one-third of such holder's shares may
be converted on or after 45 days from the Issuance Date, an additional one-third
on or after 75 days from the Issuance Date, and the final one-third, on or after
105 days from the Issuance Date. The conversion price of the Series C Stock is
the lesser of (a) the Closing Price of the common stock on the Issuance Date or
(b) 80% of the Closing Price on the date of conversion. The Closing Price as of
a given date is defined as the average closing bid price of the common stock
over the five-day trading period ending on the day prior to such date. The
number of shares of common stock into which the Series C Stock is convertible is
computed as the number of shares of Series C Stock being converted divided by
the conversion price in effect at the time of conversion. At December 31, 1995,
the Company had reserved up to 1,500,000 shares of common stock for the
conversion of the Series C Stock. At March 31, 1996, 2,333,332 shares of Series
C Stock had been converted into an aggregate of 717,948 shares of common stock
and 1,666,668 shares of Series C Stock remained outstanding (unaudited).
3. STOCK OPTION PLANS
The Company's 1992 Stock Plan (the "1992 Plan") permits the Company to
grant incentive stock options to employees at 100% of the fair value of the
Company's common stock at the date of grant, and nonqualified stock options at
no less than 85% of the fair value of the Company's common stock at the grant
date. However, options granted to employees owning more than 10% of all classes
of stock of the Company at the grant date are to be at no less than 110% of the
fair market value of the Company's common stock. Vesting begins on either the
grant date or, if different, on the vesting commencement date specified by the
Board of Directors. Such vesting is subject to continued employment with the
Company.
Information with respect to options granted under the 1992 Plan is
summarized as follows:
<TABLE>
<CAPTION>
SHARES UNDER OUTSTANDING OPTIONS
------------------------------------
SHARES AGGREGATE
AVAILABLE OPTION PRICE EXERCISE
FOR GRANT SHARES PER SHARE PRICE
--------- ------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1992............. 240,451 128,815 $ 0.51 $ 66,280
Grants................................. (25,946) 25,946 0.51 13,350
-------- ------- ---------- ---------
Balance at December 31, 1993............. 214,505 154,761 0.51 79,630
Shares authorized...................... 194,350 -- -- --
Grants................................. (212,478) 212,478 0.51-6.00 232,077
Exercises and Forfeitures.............. 1,498 (2,332) 0.51 (1,200)
-------- ------- ---------- ---------
Balance at December 31, 1994............. 197,875 364,907 0.51-6.00 $ 310,507
Grants................................. (50,776) 50,776 3.88-8.63 333,229
Exercises and Forfeitures.............. 9,657 (18,367) 0.51-1.03 (13,400)
-------- ------- ---------- ---------
Balance at December 31, 1995............. 156,756 397,316 0.51-8.63 630,336
Grants (unaudited)..................... (55,544) 55,544 2.63 146,081
Exercises and Forfeitures
(unaudited)......................... 20,500 (20,500) 8.25-8.63 (171,215)
-------- ------- ---------- ---------
Balance at March 31, 1996 (unaudited).... 121,712 432,360 $0.51-8.63 $ 605,202
======== ======= ========== =========
</TABLE>
F-12
<PAGE> 61
VOXEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1994 and December 31, 1995, options to purchase
approximately 290,630 shares and 324,557 shares, respectively, were exercisable.
At March 31, 1996, options to purchase approximately 350,012 shares (unaudited)
were exercisable.
The 1992 Plan also permits the Company to grant stock purchase rights at no
less than 85% of the fair value of the Company's common stock at the grant date.
No stock purchase rights have been granted as of December 31, 1995.
In March 1994, the Company adopted the 1994 Executive Stock Option Plan
(the 1994 Plan) under which options may only be granted to Company executives.
Under the 1994 Plan, 310,961 shares have been reserved for issuance. The 1994
Plan permits the Company to grant incentive stock options and nonqualified stock
options. Incentive stock options may be granted at no less than 100% of the fair
market value of the Company's common stock at the date of grant and incentive
stock options granted to employees owning more than 10% of all classes of stock
of the Company at the grant date are to be at no less than 110% of the fair
market value of the Company's common stock. Vesting begins on either the grant
date or, if different, on the vesting commencement date specified by the Board
of Directors. In March 1994, the Company granted options under the 1994 Plan to
purchase 23,322 shares of the Company's common stock at $1.03 per share. Vesting
of these options is contingent upon the achievement of certain product
development milestones. In July 1995, 11,661 of the above mentioned options were
forfeited. Separately, in May 1995, the Company granted options under the 1994
Plan to purchase 15,000 shares of the Company's common stock at $1.50 per share,
which vest ratably over a four year period. In January 1996, the Company granted
options under the 1994 Plan to purchase an aggregate of 47,500 shares of common
stock at $2.63 per share, of which 22,500 vest ratably over a four year period
and 25,000 vest upon the achievement of a financing milestone (unaudited).
4. WARRANTS
The Company sold 1,900,000 Units in its initial public offering. Each unit
consisted of one share of common stock and one redeemable Class A warrant. The
Class A Warrants carry an exercise price of $6.25, subject to adjustment, are
immediately exercisable and expire on September 27, 1999. The Class A Warrants
are also subject to redemption by the Company at $0.05 per warrant if the price
of the Company's common stock exceeds $9.00 for twenty consecutive business days
or upon written consent from the underwriter of the Company's initial public
offering.
The Company has granted to an investment banker a warrant to purchase 1,944
shares of the Company's common stock at an exercise price of $3.09 per share.
The warrant will be exercisable through August 31, 1998.
Warrants were also issued by the Company as discussed in Notes 6 and 8. At
December 31, 1994 and December 31, 1995, the Company has reserved 2,118,140
shares and 1,998,140 shares of common stock for all outstanding warrants.
5. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured on the likelihood of realization of the related tax benefits in the
future.
At December 31, 1995, the Company had approximately $5,300,000 of net
operating loss carryforwards for federal income tax purposes which begin to
expire in 2003. In addition, the Company has net operating loss carryforwards
for California income tax purposes of approximately $2,700,000 which begin to
expire in 1998.
F-13
<PAGE> 62
VOXEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company also has general business credit carryforwards for federal and
California income tax purposes of $345,000 and $192,000, respectively, which
expire in 2007.
For the year ended December 31, 1995, the Company did not incur any current
or deferred, federal or state, income tax expense.
The reconciliation of income tax expense (benefit) computed at U.S. federal
statutory rates to income tax expense (benefit) for the year ended December 31,
1993, 1994, and 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
Tax at U.S. statutory rate................... $(883,000) $(1,665,000) $(1,896,000)
Losses without benefit....................... 883,000 1,665,000 1,896,000
--------- ----------- -----------
Income tax expense........................... $ -- $ -- $ --
========= =========== ===========
</TABLE>
Deferred income taxes reflects the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets and liabilities as of December 31, 1994
and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of book depreciation......... $ -- $ (128,000)
Deferred tax assets:
Capitalized research and development costs.............. $ 2,574,000 $ 4,270,000
Capitalized start-up costs.............................. 65,000 33,000
Operating loss carryforwards............................ 1,465,000 2,087,000
General business credit carryforwards................... 200,000 537,000
Other, net.............................................. (20,000) 4,000
----------- -----------
4,284,000 6,931,000
Valuation allowance..................................... (4,284,000) (6,803,000)
----------- -----------
Net deferred tax assets................................... $ -- $ --
=========== ===========
</TABLE>
The Tax Reform Act of 1986 contains provisions which could substantially
limit the availability of the net operating loss carryforwards if there is a
greater than 50% change in ownership during a three year period. As a result of
the public offering in November 1994, the Company experienced an ownership
change, resulting in a limitation on the utilization of its net operating loss
carryforwards. The limitation is based upon the value of the stock on that date.
Management believes that the limitation will not have a material adverse effect
on the Company's ability to utilize fully its net operating loss carryforwards.
The ultimate realization of the loss carryforwards is dependent upon the future
profitability of the Company.
6. NOTES PAYABLE TO SHAREHOLDERS
Notes Payable to Shareholders
In April 1993, the Company executed convertible subordinated promissory
notes with five of its major shareholders, pursuant to which the Company was
able to borrow up to $2.46 million. Interest on all outstanding principal
borrowings accrued at a basic rate of 6% per annum during the one-year period
following the initial principal borrowing date. In April 1994, all amounts
payable were extended through November 1994 and the basic interest rate was
increased to 9% per annum. Additional amounts of interest equal to 4% of
F-14
<PAGE> 63
VOXEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
each principal borrowing accrued on the date of each borrowing, and an
additional 4% of the total principal borrowings then outstanding accrued on each
of the dates 90, 180, and 270 days from the initial principal borrowing date.
All principal and interest due as of November 1, 1994 was repaid by the issuance
of the Company's common stock upon the closing of the initial public offering.
In April 1994, the Company issued unsecured promissory notes to five of its
major shareholders in an aggregate principal amount of $400,000. The notes
accrued interest at a rate of 9% per annum and matured on November 1, 1994, the
date on which the Company's initial public offering closed. In June 1994, an
additional amount aggregating $800,000 was borrowed by the Company under these
same terms and from the same shareholders. As of November 1, 1994, all principal
and interest due on such notes was repaid in cash from the proceeds of the
initial public offering.
Bridge Financing
On July 25, 1994, the Company issued unsecured promissory notes aggregating
$1,000,000 and warrants to acquire 200,000 shares of common stock. The notes
were repaid from the proceeds of the initial public offering. The warrants are
exercisable for five years at a per share exercise price equal to $2.50. As of
December 31, 1995, warrants to acquire 120,000 of such shares have been
exercised.
7. COMMITMENTS
The Company leases office space under an operating lease which expires in
February 1998 and which provides for increases in base rent of 6% annually. Rent
expense was $81,489, $101,468 and $132,767 in 1993, 1994, and 1995,
respectively. Aggregate future minimum payments under these leases as of
December 31, 1995 total $146,839, $155,649, and $26,924 for the years ended
December 31, 1996, 1997, and 1998, respectively.
8. CAPITAL LEASE OBLIGATIONS
Included in property and equipment at December 31, 1994 and 1995 are leased
assets with a total cost of $667,107 and $251,314, respectively, which have a
net book value of $400,016 and $143,299, respectively. Except for certain
telephone equipment, all equipment under capital leases is leased from the same
lessor. Certain of these leased assets were previously purchased by the Company
and then sold to the lessor at cost. In addition, the lessor received a warrant
to purchase 16,196 shares of common stock at $3.09 per share. The warrant is
currently exercisable and expires in 2003.
At December 31, 1995, future minimum payments under capital lease
obligations are as follows:
<TABLE>
<S> <C>
Year ending December 31, 1996..................................... $ 95,191
Year ending December 31, 1997..................................... 22,162
Year ending December 31, 1998..................................... 7,691
---------
Total payments.................................................... 125,044
Less amount representing interest................................. (15,804)
---------
109,240
Less current portion.............................................. (81,276)
---------
Long-term portion................................................. $ 27,964
=========
</TABLE>
F-15
<PAGE> 64
[VOXEL'S DIGITAL HOLOGRAPHY SYSTEM SCHEMATIC]
Data collected by CT or MR scanners are commonly displayed as a series of
cross-sectional slices printed side by side on film. In Voxel's Digital
Holography System (which will not be commercially available for at least four
months), the data are also printed as a series of cross-sectional slices on
film, but they are arranged one behind another on a single sheet of film. The
resulting image is a transparent three-dimensional model of a patient's anatomy.
Neurosurgeons at a clinical research site review a Voxgram in preparation for
surgery.
[NEUROSURGEONS AT CLINIC]
<PAGE> 65
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
CIRCUMSTANCES OF THE COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Dilution.............................. 12
Use of Proceeds....................... 13
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Capitalization........................ 15
Selected Consolidated Financial
Data................................ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 20
Management............................ 32
Certain Transactions.................. 36
Principal Shareholders................ 38
Debt Financings....................... 39
Description of Securities............. 40
Shares Eligible for Future Sale....... 43
Underwriting.......................... 44
Legal Matters......................... 45
Experts............................... 45
Additional Information................ 46
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
LOGO
2,300,000 Shares of
Common Stock
--------------------
PROSPECTUS
--------------------
CRUTTENDEN ROTH
INCORPORATED
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of this filing are estimated as follows:
<TABLE>
<CAPTION>
EXPENSE
--------
<S> <C>
Registration Fee -- Securities and Exchange Commission............ $ 5,829
NASD Filing Fee................................................... 2,468
Nasdaq Additional Listing Fee*.................................... 50,000
Printing and Engraving Expenses*.................................. 70,000
Legal Fees and Expenses*.......................................... 50,000
Accounting Fees and Expenses*..................................... 25,000
Blue Sky Filing Fees and Expenses*................................ 30,000
Transfer Agent Fees and Expenses*................................. 3,500
Non-Accountable Expense Allowance*+............................... 225,750
Miscellaneous*.................................................... 43,953
--------
Total................................................... $506,500
========
</TABLE>
- ---------------
* Estimated and subject to amendment.
+ Assumes an offering price of $7.50 per share and assumes that the
Underwriters' over-allotment option is not exercised.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IV of the Articles of Incorporation of the Registrant provides as
follows:
"1 Limitation of Directors' Liability. The liability of directors of
this corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.
2 Indemnification of Directors and Officers. The corporation is
authorized to indemnify the directors and officers of the corporation to
the fullest extent permissible under California law.
3 Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article IV shall not adversely affect any
right of indemnification or limitation of liability of an agent of this
corporation relating to acts or omissions occurring prior to such repeal or
modification."
Sections 1, 2, and 8 of the Registrant's Indemnification Agreement entered
into with each of its directors and executive officers provides as follows:
"1. INDEMNIFICATION.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of
the Company, by reason of any action or inaction on the part of Indemnitee
while an officer or director or by reason of the fact that Indemnitee is or
was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement (if such settlement is approved in advance
by the Company, which approval shall not be unreasonably withheld) actually
and reasonably incurred by Indemnitee in connection with such action or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe Indemnitee's conduct was unlawful. The termination of any action or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or
II-1
<PAGE> 67
its equivalent, shall not, of itself, create a presumption that (i)
Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in the best interests of the Company, or (ii)
with respect to any criminal action or proceeding, Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be
made a party to any threatened, pending or completed action or proceeding
by or in the right of the Company or any subsidiary of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or
was a director, officer, employee or agent of the Company, or any
subsidiary of the Company, by reason of any action or inaction on the part
of Indemnitee while an officer or director or by reason of the fact that
Indemnitee is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees) and, to the fullest extent permitted by law, amounts paid in
settlement, in each case to the extent actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of such action or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the Company and its
shareholders, except that no indemnification shall be made in respect of
any claim, issue or matter as to which Indemnitee shall have been adjudged
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its shareholders unless and only to the extent that the court
in which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee
is fairly and reasonably entitled to indemnity for expenses and then only
to the extent that the court shall determine.
2. EXPENSES: INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding
referenced in Section 1(a) or (b) hereof (but not amounts actually paid in
settlement of any such action or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby. The advances to be made hereunder
shall be paid by the Company to Indemnitee within twenty (20) days
following delivery of a written request therefor by Indemnitee to the
Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing
to Indemnitee). Notice shall be deemed received three business days after
the date postmarked if sent by domestic certified or registered mail,
properly addressed; otherwise notice shall be deemed received when such
notice shall actually be received by the Company. In addition, Indemnitee
shall give the Company such information and cooperation as it may
reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification provided for in Section 1 shall be
made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute,
or under any provision of the Company's Articles of Incorporation or
By-laws providing for indemnification, is not paid in full by the Company
within forty five (45) days after a written request for payment thereof has
first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid
amount of the claim and, subject to Section 12 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses
incurred in connection with any action or proceeding in advance of its
final disposition) that Indemnitee has not met the standards of conduct
which make it permissible
II-2
<PAGE> 68
under applicable law for the Company to indemnify Indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Company,
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Subsection 2(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right
to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
shareholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel,
or its shareholders) that Indemnitee has not met such applicable standard
of conduct, shall create a presumption that Indemnitee has or has not met
the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 2(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice
of the commencement of such proceeding to the insurers in accordance with
the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
under Section 2(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of
such notice, approval of such counsel by Indemnitee and the retention of
such counsel by the Company, the Company will not be liable to Indemnitee
under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i)
Indemnitee shall have the right to employ his counsel in any such
proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
8. EXCEPTIONS.
Any other provision herein to the contrary notwithstanding, the
Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions
or transactions from which a director may not be relieved of liability
under the California General Corporation Law; or
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification
under this Agreement or any other statute or law or otherwise as required
under Section 317 of the California General Corporation Law, but such
indemnification or advancement of expenses may be provided by the Company
in specific cases if the Board of Directors has approved the initiation or
bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
or
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid in
II-3
<PAGE> 69
settlement) which have been paid directly to Indemnitee by an insurance
carrier under a policy of directors' and officers' liability insurance
maintained by the Company; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee
of securities in violation of Section 16(b) of the Securities Exchange Act
of 1934, as amended, or any similar successor statute."
* * * * *
Section 204 of the California Corporations Code provides as follows:
"10. Provisions eliminating or limiting the personal liability of a
director for monetary damages in an action brought by or in the right of
the corporation for breach of a director's duties to the corporation and
its shareholders, as set forth in Section 309, provided, however, that (A)
such a provision may not eliminate or limit the liability of directors (i)
for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) for acts or omissions that a director
believes to be contrary to the best interests of the corporation or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an
improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to the corporation or its shareholders in
circumstances in which the director was aware, or should have been aware,
in the ordinary course of performing a director's duties, of a risk of
serious injury to the corporation or its shareholders, (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts
to an abdication of the director's duty to the corporation or its
shareholders, (vi) under Section 310, or (vii) under Section 316, (B) no
such provision shall eliminate or limit the liability of a director for any
act or omission occurring prior to the date when the provision becomes
effective, and (C) no such provision shall eliminate or limit the liability
of an officer for any act or omission as an officer, notwithstanding that
the officer also a director or that his or her actions, if negligent or
improper, have been ratified by the directors.
11. A provision authorizing, whether by bylaw, agreement, or
otherwise, the indemnification of agents (as defined in Section 317) in
excess of that expressly permitted by Section 317 for those agents of the
corporation for breach of duty to the corporation and its stockholders,
provided, however, that the provision may not provide for indemnification
of any agent for any acts or omissions or transactions from which a
director may not be relieved of liability as set forth in the exception to
paragraph (10) or as to circumstances in which indemnity is expressly
prohibited by Section 317."
* * * * *
Section 317 of the California Corporations Code provides as follows:
"(a) For the purposes of this section, "agent" means any person who is
or was a director, officer, employee or other agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, or was a director, officer,
employee or agent of a foreign or domestic corporation which was a
predecessor corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of the predecessor
corporation; "proceeding" means any threatened, pending or completed action
or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorneys' fees and any expenses
of establishing a right to indemnification under subdivision (d) or
paragraph (r) of subdivision (e).
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding (other
than an action by or in the right of the corporation to procure a judgment
in its favor) by reason of the fact that the person is or was an agent of
the corporation, against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with the proceeding
if that person acted in good faith and in a manner the person reasonably
believed to be in the best interests of the corporation and, in the case of
a criminal proceeding, had no reasonable cause to believe the conduct of
the person was unlawful. The termination of any proceeding by judgment,
II-4
<PAGE> 70
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in the best interests of the corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
(c) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was an
agent of the corporation, against expenses actually and reasonably incurred
by that person in connection with the defense or settlement of the action
if the person acted in good faith, in a manner the person believed to be in
the best interests of the corporation and its shareholders.
No indemnification shall be made under this subdivision for any of the
following:
(1) In respect of any claim, issue or matter as to which the person
shall have been adjudged to be liable to the corporation in the
performance of that person's duty to the corporation and its
shareholders, unless and only to the extent that the court in which the
proceeding is or was pending shall determine upon application that, in
view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
(2) Of amounts paid in settling or otherwise disposing of a pending
action without court approval.
(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
(d) To the extent that an agent of a corporation has been successful
on the merits in defense of any proceeding referred to in subdivision (b)
or (c) or in defense of any claim, issue, or matter therein, the agent
shall be indemnified against expenses actually and reasonably incurred by
the agent in connection therewith.
(e) Except as provided in subdivision (d), any indemnification under
this section shall be made by the corporation only if authorized in the
specific case, upon a determination that indemnification of the agent is
proper in the circumstances because the agent has met the applicable
standard of conduct set forth in subdivision (b) or (c), by any of the
following:
(1) A majority vote of a quorum consisting of directors who are not
parties to such proceeding.
(2) If such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion.
(3) Approval of the shareholders (Section 153), with the shares
owned by the person to be indemnified not being entitled to vote
thereon.
(4) The court in which the proceeding is or was pending upon
application made by the corporation or the agent or the attorney or
other person rendering services in connection with the defense, whether
or not the application by the agent, attorney or other person is opposed
by the corporation.
(f) Expenses incurred in defending any proceeding may be advanced by
the corporation prior to the final disposition of the proceeding upon
receipt of an undertaking by or on behalf of the agent to repay that amount
if it shall be determined ultimately that the agent is not entitled to be
indemnified as authorized in this section.
(g) The indemnification authorized by this section shall not be deemed
exclusive of any additional rights to indemnification for breach of duty to
the corporation and its shareholders while acting in the capacity of a
director or officer of the corporation to the extent the additional rights
to indemnification are authorized in an article provision adopted pursuant
to paragraph (11) of subdivision (a) of section 204.
II-5
<PAGE> 71
The indemnification provided by this section for acts, omissions, or
transactions while acting in the capacity of, or while serving as, a
director or officer of the corporation but not involving breach of duty to
the corporation and its shareholders shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under
any bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise, to the extent the additional rights to indemnification are
authorized in the articles of the corporation. An article provision
authorizing indemnification "in excess of that otherwise permitted by
Section 317" or "to the fullest extent permissible under California law" or
the substantial equivalent thereof shall be construed to be both a
provision for additional indemnification for breach of duty to the
corporation and its shareholders as referred to in, and with the
limitations required by, paragraph (11) of subdivision (1) of Section 204
and a provision for additional indemnification as referred to in the second
sentence of this subdivision. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a director, officer, employee,
or agent and shall inure to the benefit of the heirs, executors, and
administrators of the person. Nothing contained in this section shall
affect any right to indemnification to which persons other than the
directors and officers may be entitled by contract or otherwise.
(h) No indemnification or advice shall be made under this section,
except as provided in subdivision (d) or paragraph (4) of subdivision (e),
in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the articles,
bylaws, a resolution of the shareholders, or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification.
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) A corporation shall have power to purchase and maintain insurance
on behalf of any agent of the corporation against any liability asserted
against or incurred by the agent in that capacity or arising out of the
agent's status as such whether or not the corporation would have the power
to indemnify the agent against that liability under this section. The fact
that a corporation owns all or a portion of the shares of the company
issuing a policy of insurance shall not render this subdivision
inapplicable if either of the following conditions are satisfied: (1) if
the articles authorize indemnification in excess of that authorized in this
section and the insurance provided by this subdivision is limited as
indemnification is required to be limited by paragraph (11) of subdivision
91) of Section 204; or (2) (A) the company issuing the insurance policy is
organized licensed, and operated in a manner that complies with the
insurance laws and regulations applicable to its jurisdiction of
organization, (B) the company issuing the policy provides procedures for
processing claims that do not permit that company to be subject to the
direct control of the corporation that purchased that policy, and (C) the
policy issued provides for some manner of risk sharing between the issuer
and purchaser of the policy, on one hand, and some unaffiliated person or
persons, on the other, such as by providing for more than one unaffiliated
owner of the company issuing the policy or by providing that a portion of
the coverage furnished will be obtained from some unaffiliated insurer or
reinsurer.
(j) This section does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit plan in that
person's capacity as such, even though the person may also be an agent as
defined in subdivision (a) of the employer corporation. A corporation shall
have power to indemnify such a trustee, investment manager, or other
fiduciary to the extent permitted by subdivision (f) of Section 207."
Insofar as indemnification for liabilities arising under federal securities
laws may be permitted to directors or officers, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such laws and is,
therefore, unenforceable. Under certain circumstances, the Company might be
required to submit to a court the question of whether such indemnification is
permissible before it could indemnify directors for such liabilities.
II-6
<PAGE> 72
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Company has issued and sold the following
unregistered securities:
1. In April 1993, the Company issued unsecured promissory notes to
five of its shareholders in the aggregate principal amount of $2,460,000.
In exchange for the notes, the Company received total proceeds equal to
their principal amount, funded through several drawdowns during the period
from May 1993 through April 1994. These notes and the accrued interest
thereon were exchanged for shares of Common Stock upon the closing of the
IPO.
2. In May 1994, the Company issued 834 shares of Common Stock in
exchange for $429 upon the exercise of an option granted under the 1992
Plan.
3. In July 1994, the Company issued unsecured promissory notes in the
aggregate principal amount of $1,000,000 and warrants to purchase 200,000
shares of Common Stock to unaffiliated individual and institutional
investors. In exchange for these securities, the Company received gross
cash proceeds of $1,000,000.
4. In November 1994, the Company issued 4,276 shares of Common Stock
to a marketing consultant as compensation for services valued at $21,380.
5. In May 1995, the Company issued 875 shares of Common Stock in
exchange for $446 upon the exercise of options granted under the 1992 Plan.
6. In August 1995, the Company issued 7,834 shares of Common Stock in
exchange for $5,333 upon the exercise of options granted under the 1992
Plan.
7. In August 1995, the Company issued 1,143 shares of Common Stock to
a consultant as compensation for services valued at $9,000.
8. As of December 29, 1995, the Company issued 4,000,000 shares of
Series C Convertible Preferred Stock to unaffiliated foreign investors. In
exchange for these securities, the Company received gross cash proceeds of
$4,000,000.
No underwriters were involved in the issuances of the securities referenced
in paragraphs 1, 2, 4, 5, 6, and 7 above. A.R. Baron & Co., Inc. was the
exclusive placement agent for the securities referenced in paragraph 3 above and
received a fee of $100,000 for its services as placement agent. Feltman &
Company was the exclusive placement agent for the securities referenced in
paragraph 8 above and received a fee of $400,000 for its services as placement
agent.
None of the securities described in Items 1 through 7 above was registered
under the Securities Act in reliance upon the exemption in Section 4(2) of the
Securities Act for transactions not involving a public offering. In the issuance
referenced in paragraph 1 above, such reliance was based upon the sophistication
and small number of the purchasers. All of the purchasers in the issuance were
institutional investors, all of which are professional venture capital
investors. In the issuances referenced in paragraphs 2, 4, 5, 6, and 7 above,
such reliance was based upon the purchaser's familiarity with the Company. The
purchasers in such issuances were (i) an employee with over one and one-half
years managerial responsibility at the Company at the time of issuance, (ii) a
professional consultant who had performed services for the Company for over one
and one-half years at the time of issuance, (iii) an employee with over three
years administrative management responsibility with the Company at the time of
issuance, (iv) a senior executive with over two years of managerial
responsibility at the Company at the time of issuance, and (v) a professional
consultant who had performed services for the Company from time to time over the
preceding three years, respectively. In the issuance referenced in paragraph 3
above, such reliance was based upon (i) the small number of purchasers (eight),
(ii) representations by each purchaser as to investment intent, experience in
financial and business matters, opportunity to ask questions, access to
information, and accredited investor status, and (iii) the contents of a
questionnaire completed by each purchaser in support of its accredited investor
status.
The securities described in Item 8 above were not registered under the
Securities Act in reliance upon the exemption in Regulation S for offers and
sales made outside the United States. Such reliance was based upon
II-7
<PAGE> 73
representations received from each purchaser that, inter alia, (a) such
purchaser was not a U.S. person as defined by Rule 902 under Regulation S, (b)
such purchaser was outside the United States at the time the buy order for the
transaction was originated, and (c) such purchaser would not resell the
securities to U.S. persons or within the United States until after the end of
the forty-day period commencing on the date of completion of the offering
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------
<C> <S>
+1.1 Form of Underwriting Agreement
*3.1 Amended and Restated Articles of Incorporation of the Company, as filed
on August 2, 1991 and as amended on May 24, 1993 and June 24, 1994 (Filed
as Exhibit 3.1 to the Company's Registration Statement on Form S-1,
Registration #33-81938, which was declared effective on September 27,
1994 (the "IPO Filing"))
*3.2 By-laws of the Company (Filed as Exhibit 3.2 to the IPO Filing)
*3.3 Certificate of Amendment to the Amended and Restated Articles of
Incorporation of the Company (Filed as Exhibit 3.3 to the Company's
Report on Form 8-K dated January 15, 1996 (the "January '96 8-K"))
*4.1 Specimen Certificate for Common Stock (Filed as Exhibit 4.1 to the IPO
Filing)
*4.2 Form of Unit Purchase Option (Filed as Exhibit 4.2 to the IPO Filing)
*4.3 Form of Warrant Agreement (including Form of Class A Warrant) among the
Company, A.R. Baron & Co., Inc. ("Baron") and American Stock Transfer &
Trust Company (Filed as Exhibit 4.3 to the IPO Filing)
*4.4 Escrow Agreement among Voxel, Baron and Chemical Bank (Filed as Exhibit
4.4 to the IPO Filing)
*4.5 Form of Bridge Warrant (Filed as Exhibit 4.5 to the IPO Filing)
*4.6 Certificate of Determination for the Series C Preferred Stock (Filed as
Exhibit 4.6 to the January '96 8-K)
+4.7 Form of Common Stock Warrant between the Company and Cruttenden Roth
Incorporated
+5.1 Opinion of Arter & Hadden, counsel to the Company
*10.1 License Agreement between Voxel and Holoplex Systems dated April 11, 1990
(Filed as Exhibit 10.1 to the IPO Filing)
*10.2 Agreement between Voxel and Dynamic ReSolutions Inc. dated April 29, 1994
(Filed as Exhibit 10.2 to the IPO Filing)
*10.3+ Employment Agreement between Voxel and Dr. Allan M. Wolfe dated June 1,
1994 (Filed as Exhibit 10.3 to the IPO Filing)
*10.4+ 1992 Stock Plan (Filed as Exhibit 10.4 to the IPO Filing)
*10.5+ 1994 Executive Stock Option Plan (Filed as Exhibit 10.5 to the IPO
Filing)
*10.6 Master Lease Agreement between Voxel and Pacific Venture Finance, Inc.
dated December 16, 1991 (Filed as Exhibit 10.6 to the IPO Filing)
*10.7 Amendment No. 1 to Master Lease Agreement between Voxel and MMC/GATX
Partnership No. I dated April 30, 1993 (Filed as Exhibit 10.7 to the IPO
Filing)
*10.8 Industrial Lease Agreement between Voxel and Saddleback II Associates
dated June 7, 1994 regarding 26081 Merit Circle, Suite 116, Laguna Hills,
California (Filed as Exhibit 10.8 to the IPO Filing)
*10.9 Industrial Lease Agreement between Voxel and Saddleback II Associates
dated August 6, 1991 regarding 26081 Merit Circle, Suite 117, Laguna
Hills, California, together with renewal amendment thereto dated June 7,
1994 (Filed as Exhibit 10.9 to the IPO Filing)
10.10 Not Used
</TABLE>
II-8
<PAGE> 74
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------
<C> <S>
*10.11 Form of Merger and Acquisition Agreement between Voxel and Baron,
providing for a fee to Baron upon consummation of certain transactions
between the Company and a party introduced to the Company by Baron (Filed
as Exhibit 10.11 to the IPO Filing)
*10.12 Form of Indemnification Agreement entered into between Voxel and each of
its directors and executive officers (Drs. Wolfe and Anderson, Messrs.
Dishlip, Dreyfous, Holliman, Besseling, Hart, and Rudin) (Filed as
Exhibit 10.12 to the IPO Filing)
*10.13 Investor Agreement among the Company and all purchasers of Bridge Notes,
together with form of Bridge Note (Filed as Exhibit 10.13 to the IPO
Filing)
*10.14 Development Agreement between Voxel and General Scanning, Inc. dated
August 3, 1994 (Filed as Exhibit 10.14 to the IPO Filing)
*10.15 Letter Agreement between General Scanning, Inc. and Voxel dated January
30, 1995 (Filed as Exhibit 10.15 to the Company's Report on Form 10-K for
the year ended December 31, 1994)
*10.16 Form of Preferred Stock Subscription Agreement (Filed as Exhibit 10.16 to
the January '96 8-K)
*11.1 Statement re Computation of Per Share Earnings
*21.1 List of subsidiaries of the Company (Filed as Exhibit 21.1 to the IPO
Filing)
+23.1 Consent of Ernst & Young LLP
*23.2 Consent of Arter & Hadden
*24.1 Power of Attorney
*27 Financial Data Schedule
*99.1 Press Release, dated October 5, 1995 (Filed as Exhibit 99.1 to the
Company's 8-K dated October 5, 1996)
*99.2 Press Release, dated January 15, 1995 (Filed as Exhibit 99.2 to the
January '96 8-K)
</TABLE>
- ---------------
* Items so noted were previously filed.
+ Items so noted are filed herewith.
+ Indicates management contract or compensation plan or arrangement.
(B) Financial Statement Schedules
All schedules are omitted because they are not required or the required
information is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-9
<PAGE> 75
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
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 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 Act and will be governed by the final
adjudication of such issue.
II-10
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on
behalf of the undersigned, thereunto duly authorized, in the City of Laguna
Hills, State of California, on July 30, 1996.
Voxel
By: /s/ ALLAN M. WOLFE
------------------------------------
Allan M. Wolfe
Chief Executive Officer and
President
By: /s/ MURRAY E. RUDIN
------------------------------------
Murray E. Rudin
Principal Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- --------------------------- --------------
<S> <C> <C>
/s/ ALLAN M. WOLFE, M.D. Director July 30, 1996
- -----------------------------------------------
Allan M. Wolfe, M.D.
/s/ * Director July 30, 1996
- -----------------------------------------------
James B. Anderson, Ph.D.
/s/ * Director July 30, 1996
- -----------------------------------------------
Alan S. Dishlip
/s/ * Director July 30, 1996
- -----------------------------------------------
James C. Dreyfous
/s/ * Director July 30, 1996
- -----------------------------------------------
John M. Holliman, III
*/s/ ALLAN M. WOLFE, M.D.
- -----------------------------------------------
Allan M. Wolfe, M.D.
/s/ MURRAY E. RUDIN
- -----------------------------------------------
Murray E. Rudin
Attorneys-in-Fact
</TABLE>
II-11
<PAGE> 77
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement..........................................
4.7 Form of Common Stock Warrant between the Company and Cruttenden Roth
Incorporated............................................................
5.1 Opinion of Arter & Hadden, counsel to the Company.......................
23.1 Consent of Ernst & Young LLP............................................
</TABLE>
<PAGE> 1
EXHIBIT 1.1
2,800,000 SHARES(1)
VOXEL
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1996
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
18301 Von Karman, Suite 100
Irvine, California 92715
Ladies and Gentlemen:
Voxel, a California 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
2,800,000 shares of its authorized and unissued Common Stock, no par value per
share, (the "Firm Shares") to the several Underwriters. The Company also
proposes to grant to the Underwriters an option to purchase up to 420,000
additional shares of the Company's Common Stock, no par value (the "Option
Shares"), as provided in Section 7 hereof. As used in this Agreement, the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
Common Stock, no par value, of the Company to be outstanding after giving effect
to the sales contemplated hereby, including the Shares, are hereinafter referred
to as "Common Stock."
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-1 (File No.
333-06051) with respect to the Shares, including a prospectus, has been prepared
by the Company in material conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable
- ------------------------
(1) Plus an option to purchase up to 420,000 additional shares from the
Company to cover over-allotments.
<PAGE> 2
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses and such abbreviated registration statements pursuant to Rule
462(b) of the Rules and Regulations as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement,
such amended prospectuses and such abbreviated registration statements as may
hereafter be required. Copies of such registration statement and amendments
together with each exhibit filed therewith, of each related prospectus (the
"Preliminary Prospectuses") and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares
has been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if Cruttenden Roth
Incorporated, 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 Cruttenden Roth Incorporated, 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 abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
however, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of Cruttenden Roth Incorporated, 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
-2-
<PAGE> 3
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 Cruttenden Roth Incorporated, 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.
(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 information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) The Company and its subsidiaries are duly
incorporated and validly existing as corporations in good standing under the
laws of the jurisdiction of their incorporation with full power and authority
(corporate and other) to own, lease and operate their properties and conduct
their business as described in the Prospectus; the Company and its subsidiaries
are duly qualified to do business as foreign corporations and in good standing
in each jurisdiction in which
-3-
<PAGE> 4
the ownership or leasing of their properties or the conduct of their business
requires such qualification, except where the failure to be so qualified or be
in good standing would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company; 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; the Company and its subsidiaries are 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 their business, all
of which are valid and in full force and effect; the Company and its
subsidiaries are not in violation of their charter or bylaws or in default in
the performance or observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company (or any of its subsidiaries) are a party or by which their
properties may be bound; and the Company and its subsidiaries are not in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company, its subsidiaries or
over their properties. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than Holoplex
Systems Limited, an English corporation and 99.5% owned subsidiary of the
Company.
(d) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the making and performance of this Agreement by
the Company and the consummation of the transactions herein contemplated will
not 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 is a party or by which its properties may be bound, (ii) the charter or
bylaws of the Company 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 its properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or its 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, by the National
Association of Securities Dealers, Inc. (the "NASD"), the rules of the Nasdaq
National Market, or under state or other securities or Blue Sky laws, all of
which requirements have been satisfied in all material respects.
-4-
<PAGE> 5
(e) There is not any pending or, to the Company's
knowledge, threatened, any action, suit, claim or proceeding against the
Company, any of its officers, any of its properties or its subsidiaries, assets
or rights before any court, administrative agency, regulatory body, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company, its officers, its properties, its subsidiaries or otherwise which
(i) 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 or might materially and adversely affect
the Company's properties, assets or rights, (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; and there are no
agreements, contracts, leases or documents of the Company 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. The Company and its subsidiaries are not
a party or subject to the provisions of any injunction, judgment, decree or
order of any court, regulatory body, administrative agency, government or
governmental agency or body domestic or foreign, that could be expected to
result in a material adverse change in the condition (financial or other),
earnings, operations, business or business prospects of the Company.
(f) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the instruments defining the capitalization of the Company); the Shares have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement, and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of shareholders 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 shareholder, 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
-5-
<PAGE> 6
thereunder, set forth in the Prospectus fairly and accurately presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(g) Ernst & Young LLP, Independent Auditors, which
has examined the financial statements of the Company, together with the related
schedules and notes, as of December 31, 1995 and 1994 and for each of the years
in the three (3) years ended December 31, 1995 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 financial statements of the Company, together with the
related schedules and notes, and the unaudited financial information, forming
part of the Registration Statement and Prospectus, fairly present the financial
position and the results of operations of the Company at the respective dates
and for the respective periods to which they apply; and all audited financial
statements of the Company, together with the related schedules and notes, and
the unaudited 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 financial
and statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements or
schedules are required to be included in the Registration Statement.
(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 in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, except
losses incurred in the operation of the business in its ordinary course and
consistent with past practices, (ii) any transaction that is material to the
Company, except transactions entered into in the ordinary course of business,
(iii) any obligation, direct or contingent, that is material to the Company,
incurred by the Company, except obligations incurred in the ordinary course of
business, (iv) any change in the capital stock of the Company (other than the
exercise of 50,000 Bridge Warrants (as such term is defined in the Registration
Statement and Prospectus) for the purchase of a like number of shares of Common
Stock), (v) any change in the outstanding indebtedness of the Company that is
material to the Company or is out of the ordinary course of business of the
Company, (vi) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company, (vii) any default in the payment of principal
of or interest on any outstanding debt obligations, or (viii) any loss or damage
(whether or not insured) to the property of the Company which has been sustained
or will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
(i) Except as set forth in the Registration Statement
and Prospectus, (i) the Company 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
on the condition (financial or otherwise), earnings, operations, business or
business prospects
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<PAGE> 7
of the Company, (ii) the agreements to which the Company is a party described
in, or filed as exhibits to, the Registration Statement and Prospectus are valid
agreements, enforceable by the Company, 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, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) the Company has valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by it, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely
filed all necessary federal, state and foreign income and franchise tax returns
and have paid all taxes shown thereon as due, and there is no tax deficiency
that has been or, to the Company's knowledge, might be asserted against the
Company (or any of its subsidiaries) that might have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company; and all tax liabilities are adequately
provided for on the books of the Company.
(k) The Company 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, including, but not
limited to, insurance covering real and personal property owned or leased by the
Company 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; the Company has not
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 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 materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
(l) To the Company's knowledge, no labor disturbance
by the employees of the Company exists or is imminent; and the Company is not
aware of any existing or imminent labor disturbance by the employees of any of
its principal suppliers, subcontractors, authorized dealers or international
distributors that might be expected to result in a material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company. No collective bargaining agreement exists
with any of the Company's employees and, to the Company's knowledge, no such
agreement is imminent.
(m) To the best of the Company's knowledge, the
Company owns or possesses exclusive rights to use all patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names and
copyrights which are necessary to conduct its business
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<PAGE> 8
as now conducted and as described in the Registration Statement and Prospectus;
except as set forth in the Registration Statement and the Prospectus, the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, 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 on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(n) 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, subject to
receipt by the Company of net proceeds from the offering which demonstrate the
Company's compliance with the National Market net tangible asset requirement,
and the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the NASD is contemplating
terminating such registration or listing.
(o) 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 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.
(p) 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.
(q) The Company (nor any of its subsidiaries) has not
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.
(r) 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
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<PAGE> 9
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares (except for any action taken by the Underwriters).
(s) Except as otherwise set forth in the Registration
Statement and the Prospectus, each officer and director of the Company, and each
shareholder that holds restricted Common Stock has agreed in writing that such
person will not, except as described below, for a period of 180 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 exercise (on a
cash or cashless basis, whether in a tradition cashless exercise or in a
"brokers" cashless exercise), of Common Stock options or warrants outstanding,
it being understood, however, that the shares of Common Stock received (net of
shares sold by or on behalf of such person in a "brokers" cashless exercise or
shares delivered to the Company in a traditional cashless exercise thereof) by
such person upon exercise thereof shall be subject to the terms of the Lock-Up
Agreement (as defined below), (ii) 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 (iii) on the transfer or other disposition of shares of Common
Stock or Securities as a distribution to limited partners or shareholders 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
shareholder. 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 this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
as of April 2, 1996 and the number and type of securities held by each
securityholder. The Company has provided to counsel for the Underwriters true,
accurate and complete copies of all of the agreements pursuant to which its
officers, directors and shareholders have agreed to such or similar restrictions
(the "Lock-up Agreements") presently in effect. The Company hereby represents
and warrants that it will not release any of its officers, directors or other
shareholders from any Lock-up Agreements currently existing or hereafter
effected without the prior written consent of Cruttenden Roth Incorporated.
(t) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with
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<PAGE> 10
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 accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(u) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
(v) Other than Cruttenden Roth Incorporated, on
behalf of the several Underwriters, no person is or will be owed any finders fee
or commission or similar payment in connection with the transactions
contemplated by this Agreement.
(w) 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; except for the holder of 10,000 Bridge Warrants
exercisable for a like number of shares of Common Stock and the holders of
shares of Common Stock issued upon exercise of Bridge Warrants, all of which
shares were subsequently sold in reliance one a prior registration statement
filed by the Company and are therefore freely tradeable.
(x) The Company and the subsidiaries have conducted
and are conducting their businesses in compliance with all applicable Federal,
state, local and foreign statutes, laws, rules, regulations, ordinances, codes,
decisions, decrees, directives and orders, except where the failure to do so
would not, singly or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(y) The Company has complied with all provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida statutes, and all
regulations promulgated thereunder relating to issuers doing business with Cuba.
(z) Except as described in the Prospectus, to the
Company's knowledge, there are no rulemaking or similar proceedings before the
FDA or comparable Federal, state, local or foreign government bodies which
involve or affect the Company which, if the subject of an action unfavorable to
the Company would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
(aa) The descriptions of the results of tests or
evaluations contained in the Registration Statement and Prospectus are accurate
and complete in all material respects, and the Company has no knowledge of any
other tests or evaluations, the results of which reasonably call
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<PAGE> 11
into question the results described or referred to in the Registration Statement
and Prospectus; and the Company has not received any notices or correspondence
from the FDA or any other governmental agency requiring the termination,
suspension or modification of any tests or evaluations conducted on behalf of
the Company that are described in the Registration Statement and Prospectus or
the results of which are referred to in the Registration Statement or
Prospectus.
(ab) To the knowledge of the Company, 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 the 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 the
Subsidiary as described in the Prospectus or such person's performance of his
obligations to the Company or the subsidiaries; neither the Company nor the
subsidiaries has received written notice that any consultant or scientific
advisor of the Company or the subsidiaries is in violation of any
noncompetition, non-disclosure, confidentiality or similar agreement.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, 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
10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in same-day funds, payable to the order
of the Company, at the offices of Brobeck, Phleger & Harrison LLP, 4675
MacArthur Court, Suite 1000, Newport Beach, 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 4(d)
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 including, without limitation, in New York City, 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
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<PAGE> 12
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 execution of this Agreement, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 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.
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, eighth and tenth 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, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause
the Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; the Company will use its
best efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as promptly
as possible; the Company will notify you, promptly after it shall receive notice
thereof, of the time when the Registration Statement, any subsequent amendment
to the Registration Statement or any abbreviated registration statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files
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<PAGE> 13
a term sheet pursuant to Rule 434 of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus and term sheet meeting
the requirements of Rule 434(b) or (c), as applicable, of the Rules and
Regulations have been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in 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, it will prepare promptly
upon request, but at the expense of such Underwriter, 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; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however, to compliance with the Act and
the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it
shall receive notice or obtain knowledge, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts (including
by providing full cooperation with your counsel, whose services in this matter
are required and which you and the Company will seek to expedite) to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make
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<PAGE> 14
and file such statements and reports in each year as are or may be required by
the laws of such jurisdiction for such purpose.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first full business day
following the first day that Shares are traded, copies of the Registration
Statement (two of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if Cruttenden Roth
Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time reasonably
request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date
hereof, the Company will furnish to its shareholders 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 shareholder, 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 shareholders, statements of operations of the
Company for each of the first three (3) quarters in the form furnished to the
Company's shareholders, (ii) concurrently with furnishing to its shareholders, a
balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of shareholders' 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 shareholders,
(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
shareholders 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.
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<PAGE> 15
(g) The Company will apply the net proceeds from the
sale of the Shares being sold by it in the manner set forth under the caption
"Use of Proceeds" in the Prospectus subject to the occurrence of unforeseen
events making it necessary for the Company to reallocate the net proceeds from
this offering as described in the second to last paragraph under the caption
"Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and,
if necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 11(a) hereof, or if
the Underwriters shall terminate this Agreement pursuant to Section 11(a) or
11(b), then the provisions of Section 9 of that certain letter agreement dated
April 25, 1996 between you and the Company (the "Letter Agreement") shall govern
payment and reimbursement obligations of the parties notwithstanding that the
Letter Agreement shall have ceased to be in full force or effect for any other
purpose.
(j) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not,
without the prior written consent of Cruttenden Roth Incorporated, 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.
(l) The terms of paragraph 9 of the Letter Agreement
are hereby incorporated by reference and made obligations of the Company and
Cruttenden Roth Incorporated as part of this Agreement notwithstanding that the
Letter Agreement shall have ceased to be of full force or effect for any other
purpose.
(m) The Company shall reimburse and pay to Cruttenden
Roth Incorporated a nonaccountable expense allowance equal to one and one-half
percent (1.5%) of the total Price to Public shown on the front cover of the
Prospectus, including, if exercised, with respect to the over-
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<PAGE> 16
allotment option. Cruttenden Roth Incorporated acknowledges that $30,000 of the
amount payable pursuant to this paragraph has already been paid.
5. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs
and expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental
Blue Sky Survey, the Underwriters' Questionnaire and 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 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.
(ii) In addition to its other obligations
under Section 8(a) hereof, the Company agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
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(b) In addition to their other obligations under
Section 8(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 8(b) hereof, they will
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
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(c) It is agreed that any controversy arising out of
the operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company 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 daylight savings 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.
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<PAGE> 18
(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 reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, 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 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 Arter & Hadden, counsel for the Company, dated the
Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated
and the Company and its subsidiaries are validly existing as
corporations in good standing under the laws of the
jurisdiction of their incorporation;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company is duly qualified to do
business as a foreign corporation and is in good standing in
each jurisdiction, if any, in which the ownership or leasing
of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company. To
such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other
entity other than Holoplex Systems Limited, an English
corporation and 99.5% owned subsidiary of the Company;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" as of the dates stated
therein; the issued and outstanding shares of capital stock of
the Company have been duly and validly issued and are fully
paid and nonassessable, and have not been issued in violation
of any registration right or in violation of or subject
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<PAGE> 19
to any preemptive right, co-sale right, right of first refusal
or to the best of such counsel's knowledge, other similar
right;
(v) The Firm Shares or the Option Shares, as
the case may be, to be issued by the Company pursuant to the
terms of this Agreement have been duly authorized and, upon
issuance and delivery against payment therefor in accordance
with the terms hereof, will be duly and validly issued and
fully paid and nonassessable and will not have been issued in
violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or, to the
best of such counsel's knowledge, other similar right
contained in the Company's charter or bylaws or in any other
agreement or contract to which the Company is a party; and the
forms of certificates evidencing the Common Stock comply with
California law;
(vi) 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;
(vii) This Agreement has been duly
authorized by all necessary corporate action on the part of
the Company and has been duly executed and delivered by the
Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except
insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting creditors' rights generally or
by general equitable principles;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the
Act;
(ix) 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), as of the
effective date of the Registration Statement, complied as to
form in all material respects with the requirements of the Act
and the applicable Rules and Regulations;
(x) The information in the Prospectus under
the caption "Description of Securities," and "Shares Eligible
For Future Sale" to the extent that it constitutes matters of
law or legal conclusions, has been reviewed by such counsel
and is a fair summary of such matters and conclusions;
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<PAGE> 20
(xi) The descriptions 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;
(xii) To such counsel's knowledge,
there are no agreements, contracts, leases or documents to
which the Company is a party of a character required to be
described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or
filed as required;
(xiii) The performance of this
Agreement and the consummation of the transactions herein
contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any
violation of the charter or bylaws of the Company or (b)
result in a material breach or violation of any of the terms
and provisions of, or constitute a default under, any material
bond, debenture, note or other evidence of indebtedness, or
any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which its
properties are bound, or any applicable statute, rule or
regulation or any order, writ or decree of any court,
government or governmental agency or body having jurisdiction
over the Company or any of its properties or operations;
provided, however, that such counsel need not express any
opinion or belief with respect to state securities or Blue Sky
laws;
(xiv) No consent, approval,
authorization or order of or qualification with any court,
government or governmental agency or body having jurisdiction
over the Company or any of its properties or operations is
necessary in connection with the consummation by the Company
of the transactions herein contemplated, except such as have
been obtained under the Act or such as may be required under
state or other securities or Blue Sky laws in connection with
the purchase and the distribution of the Shares by the
Underwriters;
(xv) To such counsel's best
knowledge, there are no legal or governmental proceedings
pending or threatened against the Company of a character
required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations, other than
those described therein;
(xvi) The Company is not in
violation of its respective charter or bylaws and is not in
breach or violation of any of the terms and provisions of, or
in default under, any material bond, debenture, note or other
evidence of indebtedness, or any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company
is a party or by which its properties are bound, or any
applicable statute, rule or
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<PAGE> 21
regulation or any order, writ or decree of any court,
government or governmental agency or body having jurisdiction
over the Company or any of its properties or operations; and
(xvii) To such counsel's best
knowledge, except as set forth in the Registration Statement
and Prospectus, no holders of Common Stock or other securities
of the Company have registration rights with respect to
securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of
securities of the Company having rights to registration of
such shares of Common Stock or other securities, because of
the filing of the Registration Statement by the Company have,
with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the
Registration Statement; except for the holder of 10,000 Bridge
Warrants exercisable for a like number of shares of Common
Stock and the holders of shares of Common Stock issued upon
exercise of Bridge Warrants, all of which shares were
subsequently sold in reliance on a prior registration
statement filed by the Company and are therefore freely
tradeable.
In addition, such counsel shall state that such
counsel has acted as outside corporate legal counsel, but not as its regulatory
or intellectual property counsel, to the Company and participated in conferences
with officials and other representatives of the Company (which representatives
did not include the Company's regulatory or intellectual property counsel), 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;
provided, however, that such statement shall specifically exclude all matters
specifically opined to in the opinions of Fenwick & West and Snell & Wilmer, as
the Company's respective regulatory and intellectual property counsel.
Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of the United States or the State of
California upon opinions of local counsel, and
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<PAGE> 22
as to questions of fact upon representations or certificates of 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 or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representative of the Underwriters, and to Underwriters'
Counsel.
(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 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.
(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, the following opinions of intellectual property and regulatory counsel for
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased and addressed to the Underwriters and with reproduced copies
or signed counterparts thereof for each of the Underwriters:
(i) from Fenwick & West, an opinion that the
information in the Registration Statement and the Prospectus under the captions
"Risk Factors--Continued Regulatory Compliance Required" and
"Business--Government Regulation," to the extent that they constitute matters of
law or legal conclusions, have been reviewed by such counsel and are a fair and
accurate summary of such matters.
(ii) from Snell & Wilmer, an opinion that:
(1) Except as set forth in the Registration
Statement and the Prospectus, such counsel has no knowledge of any actual or
threatened action, suit, claim or proceeding relating to patents, patent rights
or licenses, trademarks or trademark rights, copyrights, collaborative research,
licenses or royalty arrangements or agreements or trade secrets, know-how or
proprietary techniques or technology, including, processes and substances, owned
by or affecting the business operations of the company which are pending or
threatened against the Company and which action, suit, claim or proceeding
would, with respect to any of the foregoing, have a material adverse effect on
the condition (financial or other), earnings, operations, business or business
prospects of the Company.
(2) The information in the Registration
Statement and the Prospectus under the captions "Risk Factors--No Assurance of
Obtaining Patent Protection and Maintaining Confidentiality of Proprietary
Information" and "Business--Intellectual Property," to the extent that they
constitute matters of law or legal conclusions, have been reviewed by such
counsel and are a fair and accurate summary of such matters.
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<PAGE> 23
(3) There are no pending legal or
governmental proceedings, or allegations on the part of any person of
infringement, relating to patent rights, trade secrets, trademarks, service
marks, copyrights or other proprietary information or know-how of the Company
nor, to the best of their knowledge, are any such proceedings threatened or
contemplated.
(4) To the best of their knowledge, the
Company is not infringing or otherwise violating any patents, trade secrets,
trademarks, service marks, copyrights or other proprietary information or
know-how of any persons, and no person is infringing or otherwise violating any
of the Company's patents, trade secrets, trademarks, service marks, copyrights
or other proprietary information or know-how of the Company in a way in which
could materially affect the use thereof by the Company.
(5) To the best of their knowledge, the
Company owns or possesses exclusive licenses or other rights to use all patents,
trade secrets, trademarks, service marks or other proprietary information or
know-how necessary to conduct the business now being or proposed to be conducted
by the Company as described in the Prospectus.
(6) 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 listed on Schedule I hereto (herein called the "Patents")
and each of the Applications listed on Schedule II hereto (herein called the
"Applications"). There are no asserted or unasserted claims of any persons
relating to the scope or ownership of the Patents or the Applications, there are
no liens which have been filed against any of the Patents or the Applications,
there are no material defects of form in the preparation or filing of the
Applications, the Applications are being diligently prosecuted, and none of the
Applications has been finally rejected or abandoned.
(7) The Company is listed in the records of
the appropriate foreign patent offices as the sole assignee of record of each of
the foreign patents listed on Schedule III hereto (herein called the "Foreign
Patents") and each of the foreign applications listed on Schedule IV hereto
(herein called the "Foreign Applications"). There are no asserted or unasserted
claims of any persons relating to the scope or ownership of the Foreign Patents
or the Foreign Applications, there are no liens which have been filed against
any of the Foreign Patents or the Foreign Applications, there are no material
defects of form in the preparation or filing of the Foreign Applications, the
Foreign Applications are being diligently prosecuted, and none of the Foreign
Applications has been finally rejected or abandoned.
(8) Nothing has come to their attention
that leads them to believe that the Applications and the Foreign Applications
will not eventually result in issued patents, or that any patents issued in
respect of any such Applications or Foreign Applications will not be valid or
will not afford the Company reasonable patent protection relative to the subject
matter thereof.
(9) The Company is the exclusive licensee
of the United States and foreign patents and patent applications listed on
Schedule V. All such licenses are duly
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<PAGE> 24
executed, validly binding and enforceable in accordance with their terms and the
Company is not in default (declared or undeclared) of any material provision of
any such license.
(10) To the best of their knowledge, all
pertinent prior art references known to the Company or its counsel during the
prosecution of the Patents and the Applications were disclosed to the PTO and,
to the best of their knowledge, neither such counsel nor the Company made any
misrepresentation to, or concealed any material fact from the PTO during such
prosecution.
(11) To the best of their knowledge, the
Company takes security measures adequate to assert trade secret protection in
its non-patented technology.
(12) The agreements executed by the
Company's employees, consultants and other advisors respecting trade secrets,
confidentiality, or intellectual property rights are valid, binding and
enforceable in accordance with their express terms.
In addition, each such counsel referred to in (f)(i)
and (f)(ii) shall state that such counsel has represented the Company in
intellectual property-related or regulatory-related matters, as the case may be,
and has 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 relevant sections ("Relevant Sections ") 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 Relevant Sections of 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 Relevant Sections of the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the Closing Date or any later date on which the Option
Shares are to be purchased, as the case may be, the Relevant Sections of 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.
(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, a letter from Ernst & Young LLP, Independent Auditors ("Ernst"), 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 a
letter delivered to you concurrently with the execution of
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<PAGE> 25
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter 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 Ernst shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of December 31, 1995 and
related consolidated statements of operations, convertible redeemable preferred
stock and common shareholders' equity (deficit) and cash flows for the twelve
(12) months ended December 31, 1995, (iii) state that Ernst 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 Ernst as
described in SAS 71 on the financial statements for the one-quarter period ended
March 31, 1996 (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
Ernst and you. In addition, you shall have received from Ernst 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 December
31, 1995, did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
(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 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:
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<PAGE> 26
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on
and as of the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be, and the
Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness
of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are
pending or threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the
delivery of such certificate, 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
(iv) 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,
except losses incurred in the operation of the business in its
ordinary course and consistent with past practices, (b) any
transaction that is material to the Company, except
transactions entered into in the ordinary course of business,
(c) any obligation, direct or contingent, that is material to
the Company, incurred by the Company, except obligations
incurred in the ordinary course of business, (d) any change in
the capital stock (other than the exercise of 50,000 Bridge
Warrants for the purchase of a like number of shares of Common
Stock), (e) any change in the outstanding indebtedness of the
Company that is material to the Company or is out of the
ordinary course of business of the Company, (f) any dividend
or distribution of any kind declared, paid or made on the
capital stock of the Company, or (g) any loss or damage
(whether or not insured) to the property of the Company which
has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business
prospects of the Company.
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<PAGE> 27
(i) The Company shall have obtained and delivered to
you an agreement from each officer and director of the Company, each shareholder
that holds restricted Common Stock and each entity that is a shareholder 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 exercise (on a cash or
cashless basis, whether in a traditional cashless exercise or in a "brokers"
cashless exercise), of Common Stock options or warrants outstanding, it being
understood, however, that the shares of Common Stock received (net of shares
sold by or on behalf of such person in a "brokers" cashless exercise or shares
delivered to the Company in a traditional cashless exercise thereof) by such
person upon exercise thereof shall be subject to the terms of the Lock-Up
Agreement, (ii) 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
(iii) on the transfer or other disposition of shares of Common Stock or
Securities as a distribution to limited partners or shareholders of such person,
provided that the distributees thereof agree 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.
(j) The Company shall have furnished you a
warrant for the purchase of up to 184,000 shares of Common Stock at an exercise
price per share equal to 120% of the offering price per share of the Shares, in
the form attached hereto as Exhibit A.
(k) 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
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.
-27-
<PAGE> 28
7. Option Shares.
(a) On the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants to the several Underwriters, for the
purpose of covering over-allotments in connection with the distribution and sale
of the Firm Shares only, a nontransferable option to purchase up to an aggregate
of 345,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the 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 such 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 such 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. In the event of any breach of such definitive certificate delivery
obligations, 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 Brobeck, Phleger & Harrison LLP, 4675
MacArthur Court, Suite 1000, Newport Beach, 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 exercise of such
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
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representative so elects, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the 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
-28-
<PAGE> 29
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in
Section 7(a) hereof, the obligations of the several Underwriters to purchase
such Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company herein, to
the accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 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.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, 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, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, 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 to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions
-29-
<PAGE> 30
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected had not been sent or
given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly,
agrees to indemnify and hold harmless the Company 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 8(b) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter, directly or through you, specifically for use in
the preparation thereof, and agrees to reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each 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 each Underwriter may otherwise
have.
(c) Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8 except to the extent
that it has been prejudiced by such omission. In case any
-30-
<PAGE> 31
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 assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the subject
matter of such proceeding.
(d) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 8 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that 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 is 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
-31-
<PAGE> 32
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(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.
(e) 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 8, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any 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.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date,
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<PAGE> 33
the Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, 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 5
and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., Pacific daylight savings time, on the first full business day
following the effective date of the Registration Statement, or (ii) the time of
the public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the public offering shall
mean the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set forth
in Section 12 before the time this Agreement becomes effective, you, as
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 4(i) and 8 hereof.
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<PAGE> 34
(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, 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
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 4(i), 5 and 8 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
Sections 4(i) and 8 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, telecopier number (714) 852- 9603,
Attention: General Counsel; if sent to the Company, such notice shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to 26081 Merit Circle, Suite 117, Laguna Hills, California 92653,
telecopier number (714) 348-8665, Attention: President.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and
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<PAGE> 35
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 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or 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 under this Agreement, you shall
act on behalf of each of the several Underwriters, and the Company 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.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE> 36
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 and the several Underwriters.
Very truly yours,
VOXEL
By ________________________________
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On their behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By CRUTTENDEN ROTH INCORPORATED
By _____________________________
Authorized Signatory
-36-
<PAGE> 37
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
---------------------------- ------------
<S> <C>
Cruttenden Roth Incorporated --
Total........................................... 2,300,000
=========
</TABLE>
-1-
<PAGE> 1
EXHIBIT 4.7
VOXEL
COMMON STOCK WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
This certifies that, for good and valuable consideration, receipt of
which is hereby acknowledged, Cruttenden Roth Incorporated ("Holder") is
entitled to purchase, subject to the terms and conditions of this Warrant, from
Voxel, a California corporation (the "Company"), _______________ fully paid and
nonassessable shares of the Common Stock ("Common Stock") of the Company, in
accordance with Section 2 during the period commencing one year from the date
hereof and ending on the earlier to occur of (i) at 5:00 p.m. California
time,___________ , 2001 (the "Expiration Date"), at which time this Warrant will
expire and become void unless earlier terminated as provided herein. The shares
of Common Stock of the Company for which this Warrant is exercisable as adjusted
from time to time pursuant to the terms hereof, are hereinafter referred to as
the "Shares."
1. Exercise Price. The initial purchase price for the Shares shall be
$_____ per share. Such price shall be subject to adjustment pursuant to the
terms hereof (such price, as adjusted from time to time, is hereinafter
referred to as the "Exercise Price").
2. Exercise and Payment.
(a) Cash Exercise. At any time after __________, 1997, this Warrant
may be exercised, in whole or in part, from time to time by the Holder, during
the term hereof, by surrender of this Warrant and the Notice of Exercise annexed
hereto duly completed and executed by the Holder to the Company at the principal
executive offices of the Company, together with payment in the amount obtained
by multiplying the Exercise Price then in effect by the number of Shares thereby
purchased, as designated in the Notice of Exercise. Payment may be in cash or by
check payable to the order of the Company.
(b) Net Issuance. In lieu of payment of the Exercise Price described
in Section 2(a), the Holder may elect to receive, without the payment by the
Holder of any additional consideration, shares equal to the value of this
Warrant or any portion hereof by the surrender of this Warrant or such portion
to the Company, with the net issue election notice annexed hereto (the "Net
Issuance Election Notice") duly executed, at the office of the
1.
<PAGE> 2
Company. Thereupon, the Company shall issue to the Holder such number of fully
paid and nonassessable shares of Common Stock as is computed using the following
formula:
where: X = Y (A-B)
-------
A
X = the number of shares to be issued to the Holder
pursuant to this Section 2.
Y = the number of shares covered by this Warrant in respect
of which the net issuance election is made pursuant to
this Section 2.
A = the fair market value of one share of Common Stock, as
determined in accordance with the provisions of this
Section 2.
B = the Exercise Price in effect under this Warrant at the
time the net issuance election is made pursuant to this
Section 2.
For purposes of this Section 2, the "fair market value" per share of the
Company's Common Stock shall mean:
i. If the Common Stock is traded on a national
securities exchange or admitted to unlisted trading privileges
on such an exchange, or is listed on the National Market (the
"National Market") of the National Association of Securities
Dealers Automated Quotations System (the "Nasdaq") or other
over-the-counter quotation system, the fair market value shall
be the last reported sale price of the Common Stock on such
exchange or on the Nasdaq National Market or other
over-the-counter quotation system on the last business day
before the effective date of exercise of the net issuance
election or if no such sale is made on such day, the mean of
the closing bid and asked prices such day on such exchange,
the Nasdaq National Market or over-the-counter quotation
system; and
ii. If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and ask prices are not
reported, the fair market value shall be the price per share
which the Company could obtain from a willing buyer for shares
sold by the Company from authorized but unissued shares, as
such price shall be determined by mutual agreement of the
Company and the Holder of this Warrant. If the Company and the
Holder cannot mutually agree on such price, the fair market
value shall be made by an appraiser of recognized standing
selected by the Holder and the Company, or, if they cannot
agree on an appraiser, each of the Company and the Holder
shall select an appraiser of recognized standing and the two
appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such
value.
2.
<PAGE> 3
3. Delivery of Stock Certificates. Within a reasonable time after
exercise, in whole or in part, of this Warrant, the Company shall issue in the
name of and deliver to the Holder, a certificate or certificates for the number
of fully paid and nonassessable shares of Common Stock which the Holder shall
have requested in the Notice of Exercise or Net Issuance Election Notice. If
this Warrant is exercised in part, the Company shall deliver to the Holder a new
Warrant for the unexercised portion of this Warrant at the time of delivery of
such stock certificate or certificates.
4. No Fractional Shares. No fractional shares or scrip representing
fractional shares will be issued upon exercise of this Warrant. If upon any
exercise of this Warrant a fraction of a share results, the Company will pay the
Holder the difference between the cash value of the fractional share and the
portion of the Exercise Price allocable to the fractional share.
5. Charges, Taxes and Expenses. The Holder shall pay all transfer taxes
or other incidental charges, if any, in connection with the transfer of the
Shares purchased pursuant to the exercise hereof from the Company to the Holder.
6. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
7. Saturdays, Sundays, Holidays, Etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
weekday which is not a legal holiday.
8. Adjustment of Exercise Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up or otherwise, or combine its outstanding
securities as to which purchase rights under this Warrant exist, the number of
Shares as to which this Warrant is exercisable as of the date of such
subdivision, split-up or combination shall forthwith be proportionately
increased in the case of a subdivision, or proportionately decreased in the case
of a combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for the total
number of Shares purchasable under this Warrant as of such date shall remain the
same.
3.
<PAGE> 4
(b) Stock Dividend. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon exercise or
conversion thereof), then the number of shares of Common Stock for which this
Warrant may be exercised shall be increased as of the record date (or the date
of such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividend, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Exercise
Price shall be adjusted so that the aggregate amount payable for the purchase of
all the Shares issuable hereunder immediately after the record date (or on the
date of such distribution, if applicable), for such dividend shall equal the
aggregate amount so payable immediately before such record date (or on the date
of such distribution, if applicable).
(c) Other Distributions. If at any time after the date hereof
the Company distributes to holders of its Common Stock, other than as part of
its dissolution or liquidation or the winding up of its affairs, any shares of
its capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company may, at its option, either (i) decrease the per share Exercise Price of
this Warrant by an appropriate amount based upon the value distributed on each
share of Common Stock as determined in good faith by the Company's Board of
Directors or (ii) provide by resolution of the Company's Board of Directors that
on exercise of this Warrant, the Holder hereof shall thereafter be entitled to
receive, in addition to the shares of Common Stock otherwise receivable on
exercise hereof, the number of shares or other securities or property which
would have been received had this Warrant at the time been exercised.
(d) Merger. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into another corporation
when the Company is not the surviving corporation then the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the aggregate Exercise Price then in
effect, the number of shares or other securities or property of the successor
corporation resulting from such merger or consolidation, which would have been
received by Holder for the shares of stock subject to this Warrant had this
Warrant at such time been exercised.
(e) Reclassification, Etc. If at any time after the date
hereof there shall be a change or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the Exercise Price then in effect, the number of
shares or other securities or property resulting from such change or
reclassification, which would have been received by Holder for the shares of
stock subject to this Warrant had this Warrant at such time been exercised.
4.
<PAGE> 5
9. Notice of Adjustments; Notices. Whenever the Exercise Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section 8
hereof, the Company shall execute and deliver to the Holder a certificate
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated and
the Exercise Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the Holder.
10. Rights As Shareholder. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive dividends or other distributions thereon, or be notified of
shareholder meetings, and the Holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
in the event of any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Holder of this Warrant, at least
10 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
11. Restricted Securities. The Holder understands that this Warrant and
the Shares purchasable hereunder constitute "restricted securities" under the
federal securities laws inasmuch as they are, or will be, acquired from the
Company in transactions not involving a public offering and accordingly may not,
under such laws and applicable regulations, be resold or transferred without
registration under the Securities Act of 1933, as amended (the "1933 Act") or an
applicable exemption from such registration. In this connection, the Holder
acknowledges that Rule 144 of the Securities and Exchange Commission (the "SEC")
is not now, and may not in the future be, available for resales of the Warrant
and the Shares purchasable hereunder. Unless the Shares are subsequently
registered pursuant to Section 14, the Holder further acknowledges that the
securities legend on Exhibit A to the Notice of Exercise attached hereto shall
be placed on any Shares issued to the Holder upon exercise of this Warrant.
12. Certification of Investment Purpose. Unless a current registration
statement under the 1933 Act shall be in effect with respect to the securities
to be issued upon exercise of this Warrant, the Holder covenants and agrees
that, at the time of exercise hereof, it will deliver to the Company a written
certification executed by the Holder that the securities acquired by him upon
exercise hereof are for the account of such Holder and acquired for investment
purposes only and that such securities are not acquired with a view to, or for
sale in connection with, any distribution thereof.
13. Disposition of Shares. Holder hereby agrees not to make any
disposition of any Shares purchased hereunder unless and until:
5.
<PAGE> 6
(a) Holder shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Holder shall have complied with all requirements of this
Warrant applicable to the disposition of the Shares; and
(c) Holder shall have provided the Company with written
assurances, in form and substance satisfactory to legal counsel of the Company,
that (i) the proposed disposition does not require registration of the Shares
under the 1933 Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the 1933 Act or of any exemption from
registration available under the 1933 Act has been taken.
The Company shall not be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Section 13 or (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of the terms of this Warrant.
14. Registration Rights.
(a) Piggyback Registration. If at any time during the
four-year period commencing _________, 1997 and ending on ______, 2001, the
Company shall determine to register for its own account or the account of others
under the 1933 Act any of its equity securities, other than on Form S-4 or Form
S-8 or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business, or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each Holder of Warrants or Shares, who is
entitled to registration rights under this Section 14(a) written notice of such
determination and, if within twenty (20) days after receipt of such notice, such
Holder shall so request in writing (hereafter a "Selling Holder"), the Company
shall include in such Registration Statement all or any part of the Shares
issuable upon exercise of the Warrants (the "Registrable Securities") such
Selling Holder requests to be registered. The obligations of the Company under
this Section 14(a) may be waived by Holders holding a majority in interest of
the Registrable Securities. In the event that the managing underwriter for said
offering advises the Company in writing that the inclusion of such securities in
the offering would be materially detrimental to the offering, then the Company
shall be required to include in the offering only that number of Registrable
Securities which the managing underwriter determines in its sole discretion will
not jeopardize the success of the offering (the securities so included to be
apportioned pro rata among all selling holders according to the total amount of
securities entitled to be included therein owned by each selling holder or in
such other proportions as shall mutually be agreed to by such selling holders);
provided however, that in no event shall any Holder of Registrable Securities
have the number of shares of such securities reduced in such offer unless and
until any holders of non-Registrable Securities intending to participate in such
offering (which selling holders' registration rights, if any, were granted by
the Company from and after the date hereof) first shall have had the number of
their shares of such securities reduced up to the amount of securities the
managing underwriter has determined in its sole discretion shall be excluded
from the offering; and provided further, that
6.
<PAGE> 7
in no event shall any shares being sold by a Holder properly exercising a demand
registration granted in Section 14(b) be excluded from such offering.
(b) Demand Registration. In addition to any Registration
Statement pursuant to subparagraph (a) above, during the four-year period
beginning on __________, 1997 and ending on __________, 2001, the Company will,
as promptly as practicable (but in any event within 60 days), after written
request (the "Request") by the Holder, or by a person or persons holding (or
having the right to acquire by virtue of holding the Warrants) at least 50% of
the shares of Common Stock which have been (or may be) issued upon exercise of
the Warrants (such Holder or Holders to be included in the definition of
"Selling Holder" for the purposes of Section 14(c) hereof), prepare and file at
its own expense a Registration Statement with the SEC and appropriate "blue sky"
authorities sufficient to permit the public offering of the Registrable
Securities and will use its best efforts at its own expense through its
officers, directors, auditors and counsel, in all matters necessary or
advisable, to cause such Registration Statement to become effective as promptly
as practicable and to maintain such effectiveness so as to permit resale of the
Shares covered by the Request until the earlier of the time that all such Shares
have been sold or the expiration of 90 days from the effective date of the
Registration Statement; provided, however, that the Company shall only be
obligated to file one such Registration Statement under this Section 14(b).
(c) Obligations of the Holders. In connection with the
registration of the Registrable Securities pursuant to either Sections 14(a) or
(b), the Selling Holders shall have the following obligations:
i. It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Agreement with respect to
each Selling Holder that such Selling Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of the Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request. At least fifteen (15) days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Selling Holder of the information the Company requires from each such
Selling Holder (the "Requested Information") in the case of a Registration
Statement being prepared pursuant to Section 14(b) or if such Selling Holder
elects to have any of such Selling Holder's Registrable Securities included in
the Registration Statement in the case of a Registration Statement being
prepared pursuant to Section 14(a).
ii. Each Selling Holder by such Selling Holder's
acceptance of the Registrable Securities agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Selling Holder has
notified the Company in writing of such Selling Holder's election to exclude all
of such Selling Holder's Registrable Securities from the Registration Statement;
and
iii. No Selling Holder may participate in any underwritten
registration hereunder unless such Selling Holder (i) agrees to sell such
Selling Holder's Registrable Securities on the basis provided in any
underwriting arrangements, (ii) completes and
7.
<PAGE> 8
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting, except as provided in
Section 14(d) below.
(d) Expenses of Registration. All expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 14(a) or 14(b),
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees and the fees and disbursements of counsel for
the Company and the Selling Holders, shall be borne by the Company; provided,
however, that the Company shall only be required to bear the fees and
out-of-pocket expenses of one legal counsel selected by the Selling Holders in
connection with such registration.
(e) Indemnification. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
i. To the extent permitted by law, the Company will
indemnify and hold harmless each Selling Holder who holds such Registrable
Securities, the directors, if any, of such Selling Holder, the officers, if any,
of such Selling Holder, each person, if any, who controls any Selling Holder
within the meaning of the 1933 Act, any underwriter (as defined in the 1933 Act)
for the Selling Holders, the directors, if any, of such underwriter and the
officers, if any, of such underwriter, and each person, if any, who controls any
such underwriter within the meaning of the 1933 Act (each, an "Indemnified
Person"), against any losses, claims, damages, expenses or liabilities (joint or
several) (collectively, "Claims") to which any of them may become subject under
the 1933 Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement when it first became effective, or any
related final prospectus, amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which the statements therein were made, not misleading (a "Violation"). The
Company shall reimburse the Selling Holders and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 14(e)(i) shall not apply in such case to the extent
any such Claim arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information furnished in writing to the Company by
any Indemnified Person or underwriter for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, and shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld.
8.
<PAGE> 9
ii. In connection with any Registration Statement in which
a Selling Holder is participating, each such Selling Holder agrees to indemnify
and hold harmless, to the same extent and in the same manner set forth in
Section 14(e)(i), the Company, each of its directors, each of its officers who
signs the Registration Statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, any underwriter and any other shareholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such shareholder or underwriter
within the meaning of the 1933 Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against any Claim to which any of
them may become subject, under the 1933 Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Selling
Holder expressly for use in connection with such Registration Statement, and
such Selling Holder will reimburse any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section
14(e)(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Selling Holder,
which consent shall not be unreasonably withheld.
iii. The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution to the same extent as
provided above, with respect to information furnished in writing by such persons
expressly for inclusion in the Registration Statement.
iv. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 14(e) of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is made against any
indemnifying party under this Section 14(e), deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The Indemnifying Party shall pay
for only one separate legal counsel for the Indemnified Parties; such legal
counsel shall be selected by the Indemnified Parties holding a majority in
interest of the Registrable Securities. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 14(e), except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 14(e) shall be made by
periodic payments of the amount thereof during
9.
<PAGE> 10
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
v. Notwithstanding any of the foregoing, if, in connection
with an underwritten public offering of Registrable Securities, the Company, the
Selling Holders and the underwriter(s) enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification and contribution among the parties, the indemnification and
contribution provisions of this Section 14(e) shall be deemed inoperative for
purposes of such offering.
(f) Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 14(e) to the fullest extent permitted by
law; provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 14(e), (ii) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
(g) Reports Under Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the 1933 Act
or any other similar rule or regulation of the SEC that may at any time permit
the Holders to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
i. make and keep public information available, as those
terms are understood and defined in Rule 144; and
ii. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); and
iii. furnish to each Holder so long as such Holder owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Holders to sell such securities
without registration pursuant to Rule 144.
(h) Assignment of the Registration Rights. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Holders to transferees or assignees of all or any
portion of such securities only if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, (ii) the
10.
<PAGE> 11
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of the name and address of such transferee or
assignee (iii) such assignment is in accordance with and permitted by law and
all other agreements between the transferor or assignor and the Company,
including without limitation, shareholder's agreements, warrants and
subscription agreements, and the transferor or assignor otherwise is not in
material default of any obligation to the Company under any such other
agreement, and (iv) at or before the time the Company received the written
notice contemplated by clause (ii) of this sentence the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein.
(i) Termination of Registration Rights. No Holder of Warrants
or Shares shall be entitled to exercise any right provided for in this Section
14 at such time as such Holder would be able to dispose of all of its
Registrable Securities in any three (3) month period under SEC Rule 144 or any
successor rule thereto.
15. Transferability.
(a) General. This Warrant shall be transferable only on the
books of the Company maintained at its principal office in Laguna Hills,
California or wherever its principal office may then be located, upon delivery
thereof duly endorsed by the Holder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver new Warrants to the person entitled thereto.
(b) Limitations on Transfer. This Warrant shall not be sold,
transferred, assigned or hypothecated by the Holder except to (i) one or more
persons, each of whom on the date of transfer is an officer of the Holder; (ii)
a general partnership or general partnerships, the general partners of which are
the Holder and one or more persons, each of whom on the date of transfer is an
officer of the Holder; (iii) a successor to the Holder in any merger or
consolidation; (iv) a purchaser of all or substantially all of the Holder's
assets; or (v) any person receiving this Warrant from one or more of the persons
listed in this Section 15(b) at such person's or persons' death pursuant to
will, trust or the laws of intestate succession. This Warrant may be divided or
combined, upon request to the Company by the Holder, into a certificate or
certificates representing the right to purchase the same aggregate number of
Shares.
16. Miscellaneous.
(a) Construction. Unless the context indicates otherwise, the
term "Holder" shall include any transferee or transferees of this Warrant
pursuant to Section 15(b), and the term "Warrant" shall include any and all
warrants outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to Section 15(b).
(b) Restrictions. By receipt of this Warrant, the Holder makes
the same representations with respect to the acquisition of this Warrant as the
Holder is required to
11.
<PAGE> 12
make upon the exercise of this Warrant and acquisition of the Shares purchasable
hereunder as set forth in the Form of Investment Letter attached as Exhibit A to
the Notice of Exercise attached hereto.
(c) Notices. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or three
(3) days following deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified (or
one (1) day following timely deposit with a reputable overnight courier with
next day delivery instructions), or upon confirmation of receipt by the sender
of any notice by facsimile transmission, at the address indicated below or at
such other address as such party may designate by ten (10) days' advance written
notice to the other parties.
To Holder: Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, CA 92715
Attention: Christopher Jennings
To the Company: Voxel
26081 Merit Circle, Suite 117
Laguna Hills, CA 92653
Attention: President
(d) Governing Law. This Warrant shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
(e) Entire Agreement. This Warrant, the exhibits and schedules
hereto, and the documents referred to herein, constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, whether oral or written, between the parties hereto with respect
to the subject matter hereof.
(f) Binding Effect. This Warrant and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the Company and its successors and assigns, and Holder and its successors and
assigns.
12.
<PAGE> 13
(g) Waiver; Consent. This Warrant may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Warrant or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto.
(h) Severability. If one or more provisions of this Warrant
are held to be unenforceable under applicable law, such provision shall be
excluded from this Warrant and the balance of the Warrant shall be interpreted
as if such provision were so excluded and the balance shall be enforceable in
accordance with its terms.
13.
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Common Stock
Warrant effective as of the date hereof.
DATED: , 1996 THE COMPANY:
--------
Voxel
By:
-----------------------------
Its:
-----------------------------
HOLDER:
Cruttenden Roth Incorporated
By:
-----------------------------
Its:
-----------------------------
14.
<PAGE> 15
NOTICE OF EXERCISE
To: VOXEL
1. The undersigned hereby elects to purchase _____________
shares of Common Stock ("Stock") of Voxel, a California corporation (the
"Company") pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price pursuant to the terms of the Warrant.
2. Attached as Exhibit A is an investment representation
letter addressed to the Company and executed by the undersigned as required by
Section 12 of the Warrant.
3. Please issue certificates representing the shares of Stock
purchased hereunder in the names and in the denominations indicated on Exhibit A
attached hereto.
4. Please issue a new Warrant for the unexercised portion of
the attached Warrant, if any, in the name of the undersigned.
Dated: _______________ ________________________________________
1.
<PAGE> 16
NET ISSUANCE ELECTION NOTICE
To: VOXEL Date:_____________
1. The undersigned hereby elects under Section 2 of the
attached Warrant to surrender the right to purchase ___________ shares of Common
Stock pursuant to the attached Warrant. The Certificate(s) for the shares
issuable upon such net issuance election shall be issued in the name of the
undersigned or as otherwise indicated below.
2. Attached as Exhibit A is an investment representation
letter addressed to the Company and executed by the undersigned as required by
Section 12 of the Warrant.
3. Please issue certificates representing the shares of Stock
purchased hereunder in the names and in the denominations indicated on Exhibit A
attached hereto.
4. Please issue a new Warrant for the unexercised portion of
the attached Warrant, if any, in the name of the undersigned.
___________________________
Signature
___________________________
Name for Registration
___________________________
Mailing Address
<PAGE> 17
EXHIBIT A
To: VOXEL
In connection with the purchase by the undersigned of
___________ shares of the Common Stock (the "Stock") of Voxel, a California
corporation (the "Company"), upon exercise of that certain Common Stock Warrant
dated as of __________, 1996, the undersigned hereby represents and warrants as
follows:
1. The shares of Stock to be received by the undersigned upon
exercise of the Warrant are being acquired for its own account, not as a nominee
or agent, and not with a view to resale or distribution of any part thereof, and
the undersigned has no present intention of selling, granting any participation
in, or otherwise distributing the same. The undersigned further represents that
it does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Stock. The undersigned believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock.
2. The undersigned understands that the shares of Stock are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, the undersigned represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3. Without in any way limiting the representations set forth
above, the undersigned agrees not to make any disposition of all or any portion
of the Stock unless and until:
(a) There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) The undersigned shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
requested, the undersigned shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require registration of such shares under the Act. The Company will not require
an opinion of counsel for sales made pursuant to Rule 144 except in unusual
circumstances.
A-1
<PAGE> 18
4. The undersigned understands the instruments evidencing the
Stock may bear the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT.
Dated: _______________
A-2
<PAGE> 1
EXHIBIT 5.1
[ARTER & HADDEN LETTERHEAD]
July 30, 1996
VOXEL
26081 Merit Circle, Suite 117
Laguna Hills, California 92653-7017
Re: Registration Statement on Form S-1
Gentlemen:
At your request, we have examined the Registration Statement on Form
S-1 and Amendment No. 1 thereto, No. 333-06051 (the Registration Statement and
all amendments thereto, including, without limitation, Amendment No. 1, being
referred to herein as the "Registration Statement"), in connection with the
registration and sale of up to 3,220,000 shares of Common Stock of VOXEL, a
California corporation (the "Company"), issuable by the Company, which are to
be sold by the Company in the manner described in the Registration Statement
and the exhibits thereto (the "Shares").
We have examined the proceedings heretofore taken and are familiar
with the procedures proposed to be taken by the Company in connection with the
authorization, issuance, and sale of the Shares. It is our opinion that the
Shares to be sold by the Company pursuant to the Registration Statement will
be, when sold and paid for pursuant to the terms of the Registration Statement
and the exhibits thereto, legally issued, fully paid, and non-assessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
ARTER & HADDEN
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 12, 1996 in the Registration Statement (Form S-1 No. 333-06051) and
related Prospectus of Voxel for the registration of 3,220,000 shares of its
common stock.
ERNST & YOUNG LLP
Orange County, California
July 30, 1996
