<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1996
REGISTRATION NO. 333-13455
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SEAMED CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
WASHINGTON 3845 91-1002092
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
14500 NORTHEAST 87TH STREET
REDMOND, WASHINGTON 98052-3431
(206) 867-1818
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
EDGAR F. RAMPY
VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
SEAMED CORPORATION
14500 NORTHEAST 87TH STREET
REDMOND, WASHINGTON 98052-3431
(206) 867-1818
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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<S> <C>
MARK R. BEATTY, ESQ. GREGORY GORDER, ESQ.
PRESTON GATES & ELLIS L. MICHELLE WILSON, ESQ.
5000 COLUMBIA CENTER PERKINS COIE
701 FIFTH AVENUE 1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98104-7078 SEATTLE, WASHINGTON 98101-3099
(206) 623-7580 (206) 583-8888
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If 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. / /
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 THIS 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
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, DATED OCTOBER 23, 1996
PROSPECTUS
dated , 1996
1,850,000 SHARES
SEAMED
Corporation
COMMON STOCK
Of the 1,850,000 shares of Common Stock offered hereby, 1,361,942 shares are
being sold by SeaMED Corporation ("SeaMED" or the "Company") and 488,058 shares
are being sold by the selling shareholders (the "Selling Shareholders"). The
Company will not receive any proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Common Stock has been approved for listing on the Nasdaq National
Market, upon completion of this offering, under the symbol "SEMD."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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.
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Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Shareholders
<S> <C> <C> <C> <C>
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Per Share.............................. $ $ $ $
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Total(3)............................... $ $ $ $
=======================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 277,500 shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public less the Underwriting
Discount. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as, and if delivered and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that certificates for
such shares will be available for delivery at the offices of Piper Jaffray Inc.
in Minneapolis, Minnesota on or about , 1996.
PIPER JAFFRAY INC. NEEDHAM & COMPANY, INC.
<PAGE> 3
[PHOTOGRAPH OF COMPANY HEADQUARTERS AND PHOTOGRAPHS OF SIX PRODUCTS WITH THE
NAME OF EACH PRODUCT AND THE CUSTOMER FOR WHICH IT IS MANUFACTURED]
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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This Prospectus includes trade names, trademarks and registered trademarks
of companies other than SeaMED.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. Unless otherwise
noted, all information in this Prospectus, including financial information,
share data and per share data (i) reflects the pro forma conversion into shares
of Common Stock of all outstanding shares of the Company's convertible
redeemable preferred stock (the "Preferred Stock") upon the closing of this
offering, (ii) reflects the pro forma accrual of cumulative dividends on Class A
and D Preferred Stock, and (iii) assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting." The Company's fiscal year consists of
the 52/53-week period that ends on the Thursday nearest to June 30. For
convenience of presentation, all fiscal periods in this Prospectus are shown as
ending on a calendar month-end.
THE COMPANY
SeaMED Corporation (the "Company" or "SeaMED") is a leading manufacturer of
advanced medical instruments for medical technology companies. SeaMED
manufactures durable electronic medical instruments for its customers, often as
part of systems that also include single-use components. To assist its customers
in developing and commercializing their instruments for manufacture by SeaMED,
the Company provides a wide range of engineering services and regulatory
expertise. In its last fiscal year, SeaMED manufactured or engineered
instruments for many established medical technology companies, including Arrow
International, Inc., Becton, Dickinson and Company, Boston Scientific
Corporation, C.R. Bard, Inc., Guidant Corporation, Johnson & Johnson,
Physio-Control Corporation, Sorin Biomedical Inc., St. Jude Medical, Inc. and
United States Surgical Corporation. SeaMED's customers also include many
emerging medical technology companies such as Aksys Ltd., ArthroCare
Corporation, Biofield Corp., CellPro, Incorporated, Gynecare, Inc., Optical
Sensors Incorporated, ReSound Corporation and Urologix, Inc. The Company has
been profitable in each of its last five years with revenues growing from $8.7
million in fiscal year 1992 to $26.1 million in fiscal year 1996, a compound
annual growth rate of 32%. During this period, the number of manufactured
instruments grew from seven to 23.
Since 1988, SeaMED has focused its business primarily on manufacturing
medical instruments and believes it is the largest independent manufacturer of
advanced medical instruments for medical technology companies. As part of its
growth strategy, SeaMED continues to expand its engineering expertise,
regulatory knowledge and manufacturing capabilities, thereby allowing it to
design and manufacture a broader range of medical instruments. SeaMED also
utilizes its resources and expertise by accepting high value-added engineering
and manufacturing contracts for select nonmedical products.
The demand for health care has grown rapidly in recent years, including
demand for medical instruments that can lessen the overall cost of health care
while improving patient outcomes. As medical instruments have incorporated the
latest developments in computers, electronics, materials and other technologies,
and medical technology companies have sought to comply with increasingly
stringent regulatory requirements, the cost of product development and the
length of the development cycle have increased substantially. The risks in
developing and launching new medical products also have increased significantly
as competition in the highly fragmented medical technology industry has
increased. As a result, many medical technology companies increasingly are
focusing their resources on certain critical functions and outsourcing others.
SeaMED believes that the trend toward outsourcing engineering and manufacturing
of durable medical instruments is in its early stages and will expand
significantly.
SeaMED provides complete solutions to meet its customers' needs for
instrument engineering, prototyping, preproduction and volume manufacturing.
SeaMED offers its customers the following advantages:
- Broad experience in product development, engineering, manufacturing
and regulatory compliance for advanced medical instruments
- Reduction of fixed capital and personnel commitments for noncore
functions
- Demand-driven production flexibility
- In-place resources to shorten time-to-market
- FDA and ISO 9001 compliant manufacturing facilities
- Integrated engineering and manufacturing, improving quality and
reducing costs
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SeaMED, a Washington corporation, was formed in 1976. SeaMED's executive
offices are located at 14500 Northeast 87th Street, Redmond, Washington 98052
and its telephone number is (206) 867-1818.
THE OFFERING
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Common Stock offered by the Company.............. 1,361,942 shares
Common Stock offered by the Selling
Shareholders................................... 488,058 shares
Common Stock to be outstanding after this
offering....................................... 4,969,128 shares(1)
Use of proceeds.................................. Repayment of outstanding bank
indebtedness, expected to be between $3.5
million and $5.0 million, payment of
approximately $1.8 million for cumulative
dividends on Preferred Stock, to fund
working capital needs and for general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market symbol.................... SEMD
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share amounts)
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QUARTER
YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1995 1996
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<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................. $14,720 $17,661 $26,130 $ 5,000 $10,076
Cost of sales............................ 11,965 14,590 21,093 4,207 8,391
Gross margin............................. 2,755 3,071 5,037 793 1,685
Marketing, general and administrative
expenses............................... 1,818 1,931 2,937 491 847
Operating income......................... 937 1,140 2,100 302 838
Net income............................... $ 1,007 $ 775 $ 1,240 $ 167 $ 487
======= ======= ======= ======= =======
Net income per share data(2):
Primary................................ $ 0.39 $ 0.25 $ 0.42 $ 0.04 $ 0.17
======= ======= ======= ======= =======
Fully diluted.......................... $ 0.30 $ 0.21 $ 0.32 $ 0.04 $ 0.12
======= ======= ======= ======= =======
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<CAPTION>
SEPTEMBER 30, 1996
--------------------------
PRO FORMA AS ADJUSTED(3)
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BALANCE SHEET DATA:
Working capital...................................................... $ 3,747 $ 15,911
Total assets......................................................... 16,538 24,277
Notes payable to bank................................................ 2,246 --
Long-term debt, including current portion............................ 2,119 751
Total shareholders' equity........................................... 5,270 18,352
</TABLE>
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(1) Based on shares outstanding at September 30, 1996. Excludes 529,265 shares
of Common Stock issuable upon exercise of stock options and a warrant
outstanding at such date, which had a weighted average exercise price of
$2.56 per share. Also excludes 96,418 shares reserved for issuance pursuant
to future option grants under the Company's stock option plans. See
"Management -- Stock Plans" and "Description of Capital Stock."
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing net income per share.
(3) As adjusted to reflect the sale by the Company of 1,361,942 shares of Common
Stock offered hereby at an assumed initial public offering price of $11.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing shares of Common Stock offered by this
Prospectus. This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this Prospectus.
CUSTOMER RISK FACTORS
SeaMED's success depends on the success of its customers and their
instruments manufactured by SeaMED. Any unfavorable developments or adverse
effects on the sales of those products or its customers' businesses, results of
operations or financial condition could have a corresponding adverse effect on
SeaMED. SeaMED believes that its customers and their products (and, accordingly,
SeaMED) are generally subject to the following risks:
Competitive Environment
The medical products industry is highly competitive and subject to
significant technological change, and requires ongoing investment to keep pace
with technological developments and quality and regulatory requirements. The
medical products industry consists of numerous companies, ranging from start-up
to well-established companies. Many of SeaMED's customers have a limited number
of products, and some market only a single product. As a result, any adverse
development with respect to these customers' products may have a material
adverse effect on the business and financial condition of such customer, which
may adversely affect that customer's ability to purchase and pay for its
products manufactured by the Company. The competitors and potential competitors
of SeaMED's customers may succeed in developing or marketing technologies and
products that will be more accepted in the marketplace than the instruments
manufactured by SeaMED for its customers or that would render its customers'
technology and products obsolete or noncompetitive. In addition, other
competitors may develop alternative treatments or cures so that the need for the
instruments manufactured by SeaMED could be reduced or eliminated. Many of
SeaMED's customers are emerging medical technology companies that have
competitors and potential competitors with substantially greater capital
resources, research and development staffs and facilities and substantially
greater experience in developing new products, obtaining regulatory approvals
and manufacturing and marketing medical products. SeaMED's customers may not be
successful in launching and marketing their products, or may not respond to
pricing, marketing or other competitive pressures or the rapid technological
innovation demanded by the marketplace and, as a result, may experience a
dramatic drop in product sales, which would have an adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Industry Overview."
Customer Regulatory Compliance
The Food and Drug Administration (the "FDA") regulates instruments
manufactured by SeaMED under the Federal Food, Drug, and Cosmetic Act, as
amended (the "FDC Act"), which requires certain clearances or approvals from the
FDA before new medical devices can be marketed. As a prerequisite to any
introduction of a new device into the medical marketplace, SeaMED's customers
must obtain necessary product clearances or approvals from the FDA or other
regulatory agencies with applicable jurisdiction. There can be no assurance that
SeaMED's customers will obtain such clearances or approvals on a timely basis,
if at all.
Certain medical instruments manufactured by SeaMED may be subject to the
need to obtain FDA approval of a premarket approval application ("PMA"), which
requires substantial preclinical and clinical testing and may cause delays and
prevent introduction of such instruments. Currently, nine of SeaMED's customers
are seeking or plan to seek PMA for instruments to be manufactured by SeaMED.
FDA marketing approval regulations depend heavily on administrative
interpretations, which may change retroactively and
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<PAGE> 7
may create additional barriers that prevent or delay the introduction of a
product. Marketing approval for PMA products could be denied altogether if
clinical testing does not establish that the product is safe and effective.
Clinical testing must be performed in accordance with the FDA's regulations. A
customer's failure to comply with the FDA's requirements can result in the delay
or denial of its PMA. Delays in obtaining PMA approval are frequent, and, in
turn, could result in delaying or canceling customer orders from SeaMED. Many
products never receive PMA approval. Once FDA approval is obtained, a new
approval, in the form of a PMA supplement, may be needed to modify the device,
its intended use, or its manufacturing. Discovery of product problems may result
in restrictions on the product's future use or withdrawal of the product from
the market despite prior governmental approval. In 1991, one of the Company's
customers recalled its disposable product, and postponed all purchases of the
related instrument from SeaMED, which had an adverse effect on the Company's
results of operations. There can be no assurance that product recalls, product
defects or loss of necessary regulatory approvals will not occur in the future.
The delays and potential product cancellations inherent in the development,
regulatory approval, commercialization and ongoing regulatory compliance of
instruments manufactured by the Company may have a material adverse effect on
the Company's business, reputation, results of operations and financial
condition.
Sales of SeaMED-manufactured medical instruments outside the United States
are subject to regulatory requirements that vary widely from country to country.
The time required to obtain approval for sale in foreign countries may be longer
or shorter than that required for FDA approval, and the requirements may differ.
The FDA also regulates the sale of exported medical devices, although to a
lesser extent than devices sold in the United States. For medical products
exported to countries in the European Community, SeaMED's customers will want
their products to qualify for distribution under the "CE mark," which
qualification enables certain medical products to move freely within the
European Community. Commencing in 1998, medical product manufacturers will be
required to obtain certifications necessary to enable the CE mark to be affixed
to medical products they manufacture for sale throughout the European Community.
In addition, SeaMED's customers must comply with other laws generally applicable
to foreign trade, including technology export restrictions, tariffs and other
regulatory barriers. There can be no assurance that SeaMED's customers will
obtain all required clearances or approvals for exported products on a timely
basis, if at all. Failure or delay in obtaining the requisite regulatory
approvals for exported instruments manufactured by the Company may have an
adverse effect on the Company's business, results of operations and financial
condition.
Medical instruments manufactured by SeaMED and marketed by its customers
pursuant to FDA clearances or approvals are subject to pervasive and continuing
regulation by the FDA and certain state and foreign regulatory agencies.
Regulatory approvals may include significant limitations on the indicated uses
for which the product may be marketed. FDA enforcement policy prohibits the
marketing of approved medical products for unapproved uses. Product approvals
could be withdrawn for failure to comply with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company's
customers control the marketing of their products, including representing to the
market the approved uses of their products. If a customer engages in prohibited
marketing practices, the FDA or another regulatory agency with applicable
jurisdiction could intervene, possibly resulting in marketing restrictions,
including prohibitions on further product sales, or civil or criminal penalties,
which could have an adverse effect on the Company's business, results of
operations and financial condition.
Changes in existing laws and regulations or policies could affect adversely
the ability of the Company's customers to comply with regulatory requirements.
Failure to comply with regulatory requirements could have a material adverse
effect on a customer's business, results of operations and financial condition,
which, in turn, could affect adversely the Company's business, results of
operations and financial condition. There can be no assurance that a customer of
the Company, or the Company, will not be required to incur significant costs to
comply with laws and regulations in the future or that compliance with such laws
and regulations will not have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Governmental Regulation."
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<PAGE> 8
Uncertain Market Acceptance of Products; Product Obsolescence
There can be no assurance that SeaMED's customers' products will gain any
significant market acceptance and market share among physicians, patients and
health care payors, even if required regulatory approvals are obtained. Market
acceptance may depend on a variety of factors, including educating physicians
regarding the use of a new procedure, overcoming physician objections to certain
effects of the product or its related treatment regimen, and convincing health
care payors that the benefits of the product and its related treatment regimen
outweigh its costs. Market acceptance and market share are also affected by the
timing of market introduction of competitive products. Accordingly, the relative
speed with which SeaMED's customers can develop products, gain regulatory
approval and reimbursement acceptance and supply commercial quantities of the
product to the market are expected to be important factors in market acceptance
and market share. Many of SeaMED's customers, especially emerging medical
technology companies, have limited or no experience in marketing their products
and have not made marketing or distribution arrangements for their products.
SeaMED's customers may be unable to establish effective sales and marketing and
distribution channels to successfully commercialize their products.
In addition, the marketplace for medical products is characterized by rapid
change and technological innovation. As a result, SeaMED and its customers are
subject to the risk of product obsolescence, whether from long development or
government approval cycles or the development of improved products or processes
by competitors. In addition, the marketplace could conclude that the task for
which a customer's product was designed is no longer an element of a generally
accepted diagnostic or treatment regimen. Any development adversely affecting
the market for an instrument manufactured by SeaMED would result in the
Company's having to reduce production volumes or to discontinue manufacturing
the instrument, which could have an adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Industry
Overview."
Customers' Future Capital Requirements
Many of SeaMED's customers, especially emerging medical technology
companies, are not profitable and may have little or no revenues, but they have
significant working capital requirements, for which the customer may be required
to raise additional funds through public or private financings, including equity
financings. Adequate funds for their operations may not be available when
needed, if at all. Insufficient funds may require a customer to delay
development of a product, clinical trials (if required) or the commercial
introduction of the product or prevent such commercial introduction altogether.
Depending on the significance of a customer's product to SeaMED's revenues or
profitability, any adverse effect on a customer resulting from insufficient
funds could result in an adverse effect on the Company's business, results of
operations and financial condition.
Uncertainty of Third-Party Reimbursement
Sales of many of the instruments manufactured by SeaMED will be dependent
in part on availability of adequate reimbursement for those instruments from
third-party health care payors, such as government and private insurance plans,
health maintenance organizations and preferred provider organizations.
Third-party payors are increasingly challenging the pricing of medical products
and services. There can be no assurance that adequate levels of reimbursement
will be available to enable SeaMED's customers to achieve market acceptance of
their products. Without adequate support from third-party payors, the market for
the products of SeaMED's customers may be limited.
VARIABILITY OF OPERATING RESULTS
SeaMED's annual and quarterly operating results are affected by a number of
factors, including the volume and timing of customer orders, which vary due to
(i) variation in demand for the customer's products as a result of, among other
things, product life cycles, competitive conditions and general economic
conditions, (ii) the customer's attempt to balance its inventory, (iii) the
customer's need to adapt to changing regulatory conditions and requirements, and
(iv) changes in the customer's manufacturing strategy. In the past, changes
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<PAGE> 9
in customer orders have had a significant effect on SeaMED's results of
operations. Further, SeaMED's contracts with its customers typically have no
minimum purchase requirements. As a result, production may be reduced or
discontinued at any time, causing substantial sales fluctuations from quarter to
quarter or from year to year. Other factors that may adversely affect SeaMED's
annual and quarterly results of operations include inexperience in manufacturing
a particular instrument, inventory shortages or obsolescence, labor costs or
shortages, price competition and regulatory requirements. Because SeaMED's
business organization and its related cost structure anticipate supporting a
certain minimum level of revenues, the Company's limited ability to adjust its
short-term cost structure would compound the adverse effect of any significant
revenue reduction. Any one of these factors or a combination thereof could
result in a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CUSTOMER CONCENTRATION
Historically, a substantial percentage of SeaMED's net sales have been to
fewer than 10 customers, the loss of any of which would adversely affect the
Company's business, results of operations and financial condition. In each of
the fiscal years ended June 30, 1995 and June 30, 1996, five of the Company's
customers (not all the same in each year) together represented 49% and 41% of
revenues, respectively. If one or more of SeaMED's customers experiences
exceptional growth relative to other SeaMED customers, then SeaMED's success
could become substantially more dependent on the continued success of such
customer, and any unfavorable development regarding such customer or its product
could result in a material adverse effect on the Company's business, results of
operations and financial condition. Similarly, if one or more of SeaMED's
customers were to seek and obtain price discounts from the Company for that
customer's instruments, the resulting lower gross margins on those instruments
may have an adverse effect on the Company's overall results of operations. In
addition, if any customer with which SeaMED does a substantial amount of
business were to encounter financial distress, the customer's unwillingness or
inability to pay its obligation to the Company could result in a material
adverse effect on the Company's results of operations and financial condition.
SeaMED's sales to Coinstar, Inc. ("Coinstar"), a nonmedical customer for
which SeaMED manufactures a coin-counting machine that exchanges loose coins for
currency, represented approximately 25% of SeaMED's revenues for the quarter
ended September 30, 1996. SeaMED currently manufactures these machines under a
nonexclusive manufacturing agreement with Coinstar that allows Coinstar to
cancel or modify orders with SeaMED on 90 days' notice. An order cancellation or
modification by Coinstar could result in an adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" and "Business -- Customers and Products."
COMPETITION
SeaMED faces competition from current and prospective customers who
evaluate SeaMED's capabilities against the merits of designing, engineering and
manufacturing instruments internally. SeaMED also faces competition from design
firms and other manufacturers that operate in the medical technology industry.
Most of SeaMED's customers have substantially greater financial and research and
development resources than SeaMED and either operate internal design and
manufacturing facilities or have sufficient resources to develop internal design
and manufacturing capabilities. As a result of the consolidation of smaller
manufacturers into larger manufacturers, some existing or prospective customers
may be eliminated. In the future, SeaMED may also compete against new entrants
to the industry. For example, a medical technology company with design and
manufacturing capabilities (especially one with excess capacity) could decide to
compete with SeaMED for outsource development and manufacturing of medical
instruments. In addition, several large electronic contract manufacturers and
defense department contractors with extensive engineering expertise may from
time to time undertake design and/or manufacture of medical instruments.
Although the Company is not aware of substantial competition from these
noncustomer sources to date, there can be no assurance that these or other
formidable competitors will not aggressively expand into the Company's targeted
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market segment in the future. Competition from any of the foregoing sources
could place pressure on SeaMED to accept lower margins on its contracts or lose
existing or potential business, which could result in a material adverse effect
on the Company's business, results of operations and financial condition. See
"Business -- Competition"
UNCERTAINTY OF MARKET ACCEPTANCE OF OUTSOURCING MANUFACTURE OF MEDICAL
INSTRUMENTS
SeaMED believes that the market for outsourcing the manufacture of advanced
medical instruments for medical technology companies is in its early stages.
SeaMED's engineering and manufacturing activities require that customers provide
SeaMED with access to their proprietary technology and relinquish the control
associated with internal engineering and manufacturing. As a result, potential
customers may decide that the risks of outsourcing engineering or manufacturing
are too great or exceed the anticipated benefits of outsourcing. In addition,
medical technology companies that have previously made substantial investments
to establish design and manufacturing capabilities may be reluctant to outsource
those functions. If the medical technology industry generally, or any
significant existing or potential customer, concludes that the disadvantages of
outsourcing manufacturing outweigh the advantages, SeaMED could suffer a
substantial diminution in the size of its target market, which would have a
material adverse effect on its business, results of operations and financial
condition.
COMPLIANCE WITH REGULATORY AGENCY REQUIREMENTS
SeaMED is subject to a variety of regulatory agency requirements in the
United States and foreign countries relating to the instruments that it
manufactures for its customers. The process of obtaining and maintaining
required regulatory approvals and otherwise remaining in regulatory compliance
in the United States and certain other countries is lengthy, expensive and
uncertain.
Applicable law requires that SeaMED comply with the FDA's detailed good
manufacturing practices ("GMP") regulations for the manufacture of medical
products. The FDA monitors compliance with its GMP regulations by subjecting
medical product manufacturers to periodic FDA inspections of their manufacturing
facilities. The FDA has recently revised the GMP regulations. The new
regulations include authority for the FDA to regulate the design phase as well
as the manufacture of medical products and make a number of other significant
changes in the requirements applicable to manufacturers. To ensure compliance
with GMP requirements, SeaMED expends significant time, resources and effort in
the areas of training, production and quality assurance. In addition, the FDA
typically inspects a manufacturer of a PMA device before approving a PMA. The
failure to pass such an inspection could result in delay in approving a PMA.
SeaMED is also subject to other regulatory requirements, and may need to submit
reports to the FDA relating to certain types of adverse events. Failure to
comply with GMP regulations or other applicable legal requirements can lead to
warning letters, seizure of violative products, injunctive actions brought by
the U.S. government and potential civil or criminal liability on the part of the
Company and of the officers and employees who are responsible for the activities
that lead to any violation. In addition, the continued sale of any instruments
manufactured by the Company may be halted or otherwise restricted. Any such
actions could have an adverse effect on the willingness of customers and
prospective customers to do business with SeaMED. In order for the Company's
instruments to be exported and for SeaMED and its customers to be qualified to
use the CE mark, the Company maintains International Organization for
Standardization ("ISO") 9001/EN 46001 certification, which subjects SeaMED's
operations to periodic surveillance audits. The ultimate regulatory risks
present in manufacturing products for markets governed by these standards are
currently substantially similar to those posed by GMP regulations. There can be
no assurance that the Company's manufacturing operations will be found to comply
with GMP regulations, ISO standards or other applicable legal requirements or
that the Company will not be required to incur substantial costs to maintain its
compliance with existing or future manufacturing regulations, standards or other
requirements. Any such noncompliance or increased cost of compliance could have
a material adverse effect on the Company's business, results of operations and
financial condition.
SeaMED also is subject to numerous federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. While SeaMED has not been the subject of any
material proceeding
9
<PAGE> 11
concerning such laws and believes it is currently in compliance with such laws
in all material respects, there can be no assurance that SeaMED will not be
required to incur significant costs to comply with such laws and regulations now
or in the future or that such laws or regulations will not have a material
adverse effect upon the Company's ability to do business. Changes in existing
requirements or adoption of new requirements or policies could affect adversely
the ability of SeaMED to comply with regulatory requirements. Failure to comply
with regulatory requirements could have a material adverse effect on the
Company's business, results of operations or financial condition. There can be
no assurance that the Company will not be required to incur significant costs to
comply with applicable laws and regulations in the future or that such laws and
regulations will not have a material adverse effect on the Company's business,
results of operations or financial condition. See "Business -- Quality Assurance
and Regulatory Compliance" and "Business -- Governmental Regulation."
PRODUCT RECALLS, PRODUCT LIABILITY AND INSURANCE
Many of the instruments SeaMED designs or manufactures are life-sustaining,
life-supporting or implantable medical products. The tolerance for error in the
design, manufacture or use of these products may be small or nonexistent. If an
instrument designed or manufactured by the Company is found to be defective,
whether due to design or manufacturing defects, to improper use of the product
or to other reasons, the instrument may need to be recalled, possibly at the
Company's expense. Furthermore, the adverse effect of a product recall on the
Company might not be limited to the cost of the recall. For example, a product
recall could cause a general investigation of the Company by applicable
regulatory authorities as well as cause other customers to review and
potentially terminate their relationships with the Company. Recalls, especially
if accompanied by unfavorable publicity or termination of customer contracts,
could result in substantial costs, loss of revenues and a diminution of the
Company's reputation, each of which would have a material adverse effect on the
Company's business, results of operations and financial condition.
The manufacture and sale of the medical instruments manufactured by SeaMED
involve the risk of product liability claims. Although SeaMED generally obtains
indemnification from its customers for instruments it manufactures to the
customers' specifications and in addition maintains product liability insurance,
there can be no assurance that the indemnities will be honored or the coverage
of the Company's insurance policies will be adequate. In addition, SeaMED
generally provides a design defect warranty and indemnifies its customers for
failure of an instrument to conform to design specifications and against defects
in materials and workmanship. SeaMED intends to evaluate its insurance coverage
from time to time in view of developments in its business and products currently
under development. Product liability insurance is expensive and in the future
may not be available on acceptable terms, in sufficient amounts, or at all. A
successful claim brought against the Company in excess of its insurance coverage
or any material claim for which insurance coverage was denied or limited and for
which indemnification was not available could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business -- Quality Assurance and Regulatory Compliance."
DEPENDENCE ON KEY PERSONNEL
SeaMED's future success depends to a significant extent on the continued
service of certain of its key managerial, technical and engineering personnel,
particularly its President and Chief Executive Officer, W. Robert Berg, and its
continuing ability to attract, train, assimilate and retain highly qualified
engineering, technical and managerial personnel experienced in commercializing
medical products. Competition for such personnel is intense, the available pool
of qualified candidates is limited and there can be no assurance that SeaMED can
retain its key engineering, technical and managerial personnel or that it can
attract, train, assimilate or retain other highly qualified engineering,
technical and managerial personnel in the future. The loss of Mr. Berg or any of
SeaMED's other key personnel or the inability of SeaMED to hire, train,
assimilate or retain qualified personnel could have a material adverse effect on
the Company's business, results of operations and financial condition. None of
the Company's key personnel has an employment agreement with the Company. The
Company has obtained key-man life insurance policies on the life of W. Robert
Berg in the amount of $2 million. See "Management."
10
<PAGE> 12
MANAGEMENT OF GROWTH
SeaMED's ability to manage its growth effectively will require it to
continue to implement and improve its operational, financial and management
information systems, to develop its managers' and project engineers' management
skills and to train, motivate and manage its employees. If SeaMED cannot keep
pace with the growth of its customers, it may lose customers and its growth may
be limited. In particular, to accommodate future growth SeaMED may need to
obtain additional space to continue manufacturing at optimum levels. SeaMED
currently obtains additional manufacturing space based on its projected needs,
which are based on, but do not necessarily reflect, its customers' production
forecasts. As a result, the Company may from time to time have insufficient
manufacturing facilities to fulfill on a timely basis unexpected and significant
increases in customer orders. Although an existing manufacturing facility for
PMA products may be able to be expanded without prior regulatory approval,
establishing a new manufacturing facility for PMA products requires prior
regulatory approval, which may cause production delays. The Company could lose
customer business or miss growth opportunities in the future if it were unable
to obtain adequate additional space on a timely basis. Conversely, if one or
more customers were to cancel production orders, the Company may incur
substantial lease obligations, resulting in excess production capacity, which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
SeaMED's business, both operationally and administratively, depends on
SeaMED's ability to store, retrieve, process, manage and share significant
amounts of information. In addition, SeaMED depends on its computer system to
integrate its manufacturing processes with its quality assurance procedures
(including, for example, maintaining distribution records and allowing for the
tracing of certain product lots) to comply with GMP requirements and ISO 9001
standards. Although SeaMED believes that its existing computer system will
adequately serve its near-term needs, it may need to upgrade its computer system
if significant growth continues. Any difficulties or delays in upgrading the
computer system, or in remaining in compliance with applicable GMP requirements
and ISO 9001 standards, could adversely affect the manufacture and delivery of
customer instruments, and the Company's management, reporting and internal
control systems.
The Company's failure to manage growth effectively could have a material
adverse effect on its business, results of operations and financial condition.
AVAILABILITY OF COMPONENT PARTS
SeaMED relies on third-party suppliers for each of the component parts used
in manufacturing its customers' instruments. Although component parts are
generally available from multiple suppliers, certain component parts may require
long lead times, and SeaMED may have to delay the manufacture of customer
instruments from time to time due to the unavailability of certain component
parts. Component shortages for a particular instrument may adversely affect the
Company's ability to satisfy customer orders for that instrument. At various
times, there have been shortages of component parts, especially electronics
components. If shortages of component parts should occur, the Company may be
forced to pay higher prices for affected components or delay manufacturing and
shipping particular instruments, either of which could adversely affect customer
demand for such instruments and the Company's business, results of operations
and financial condition.
CUSTOMER CONFLICTS
The medical technology industry reflects vigorous competition among its
participants, sometimes leading to substantial animosity between competitors.
SeaMED's growth may be adversely affected if its customers require SeaMED to
enter into noncompetition agreements that prevent SeaMED from manufacturing
instruments for its customers' competitors. For example, if SeaMED enters into a
noncompetition agreement, SeaMED may be adversely affected if its customer's
product is not successful and SeaMED must forgo an opportunity to manufacture a
successful instrument for such customer's competitor. Any conflicts among its
customers could prevent or deter SeaMED from obtaining contracts to manufacture
successful instruments, which could result in a material adverse effect on its
business, results of operations and financial condition.
11
<PAGE> 13
FUTURE CAPITAL REQUIREMENTS
SeaMED believes that the net proceeds of this offering, together with
existing capital resources and amounts available under the Company's existing
bank line of credit, will satisfy the Company's anticipated capital needs for
the next 12 to 24 months (depending primarily on SeaMED's growth rate and its
results of operations). Thereafter, SeaMED may be required to raise additional
capital or increase its borrowing capacity, or both. There can be no assurance
that alternative sources of equity or debt will be available in the future or,
if available, will be on terms acceptable to SeaMED. Any additional equity
financing would result in additional dilution to the Company's shareholders,
including shareholders who purchase Common Stock in this offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTROL BY MANAGEMENT
Following this offering, the current executive officers and directors of
SeaMED and their affiliates will beneficially own or have voting control over
approximately 43.5% of the outstanding Common Stock (approximately 41.3% if the
Underwriters' over-allotment option is exercised in full). Accordingly, these
individuals will have the ability to influence the election of the Company's
directors and to effectively control most corporate actions. This concentration
of ownership, together with other provisions in the Company's charter and
applicable corporate law, may also have the effect of delaying, deterring or
preventing a change in control of the Company. See "Principal and Selling
Shareholders" and "Description of Capital Stock."
ABSENCE OF PRIOR MARKET; POTENTIAL VOLATILITY OF COMMON STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained. The initial public offering price for the Common Stock will be
determined by negotiations between the Company and the representatives of the
Underwriters and may not be indicative of the market price of the Common Stock
after this offering. See "Underwriting." The market price of the Common Stock
may be volatile and may fluctuate based on a number of factors, including
significant announcements by the Company and its competitors, quarterly
fluctuations in the Company's operating results and general economic conditions
and conditions in the medical technology industry. In addition, in recent years
the stock market has experienced extreme price and volume fluctuations, which
have had a substantial effect on the market prices for many medical-technology
companies and are often unrelated to the operating performance of such
companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock. Of
the 4,969,128 shares outstanding following this offering, the 1,850,000 shares
sold hereby will be freely tradable in the public market and the remaining
3,119,128 shares will be "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
Approximately 159,639 restricted securities will be eligible for sale
immediately following this offering in reliance on Rule 144(k) under the
Securities Act. Approximately 8,558 restricted securities will be eligible for
sale 90 days following this offering in reliance on other provisions of Rule 144
and on Rule 701. Beginning 180 days after the closing of this offering,
following the expiration of certain lockup agreements among the Underwriters,
the Selling Shareholders, the Company's officers and directors and certain other
shareholders of the Company, 2,628,598 additional currently outstanding shares
of Common Stock will be eligible for sale in the public market, subject to the
limitations of Rule 144 and Rule 701. If the Securities and Exchange Commission
(the "Commission") adopts proposed amendments to Rule 144 to substantially
reduce required holding periods for restricted securities, another 295,666
currently outstanding shares of Common Stock will be eligible for sale in the
public market as described in the preceding sentence. In addition, certain
shareholders, representing approximately 2,555,637 shares of Common Stock, have
the right, subject to certain conditions, to include their shares in future
registration statements relating to SeaMED's securities and to cause SeaMED to
register certain shares of Common Stock owned by them. An additional 39,066
shares of Common Stock issuable upon exercise of an outstanding warrant and
586,617 shares of Common Stock reserved for issuance pursuant to the Company's
stock option
12
<PAGE> 14
plans (the "Option Shares"), may become eligible for resale in the public market
at various times after the expiration of the 180-day lockup period. The holders
of 154,700 Option Shares which have vested and are not subject to lockup
agreements could exercise their options and sell these shares in compliance with
Rule 701 beginning 90 days after the effective date of this offering. The
Company intends to register the Option Shares for resale in the public market
following expiration of the lockup period. See "Shares Eligible for Future
Sale."
DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution in the net tangible book value per share of the Common
Stock from the assumed initial public offering price. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid dividends on the Common Stock and does not
anticipate paying any such dividends in the foreseeable future. See "Dividend
Policy."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,361,942 shares of Common
Stock offered hereby are estimated to be approximately $13.0 million
(approximately $15.9 million if the Underwriters' over-allotment option is
exercised in full), after deducting estimated underwriting discounts and
offering expenses and assuming an initial public offering price of $11.00 per
share.
The Company intends to use a portion of such net proceeds to repay bank
debt consisting of a bank line of credit and three notes payable, the aggregate
outstanding balance of which is expected to be between $3.5 million and $5.0
million, and approximately $1.8 million of the net proceeds to pay cumulative
dividends on Class A and Class D Preferred Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company intends to use the remaining net proceeds to
fund working capital needs and for general corporate purposes, including
leasehold improvements and purchases of equipment. The Company, if the
opportunity arises, may use an unspecified portion of the net proceeds to
acquire other businesses or assets that complement the Company's existing
business. The Company currently is not engaged in any discussions regarding such
acquisitions and has no plans, arrangements, understandings or agreements
regarding any specific acquisition.
Pending the uses set forth above, the net proceeds will be invested in
short-term, investment-grade, interest-bearing securities. The Company will not
receive any proceeds from the sale of Common Stock by the Selling Shareholders.
See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock, and currently
intends to retain all earnings for use in the expansion of its business, and
does not anticipate paying any dividends on the Common Stock in the foreseeable
future. In addition, the Company's current revolving credit facility prohibits
the payment of dividends, but such restriction has been waived for the payment
of cumulative dividends on Class A and Class D Preferred Stock upon the closing
of this offering.
14
<PAGE> 16
DILUTION
The Company's pro forma net tangible book value as of September 30, 1996
was approximately $5.3 million, or $1.46 per share. Pro forma net tangible book
value per share represents the Company's total assets less intangible assets and
total liabilities divided by the number of shares outstanding, adjusted on a pro
forma basis for the (i) conversion into Common Stock of all outstanding shares
of Preferred Stock and (ii) pro forma accrual of $1.7 million of cumulative
dividends on Class A and D Preferred Stock as of September 30, 1996. Without
taking into account any changes in such net tangible book value per share after
September 30, 1996, other than to give effect to the sale of the shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 per share and the receipt of the estimated net proceeds of such
sale, the pro forma net tangible book value per share as of September 30, 1996
would have been approximately $18.4 million, or $3.69 per share. This represents
an immediate increase in net tangible book value per share of $2.23 to existing
shareholders and an immediate dilution of $7.31 per share to new investors. The
following table sets forth this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $11.00
Pro forma net tangible book value per share as of September 30, 1996...... $1.46
Increase per share attributable to new investors.......................... 2.23
------
Pro forma net tangible book value per share after this offering............. 3.69
------
Dilution per share to new investors......................................... $ 7.31
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the differences between existing shareholders and investors in this
offering with respect to the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid.
<TABLE>
<CAPTION>
SHARES
PURCHASED(1)(2) TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 3,607,186 72.6% $ 6,668,418 30.8% $ 1.85
New investors....................... 1,361,942 27.4 14,981,362 69.2 11.00
--------- ----- ---------- -----
Total..................... 4,969,128 100.0% $21,649,780 100.0%
========= ===== ========== =====
</TABLE>
- ---------------
(1) Excludes 529,265 shares of Common Stock issuable upon exercise of stock
options and a warrant outstanding at such date, which had a weighted average
exercise price of $2.56 per share. Also excludes 96,418 shares reserved for
issuance pursuant to future option grants under the Company's stock option
plans. See "Management -- Stock Plans" and "Description of Capital Stock."
To the extent these options and this warrant are exercised, there will be
further dilution to new investors.
(2) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders as of September 30, 1996 to
approximately 3,119,128 shares, or 62.8% (59.5% if the Underwriters'
over-allotment option is exercised in full) of the total number of shares of
Common Stock outstanding after this offering, and will increase the number
of shares to be purchased by new investors to 1,850,000 shares, or 37.2%
(approximately 2,127,500 shares, or 40.5% if the Underwriters'
over-allotment option is exercised in full) of the total number of shares of
Common Stock outstanding after this offering.
See "Principal and Selling Shareholders."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of September 30, 1996, (ii) the pro forma capitalization after giving effect
to the conversion of all outstanding shares of Preferred Stock into 2,934,029
shares of Common Stock upon the closing of this offering and the pro forma
accrual of $1.7 million of cumulative dividends on Class A and D Preferred Stock
as of September 30, 1996, and (iii) the adjusted capitalization after giving
effect to the sale by the Company of the 1,361,942 shares of Common Stock
offered by it hereby at an assumed initial public offering price of $11.00 per
share, and the application of the estimated net proceeds thereof.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
<S> <C> <C> <C>
(in thousands)
Notes payable to bank....................................... $2,246 $ 2,246 $ --
======= ======= =======
Current portion of long-term debt........................... $ 583 $ 583 $ 135
======= ======= =======
Long-term debt, net of current portion...................... $1,535 $ 1,535 $ 616
Convertible redeemable preferred stock...................... 5,280 -- --
Shareholders' equity:
Preferred stock, no par value, 14,050,000 shares
authorized; 9,050,000 designated convertible redeemable
shares................................................. -- -- --
Common stock, no par value, 10,000,000 shares authorized;
673,157 shares issued and outstanding actual; 3,607,186
shares issued and outstanding pro forma; 4,969,128
shares issued and outstanding as adjusted(1)........... 889 5,345 18,427
Note receivable from officer.............................. (75) (75) (75)
Retained earnings......................................... 906 -- --
------- ------- -------
Total shareholders' equity........................... 1,720 5,270 18,352
------- ------- -------
Total capitalization.............................. $8,535 $ 6,805 $18,968
======= ======= =======
</TABLE>
- ---------------
(1) Excludes 529,265 shares issuable upon exercise of stock options and a
warrant outstanding at such date, which had a weighted average exercise
price of $2.56 per share. Also excludes 96,418 shares reserved for issuance
pursuant to future option grants under the Company's stock option plans. See
"Management -- Stock Plans" and "Description of Capital Stock."
16
<PAGE> 18
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The following selected financial data as of June 30, 1995 and 1996, and for
each of the periods ended June 30, 1994, 1995 and 1996, are derived from the
financial statements of the Company, which have been audited by Ernst & Young
LLP, independent auditors, and are included elsewhere in this Prospectus. The
selected financial data as of June 30, 1992, 1993 and 1994, and for each of the
periods ended June 30, 1992 and 1993, are derived from audited financial
statements not included herein. The selected financial data as of September 30,
1996 and for the quarters ended September 30, 1995 and 1996 are derived from
unaudited financial statements of the Company, which in the opinion of
management include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information set
forth therein. The results for the quarter ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year.
The Company's fiscal year consists of the 52/53-week period that ends on the
Thursday nearest to June 30. For convenience of presentation, all fiscal periods
in this Prospectus are shown as ending on a calendar month-end. The data should
be read in conjunction with the Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
----------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues......................... $8,663 $9,582 $14,720 $17,661 $26,130 $5,000 $10,076
Cost of sales.................... 6,426 7,444 11,965 14,590 21,093 4,207 8,391
------ ------ ------- ------- ------- ------ -------
2,237 2,138 2,755 3,071 5,037 793 1,685
Marketing, general and
administrative expenses........ 1,430 1,239 1,818 1,931 2,937 491 847
------ ------ ------- ------- ------- ------ -------
Operating income................. 807 899 937 1,140 2,100 302 838
Other expense, net............... 106 114 138 185 192 49 89
------ ------ ------- ------- ------- ------ -------
Income before income taxes....... 701 785 799 955 1,908 253 749
Income tax benefit
(provision)(1)................. (19) 245 208 (180) (668) (86) (262)
------ ------ ------- ------- ------- ------ -------
Net income....................... $ 682 $1,030 $ 1,007 $ 775 $ 1,240 $ 167 $ 487
====== ====== ======= ======= ======= ====== =======
Net income per share data(2):
Primary........................ $ 0.26 $ 0.42 $ 0.39 $ 0.25 $ 0.42 $ 0.04 $ 0.17
====== ====== ======= ======= ======= ====== =======
Fully diluted.................. $ 0.21 $ 0.31 $ 0.30 $ 0.21 $ 0.32 $ 0.04 $ 0.12
====== ====== ======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
--------------------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1992 1993 1994 1995 1996 1996 1996(3)
------- ------- ------ ------ ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $ 1,770 $ 2,686 $3,307 $4,497 $ 4,997 $ 5,477 $ 3,747
Total assets........................ 3,616 4,903 7,571 9,900 16,064 16,538 16,538
Notes payable to bank............... -- -- 990 555 1,817 2,246 2,246
Long-term debt,
including current portion......... 1,185 1,370 1,653 1,517 1,748 2,119 2,119
Convertible redeemable preferred
stock............................. 3,815 3,815 3,815 5,280 5,280 5,280 --
Total shareholders' equity
(deficit)......................... (2,747) (1,713) (672) (38) 1,231 1,720 5,270
</TABLE>
- ---------------
(1) For the fiscal years ended June 30, 1992, 1993 and 1994, reflects the
benefit of utilization of net operating loss carryforwards, tax credit
carryforwards and related changes in the deferred tax asset valuation
allowance.
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing net income per share.
(3) The pro forma balance sheet data as of September 30, 1996 reflect the pro
forma conversion into shares of Common Stock of all outstanding shares of
Preferred Stock and the pro forma accrual of $1.7 million of cumulative
dividends on Class A and D Preferred Stock.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto and other financial
information included elsewhere in this Prospectus. This Prospectus contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus. See "Risk Factors."
OVERVIEW
SeaMED is a leading manufacturer of advanced medical instruments for
medical technology companies. SeaMED was incorporated in 1976, and since 1988
has focused its business primarily on manufacturing medical instruments for
medical technology companies. To assist its customers in developing and
commercializing their products for manufacture by SeaMED, the Company provides a
wide range of engineering services and regulatory expertise. The Company has
been profitable in each of its last five fiscal years, with revenues growing
from $8.7 million in fiscal year 1992 to $26.1 million in fiscal year 1996, a
compound annual growth rate of 32%.
SeaMED's manufacturing contracts with its customers are usually exclusive
contracts for a fixed period of time, generally ranging from three to five
years. SeaMED negotiates each manufacturing contract independently, and each
varies as to profitability. SeaMED negotiates the price of each manufactured
instrument on a cost and margin formula. SeaMED's contracts with its customers
generally permit annual manufacturing cost audits and price renegotiations.
During the contract term, customers have broad discretion to control the volume
and timing of instrument deliveries. Consequently, SeaMED's revenues with
respect to each instrument may vary substantially from period to period, and an
instrument that generates revenues in one quarter may not necessarily generate
revenues in each quarter of a fiscal year. In addition, for a variety of reasons
such as a customer's inventory levels, sales mix and timing of product launches,
SeaMED's revenues for an instrument do not necessarily correspond to the
customer's sales.
Manufacturing revenue growth depends primarily on two factors: increased
demand for instruments manufactured by SeaMED and SeaMED's ability to attract
additional manufacturing contracts from emerging and established medical
technology companies. SeaMED has no ability to increase demand for the
instruments it manufactures because SeaMED's customers control all product
marketing and sales. SeaMED markets its manufacturing capabilities and usually
procures additional manufacturing contracts as a result of its engineering
projects, but the volume and timing of future manufacturing revenues that relate
to any specific engineering project are highly variable, and certain engineering
projects may not lead to future manufacturing revenues. The manufacturing gross
margin percentage from year to year depends primarily on the product mix, as
gross margins vary by instrument and as a result of negotiated volume discounts.
Management may negotiate volume discounts if the larger volume results in
smaller per unit overhead allocation, thereby improving operating margin. For
manufacturing revenues from instruments not yet approved for commercial use
(known as "preproduction revenues"), the gross margin percentage is generally
lower because a smaller number of units limits opportunities to achieve
economies of scale, and the instrument and its manufacturing process are being
refined.
SeaMED provides its customers with engineering services at any stage of an
instrument's development, as part of its strategy to obtain exclusive
manufacturing rights for an instrument. SeaMED generally provides engineering
services under a project plan that identifies the engineering tasks,
deliverables and schedule. SeaMED negotiates each engineering project plan
independently, and, as a business strategy, generally prices engineering
contracts to cover direct project expenses (i.e., nonrecurring engineering
expenses) plus a share of marketing, general and administrative expenses.
SeaMED's objective in providing engineering services is to obtain, for a
specific time period (usually three to five years), exclusive manufacturing
rights to the instrument resulting from the engineering project. The customer
can typically cancel the engineering project at any time upon short notice.
18
<PAGE> 20
Engineering revenues are derived primarily from professional services
provided by SeaMED's engineers. The balance of engineering revenues is sales of
materials to customers at cost. Engineering revenue growth depends primarily on
three factors: (i) the number and scope of existing engineering projects, (ii)
whether existing projects are in time-intensive phases, and (iii) whether new
engineering projects of sufficient scope replace engineering projects that are
completed or otherwise terminated. Engineering gross margins are low due to
SeaMED's strategy of pricing engineering services as part of an exclusive
manufacturing contract for the resulting instrument. Since demand for
engineering services varies widely, SeaMED may experience from time to time
excess engineering capacity. Engineering margins may fluctuate depending on the
rates that customers pay under engineering project plans and the utilization
rates of engineers.
SeaMED has historically designed, developed and manufactured certain
proprietary instruments. SeaMED expects that fiscal year 1997 will be the last
year in which it derives revenues from such instruments. SeaMED thereafter will
derive its revenues exclusively by manufacturing instruments for its customers.
SeaMED's revenues from its proprietary instruments were $1.2 million, $923,000,
$1.4 million and $451,000 in fiscal years 1994, 1995 and 1996 and the first
quarter of fiscal year 1997, respectively.
Marketing, general and administrative expenses include the costs of
SeaMED's marketing, finance, and management information systems departments and
other administrative costs. In addition, marketing, general and administrative
expenses include the cost of a Company-wide bonus tied to operating performance.
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996
The following table sets forth statement of income data as a percentage of
revenues for the quarters indicated.
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
-----------------
1995 1996
----- -----
<S> <C> <C>
Revenues........................................................... 100.0% 100.0%
Cost of sales...................................................... 84.1 83.3
----- -----
Gross margin....................................................... 15.9 16.7
Marketing, general and administrative expenses..................... 9.9 8.4
----- -----
Operating income................................................... 6.0 8.3
Other expense, net................................................. 1.0 0.9
----- -----
Income before income taxes......................................... 5.0 7.4
Income tax provision............................................... 1.7 2.6
----- -----
Net income......................................................... 3.3% 4.8%
===== =====
</TABLE>
Revenues
The following table sets forth revenues with the corresponding percentage
of total revenues and the quarter to quarter percentage increase for the
quarters indicated.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
------------------------------------------------------------
1995 1996
--------------------- ---------------------
% OF % OF
TOTAL TOTAL %
REVENUES REVENUES REVENUES REVENUES INCREASE
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Manufacturing.............................. $3,475 69.5% $ 6,724 66.7% 93.5%
Engineering................................ 1,525 30.5 3,352 33.3 119.8%
------ ----- ------- -----
Total revenues........................... $5,000 100.0% $ 10,076 100.0% 101.5%
====== ===== ======= =====
</TABLE>
19
<PAGE> 21
Manufacturing revenues increased by approximately $3.2 million from the
first quarter of fiscal year 1996 to the first quarter of fiscal year 1997, due
primarily to a new nonmedical product manufactured for Coinstar under a
nonexclusive contract, new medical instruments and increased volume of existing
medical instruments, adding approximately $4.4 million in the aggregate. SeaMED
began sales to Coinstar in the fourth quarter of fiscal year 1996, and sales to
Coinstar in the first quarter of fiscal year 1997 represented approximately
25.0% of total revenues and approximately 33.5% of manufacturing revenues. See
"Risk Factors -- Customer Concentration" and "Business -- Customers and
Products." This aggregate increase was offset by decreased volume of certain
existing medical instruments and the phase-out of other medical instruments,
which decreased revenues by approximately $1.2 million in the aggregate.
Significant manufacturing revenues were generated by 11 medical instruments in
the first quarter of fiscal year 1996 and 12 medical instruments and one
nonmedical product in the first quarter of fiscal year 1997. Engineering
revenues increased by approximately $1.8 million from the first quarter of
fiscal year 1996 to the first quarter of fiscal year 1997, due primarily to new
projects, increased time being billed on existing projects and increased hourly
rates for engineering services, adding approximately $2.2 million in the
aggregate. This increase was offset by the transition of certain projects from
engineering to manufacturing and other projects being delayed or cancelled,
which decreased engineering revenues by approximately $410,000 in the aggregate.
Gross Margin
The following table sets forth gross margin, both in dollar amounts and as
a percentage of the corresponding revenue figure for the quarters indicated.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
---------------------------------------------------
1995 1996
----------------------- -----------------------
GROSS GROSS GROSS GROSS
MARGIN($) MARGIN(%) MARGIN($) MARGIN(%)
--------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Manufacturing........................... $ 746 21.5% $ 1,285 19.1%
Engineering............................. 47 3.1% 400 11.9%
---- ------
Total gross margin................. $ 793 15.9% $ 1,685 16.7%
==== ======
</TABLE>
Manufacturing gross margin decreased from 21.5% of manufacturing revenues
in the first quarter of fiscal year 1996 to 19.1% in the first quarter of fiscal
year 1997, due primarily to a negative gross margin (loss) on a medical
instrument that will be phased out of full production in the second quarter of
fiscal year 1997 and a negative gross margin on an instrument in preproduction.
The decrease from the fiscal year 1996 manufacturing gross margin percentage of
23.6% to a manufacturing gross margin percentage of 19.1% in the first quarter
of fiscal year 1997 was primarily attributable to the same negative gross
margins. Management expects the fiscal year 1997 manufacturing gross margin
percentage to be lower than the fiscal year 1996 manufacturing gross margin
percentage of 23.6%. Engineering gross margin increased from 3.1% of engineering
revenues in the first quarter of fiscal year 1996 to 11.9% in the first quarter
of fiscal year 1997. This increase reflects a trend of increasing engineering
gross margin percentages, due primarily to (i) spreading certain fixed
engineering costs over a higher revenue base, (ii) better utilization of
engineers, and (iii) increased hourly rates for engineering services. Management
expects the fiscal year 1997 engineering gross margin percentage to be near 10%.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses increased from $491,000 in
the first quarter of fiscal year 1996 to $847,000 in the first quarter of fiscal
year 1997, but as a percentage of revenues decreased from 9.9% to 8.4% for the
respective quarters (9.1% and 6.2%, respectively, before Company-wide bonus
accruals). The decrease in marketing, general and administrative expenses as a
percentage of revenues is due to increased revenues without a proportionate
increased commitment of marketing, general and administrative resources.
20
<PAGE> 22
Operating Income
Operating income increased 177.5% from $302,000 (6.0% of revenues) in the
first quarter of fiscal year 1996 to $838,000 (8.3% of revenues) in the first
quarter of fiscal year 1997, due primarily to increased revenues and a decrease
in marketing, general and administrative expenses as a percentage of revenues.
COMPARISON OF YEARS ENDED JUNE 30, 1994, 1995 AND 1996
The following table sets forth statement of income data as a percentage of
revenues for the fiscal years indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 81.3 82.6 80.7
----- ----- -----
Gross margin................................................ 18.7 17.4 19.3
Marketing, general and administrative expenses.............. 12.4 10.9 11.3
----- ----- -----
Operating income............................................ 6.3 6.5 8.0
Other expense, net.......................................... 0.9 1.1 0.7
----- ----- -----
Income before income taxes.................................. 5.4 5.4 7.3
Income tax benefit (provision).............................. 1.4 (1.0) (2.6)
----- ----- -----
Net income.................................................. 6.8% 4.4% 4.7%
===== ===== =====
</TABLE>
Revenues
The following table sets forth revenues with the corresponding percentage
of total revenues and the year-to-year percentage increase for the fiscal years
indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------
1994 1995 1996
------------------- ------------------- -------------------
% OF % OF % OF
TOTAL TOTAL % TOTAL %
REVENUES REVENUES REVENUES REVENUES INCREASE REVENUES REVENUES INCREASE
-------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing......................... $10,029 68.1% $11,941 67.6% 19.1% $17,725 67.8% 48.4%
Engineering........................... 4,691 31.9 5,721 32.4 22.0% 8,405 32.2 46.9%
-------- -------- -------- -------- -------- --------
Total revenues...................... $14,720 100.0% $17,661 100.0% 20.0% $26,130 100.0% 48.0%
======== ======== ======== ======== ======== ========
</TABLE>
Manufacturing revenues increased by approximately $5.8 million from fiscal
year 1995 to fiscal year 1996, due primarily to new instruments and a nonmedical
product and increased volume of existing instruments, adding approximately $7.6
million in the aggregate. This increase was offset by decreased volume of
certain existing instruments and the phase-out of other instruments, which
decreased revenues by approximately $1.8 million in the aggregate. Although 18
and 23 instruments contributed to manufacturing revenues in fiscal years 1995
and 1996, respectively, significant manufacturing revenues were generated by 12
instruments in fiscal year 1995 and 13 instruments and one nonmedical product in
fiscal year 1996. Engineering revenues increased by approximately $2.7 million
from fiscal year 1995 to fiscal year 1996, due primarily to new projects,
increased time being billed on existing projects and increases in hourly rates
for engineering services, adding approximately $5.1 million in the aggregate.
This increase was offset by the transition of certain projects from engineering
to manufacturing and other projects being delayed or cancelled, which decreased
revenues by approximately $2.4 million in the aggregate.
Manufacturing revenues increased by approximately $1.9 million from fiscal
year 1994 to fiscal year 1995, due primarily to new instruments and increased
volume of existing instruments, adding approximately $4.5 million in the
aggregate. This increase was offset by decreased volume of certain existing
instruments, which decreased revenues by approximately $2.6 million. Although 14
instruments contributed to manufactur-
21
<PAGE> 23
ing revenues in fiscal year 1994, significant manufacturing revenues were
generated by nine instruments in fiscal year 1994. Engineering revenues
increased by approximately $1.0 million from fiscal year 1994 to fiscal year
1995, due primarily to new projects, increased time being billed on existing
projects and increases in hourly rates for engineering services, adding
approximately $3.3 million in the aggregate. This increase was offset by the
transition of certain projects from engineering to manufacturing and other
projects being delayed or cancelled, which decreased revenues by approximately
$2.3 million in the aggregate.
Price adjustments under existing manufacturing contracts have not been
significant. Increases in revenues have not been significantly influenced by
inflation.
Gross Margin
The following table sets forth gross margin, both in dollar amounts and as
a percentage of the corresponding revenue figure for the fiscal years indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
GROSS GROSS GROSS GROSS GROSS GROSS
MARGIN($) MARGIN(%) MARGIN($) MARGIN(%) MARGIN($) MARGIN(%)
--------- --------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Manufacturing..................... $ 2,491 24.8% $ 2,611 21.9% $ 4,184 23.6%
Engineering....................... 264 5.6% 460 8.0% 854 10.2%
------ ------ ------
Total gross margin........... $ 2,755 18.7% $ 3,071 17.4% $ 5,038 19.3%
====== ====== ======
</TABLE>
Manufacturing gross margin increased from 21.9% of manufacturing revenues
in fiscal year 1995 to 23.6% in fiscal year 1996, due primarily to changes in
the product mix to higher gross margin products, including a decrease in the
percentage of manufacturing revenues derived from products in preproduction.
Engineering gross margin as a percentage of engineering revenues has increased
from 8.0% in fiscal year 1995 to 10.2% in fiscal year 1996. This trend was due
primarily to (i) spreading certain fixed engineering costs over a higher revenue
base, (ii) better utilization of engineers, and (iii) increased hourly rates for
engineering services.
Manufacturing gross margin decreased from 24.8% in fiscal year 1994 to
21.9% in fiscal year 1995, due primarily to changes in the product mix to
lower-margin products, including an increase of the percentage of manufacturing
revenues derived from products in preproduction. Engineering gross margin as a
percentage of engineering revenues increased from 5.6% in fiscal year 1994 to
8.0% in fiscal year 1995 for the reasons stated above.
Marketing, General and Administrative Expenses
The following table sets forth marketing, general and administrative
expenses with the corresponding percentage of revenues for the fiscal years
indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- -------------------------------------------------------------------------
1994 1995 1996
- --------------------- --------------------- ---------------------
MG&A % OF MG&A % OF MG&A % OF
EXPENSES REVENUES EXPENSES REVENUES EXPENSES REVENUES
- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
$1,818 12.4% $1,931 10.9% $2,938 11.3%
</TABLE>
Marketing, general and administrative expenses increased by approximately
$1.0 million from fiscal year 1995 to fiscal year 1996, due primarily to
increased Company-wide bonuses and increased management information systems
costs. Marketing, general and administrative expenses before bonuses represented
10.0% and 8.5% of revenues in fiscal years 1995 and 1996, respectively, as fixed
costs were spread over a higher revenue base. If anticipated revenue growth
occurs, SeaMED expects marketing, general and administrative expenses as a
percentage of revenues to decline in the near term.
22
<PAGE> 24
Marketing, general and administrative expenses did not change significantly
from fiscal year 1994 to fiscal year 1995 because the number of employees in the
relevant departments remained substantially the same. Marketing, general and
administrative expenses before bonuses represented 11.7% of revenues in fiscal
year 1994.
Operating Income
The following table sets forth operating income with the corresponding
operating margin as a percentage of revenues and the year-to-year percentage
increase for the fiscal years indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- ---------------------------------------------------------------------------------------------------------
1994 1995 1996
- ----------------------- ----------------------- -----------------------
OPERATING OPERATING OPERATING OPERATING % OPERATING OPERATING %
INCOME MARGIN INCOME MARGIN INCREASE INCOME MARGIN INCREASE
- --------- --------- --------- --------- -------- --------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
$ 937 6.3% $ 1,140 6.5% 21.6% $ 2,100 8.0% 84.2%
</TABLE>
The $960,000 increase in operating income from fiscal year 1995 to fiscal
year 1996 is due primarily to an increase in both manufacturing volume and the
manufacturing gross margin percentage. In addition, engineering volume and gross
margins improved. These improvements were offset by the increase in marketing,
general and administrative expenses, the most significant of which was the
Company-wide bonus.
The increase in operating income from fiscal year 1994 to fiscal year 1995
was due primarily to increased revenues.
Income Taxes
The Company's effective tax rate was 35% in fiscal year 1996 and 18.9% in
fiscal year 1995. A tax benefit of $208,500 was recorded in fiscal year 1994.
Differences from the federal statutory income tax rate of 34% for fiscal years
1994 and 1995 resulted primarily from the use of net operating loss
carryforwards and tax credits and the reversal of valuation allowances due to
changes in the estimate of realizable deferred tax assets. The Company expects
the future effective tax rate to stabilize at a rate that approximates the
federal statutory rate of 35%.
QUARTERLY OPERATING DATA
Changes in customer orders have had a significant effect on SeaMED's
results of operations. The volume and timing of customer orders may vary due to
(i) variation in demand for customer products as a result of, among other
things, product life cycles, competitive conditions and general economic
conditions, (ii) the customer's attempt to balance its inventory, (iii) the
customer's need to adapt to changing regulatory conditions and requirements, and
(iv) changes in the customer's manufacturing strategy. Production may be reduced
or discontinued at any time, causing sales fluctuations from quarter to quarter.
SeaMED's business organization and its related cost structure anticipate
supporting a certain minimum level of revenues. The Company, therefore, has a
limited ability to adjust its short-term cost structure, which compounds
quarterly fluctuations.
23
<PAGE> 25
The following table sets forth unaudited revenues, operating income, net
income (loss) and fully diluted net income per share of SeaMED for each of the
quarters for the fiscal years ended June 30, 1995 and 1996 and for the first
quarter of fiscal year 1997, which ended on September 30, 1996. In the opinion
of management, the data include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the information set forth
therein.
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1996 FISCAL YEAR 1997
------------------------------------- ------------------------------------- ----------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands, except per share amounts)
Revenues................ $4,452 $3,635 $4,560 $5,014 $5,000 $5,366 $7,040 $8,724 $ 10,076
Operating income........ 359 54 423 304 302 334 644 820 838
Net income (loss)....... 249 (2 ) 316 212 167 182 395 496 487
Fully diluted net income
per share............. $ 0.07 -- $ 0.08 $ 0.05 $ 0.04 $ 0.05 $ 0.10 $ 0.13 $ 0.12
</TABLE>
The Company's quarterly results may fluctuate significantly, and the
results for the first quarter of fiscal year 1997 are not necessarily indicative
of the results that may be expected for the entire fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
SeaMED has historically financed its operations through earnings, debt and
sales of securities. Net cash provided by operating activities was approximately
$658,000 in fiscal year 1995 compared to net cash used in operating activities
of approximately $296,000 in fiscal year 1996, with the change being due
primarily to the need to use increased fiscal year 1996 earnings to finance a
large increase in net working capital. Net cash used in operating activities was
$1.0 million in fiscal year 1994 compared to net cash provided by operating
activities of $658,000 in fiscal year 1995, with the change being due primarily
to a smaller increase in inventory and accounts receivable in fiscal year 1995.
SeaMED has a zero-balance cash management arrangement with Pacific
Northwest Bank (the "Bank"). Under this arrangement, the amount outstanding
under SeaMED's line of credit fluctuates daily based on the Company's receipts
and disbursements. Under the line of credit, SeaMED can borrow up to 80% of
eligible accounts receivable (less than 60 days outstanding) to a maximum of
$4.0 million. Borrowings under the line bear interest at the Bank's prime rate
plus .25% (8.5% at September 30, 1996) and are secured by receivables and
inventories. The line is subject to annual approval and extension by December 1
of each year. At September 30, 1996, SeaMED had drawn approximately $2.2 million
against the $4.0 million limit.
In addition to the line of credit, SeaMED has three notes payable to the
Bank, each of which requires monthly payments including interest and is secured
by a lien on the Company's equipment. One such note bears interest at a rate of
8.5%, requires monthly payments of approximately $19,000, is due on August 5,
1998, and at September 30, 1996 had an outstanding balance of approximately
$392,000. The second such note bears interest at a rate of 8.75%, requires
monthly payments of approximately $15,000, is due on November 5, 1999, and at
September 30, 1996 had an outstanding balance of approximately $492,000. The
third such note bears interest at a rate of 8.75%, requires monthly payments of
approximately $12,000, is due on July 5, 2000, and at September 30, 1996 had an
outstanding balance of approximately $484,000.
At September 30, 1996, total indebtedness to the Bank, including the line
of credit and the three notes payable, was approximately $3.6 million. SeaMED
anticipates using a portion of the net proceeds of this offering to repay all
outstanding indebtedness to the Bank.
In addition to borrowings from the Bank, SeaMED also has an unsecured
subordinated note payable to Cordis Corporation, with an interest rate
adjustment on each July 1 to the prime rate plus 2% (10% at September 30, 1996),
with a maximum rate of 10% and a minimum rate of 7%. The note is due in monthly
payments of $17,000 through May 2001. At September 30, 1996, the balance
outstanding on this note was approximately $751,000.
24
<PAGE> 26
To accommodate anticipated future growth, SeaMED will need additional
sources of capital to fund working capital needs for inventory and accounts
receivable, to lease and acquire equipment for additional plant facilities and
to make other capital expenditures. In addition to repaying indebtedness to the
Bank, SeaMED expects to use a portion of the net proceeds of this offering to
pay a cumulative preferred dividend of approximately $1.8 million, to fund
working capital needs and for general corporate purposes, including leasehold
improvements and purchases of equipment. SeaMED believes that the net proceeds
of this offering, together with existing capital resources and amounts available
under its existing line of credit with the Bank, will satisfy the Company's
anticipated capital needs for the next 12 to 24 months (depending primarily on
SeaMED's growth rate and its results of operations). Capital expenditures were
$876,000 in fiscal year 1994, $1.2 million in fiscal year 1995 and $1.5 million
in fiscal year 1996. Following this offering, SeaMED will review the adequacy of
its line of credit.
SeaMED leases two buildings under long-term leases with an aggregate of
approximately 81,000 square feet, which require annual lease payments of
approximately $900,000. In September 1996, SeaMED entered into a lease for an
additional 90,000 square feet of space for a term of 10 years with two five-year
renewal options. When fully occupied (anticipated to be by January 1, 1999), the
annual lease payment on this space will be approximately $1.2 million.
There can be no assurance that appropriate sources of capital will be
available in the future or, if available, will be on terms acceptable to the
Company. See "Risk Factors -- Future Capital Requirements."
25
<PAGE> 27
BUSINESS
INTRODUCTION
SeaMED is a leading manufacturer of advanced medical instruments for
medical technology companies. SeaMED manufactures durable electronic medical
instruments for its customers, often as part of systems that also include
single-use components. To assist its customers in developing and commercializing
their instruments for manufacture by SeaMED, the Company provides a wide range
of engineering services and regulatory expertise. In its last fiscal year,
SeaMED manufactured or engineered medical instruments for many established
medical technology companies, including Arrow International, Inc., Becton,
Dickinson and Company, Boston Scientific Corporation, C.R. Bard, Inc., Guidant
Corporation, Johnson & Johnson, Physio-Control Corporation, Sorin Biomedical
Inc., St. Jude Medical, Inc. and United States Surgical Corporation. SeaMED's
customers also include many emerging medical technology companies such as Aksys
Ltd., ArthroCare Corporation, Biofield Corp., CellPro, Incorporated, Gynecare,
Inc., Optical Sensors Incorporated, ReSound Corporation and Urologix, Inc. The
Company has been profitable in each of its last five years with revenues growing
from $8.7 million in fiscal year 1992 to $26.1 million in fiscal year 1996, a
compound annual growth rate of 32%. During this period, the number of
manufactured instruments grew from seven to 23.
Since 1988, SeaMED has focused its business primarily on manufacturing
medical instruments and believes it is the largest independent manufacturer of
advanced medical instruments for medical technology companies. As part of its
growth strategy, SeaMED continues to expand its engineering expertise,
regulatory knowledge and manufacturing capabilities, thereby allowing it to
design and manufacture a broader range of medical instruments. SeaMED also
utilizes its existing resources and expertise by accepting high value-added
engineering and manufacturing contracts for select nonmedical products.
INDUSTRY OVERVIEW
Demand for health care has grown rapidly in recent years, and is expected
to continue to increase as the population ages. Advancements in science,
medicine, and computers have dramatically expanded the number and variety of
effective medical procedures. The most advanced medical procedures and
techniques, many of which use advanced medical instruments, now are common
treatments under many health insurance plans. As insurance companies and federal
and state governments have expanded the medical procedures for which health care
providers would be reimbursed, demand has grown for the medical instruments and
systems needed for these procedures. More recently, in response to increasing
pressure to control rising health care costs, medical technology companies have
developed advanced medical instruments and systems that improve patient outcomes
and lessen the overall cost of health care by reducing palliative care and acute
hospital stays.
As medical products have incorporated the latest developments in computers,
electronics, materials and other technologies, the cost of product development
and the length of the development cycle have increased substantially. The risks
in developing and launching new medical products also have increased
significantly as competition in the highly fragmented medical technology
industry has increased. As a result, medical technology companies face increased
pressure to bring new products to market in the shortest possible time, reduce
costs, maintain or increase market share and accelerate realization of revenue.
At the same time, the FDA and the European Community have adopted
increasingly stringent and evolving regulatory requirements for the manufacture
of medical products. In the United States, certain medical products are subject
to the FDA's PMA requirements and many medical products require premarket
clearance. In addition, products are subject to regulation with respect to
manufacture, labeling, distribution, postmarket reporting and promotion. Under
European quality standards to be effective in 1998, the design of medical
products must satisfy specific engineering design process standards. To market
and sell their products, medical technology companies must invest significant
financial resources to establish and maintain manufacturing facilities that
comply with the FDA's GMP requirements and the European Community's quality
system standards, particularly if the facilities produce life-supporting,
life-sustaining, or implantable products. After the often lengthy and
time-consuming process of obtaining FDA marketing authorization and ISO
certification, medical technology companies must devote substantial managerial
oversight to ensure continued compliance with FDA and European Community
requirements.
26
<PAGE> 28
SeaMED believes that the trend toward outsourcing medical product
engineering and manufacturing is in its early stages and outsourcing revenues
represent a very small percentage of the more than $30 billion medical
technology industry. SeaMED also believes that medical technology companies will
expand their outsourcing of engineering and manufacturing and that SeaMED is
well positioned for such expansion. With intensified competition, higher initial
product development costs and longer product development and regulatory cycles,
many of SeaMED's customers have chosen to concentrate product development and
manufacturing resources on higher-volume single-use components and to outsource
the development and manufacturing of durable medical instruments.
THE SEAMED ADVANTAGES
SeaMED provides integrated solutions to the engineering, regulatory and
manufacturing challenges of advanced medical instruments. SeaMED offers its
customers the following advantages:
- Broad Experience With Numerous Advanced Medical Instruments. Since
1992, SeaMED has manufactured 21 different advanced medical
instruments that incorporate diverse technologies, and it currently
has an additional 14 instruments or systems in the engineering design
phase. As a result, SeaMED has developed considerable expertise in
solving its customers' product development, engineering,
manufacturing and regulatory issues.
- Focus on Core Functions. By relying on SeaMED's engineering and
manufacturing capabilities, customers can focus management efforts on
product research, clinical development and sales and marketing, as
well as manufacturing their higher-volume, single-use components. In
addition, SeaMED's customers can shift to variable costs the high
fixed costs associated with staffing and maintaining GMP compliant
facilities for durable medical instruments.
- Production Flexibility. SeaMED's broad customer base permits it to
offer its customers production flexibility, which enables customers
to adjust production volumes in response to fluctuations in market
demand or regulatory issues.
- Rapid Product Development. SeaMED believes that, with its engineering
and manufacturing capabilities, it can more rapidly develop and
manufacture new products at a lower overall cost than its customers,
which otherwise expend significant time and financial resources to
develop internal engineering expertise, establish GMP-qualified
manufacturing facilities and obtain ISO certification.
- Regulatory Compliant Manufacturing. SeaMED's medical manufacturing
facilities are ISO 9001/EN 46001 certified and SeaMED believes that
they comply with GMP requirements. SeaMED currently manufactures six
medical instruments that are regulated as Class III instruments,
which is the most stringent FDA regulatory category. Due to the
critical nature of regulatory compliance, SeaMED devotes significant
management time and financial resources to GMP compliance and ISO
certification.
- Integrated Engineering and Manufacturing. SeaMED provides a wide
range of engineering services, and has the capabilities to provide
complete instrument or system design (including engineering, testing,
component analysis and regulatory compliance), which enhances its
manufacturing business. By integrating engineering design work with
manufacturing processes, materials acquisitions and quality and
regulatory considerations, SeaMED believes that it can increase the
quality and lower the overall cost of the instruments that it
manufactures for its customers. Since 1992, SeaMED's engineering
staff has performed substantially all the engineering design work for
15 medical instruments.
CUSTOMERS AND PRODUCTS
SeaMED's customers include some of the world's largest medical technology
companies as well as many emerging medical technology companies. As of September
30, 1996, SeaMED was manufacturing 18 medical instruments for 18 customers and
was engaged in the engineering design phase of 14 instruments for 11
27
<PAGE> 29
customers. In fiscal year 1996, revenues from one customer, C.R. Bard, Inc.,
accounted for more than 10% of the Company's revenues. SeaMED negotiates
separate contracts with its customers for engineering design services and
product manufacturing. Most projects begin with an engineering design contract.
As a business strategy, SeaMED generally prices engineering contracts to cover
direct project expenses (i.e., nonrecurring engineering expenses) plus a share
of operating expenses. SeaMED's objective is to obtain the exclusive
manufacturing rights to medical instruments for a specific time period,
generally three to five years. SeaMED believes that no customer has replaced
SeaMED as its manufacturer.
The following list identifies certain customers with instruments currently
being designed or manufactured by SeaMED, the product description and the
product status. The instruments and projects included in this list represented
in the aggregate 66.7% of SeaMED's revenues for fiscal year 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRODUCT STATUS
----------------------------------------------
U.S.
------------------------------ INTERNATIONAL
CUSTOMER PRODUCT DESCRIPTION PRECOMMERCIAL COMMERCIALIZED COMMERCIALIZED
---------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Aksys Ltd................. Personal hemodialysis
system...................... X
ArthroCare Corporation.... Power console for
arthroscopic ablation
system...................... X X
Biofield Corp............. Console for breast cancer
detection system............ X
Boston Scientific
Corporation:
EP Technologies,
Inc.................. RF generator for
electrophysiology ablation
system...................... X X
Heart Technology,
Inc.................. Drive console for
atherectomy system.......... X X
C. R. Bard, Inc........... Amplifier for
electrophysiology........... X X
Monitor for urinary output
and core temperature........ X X
CellPro, Incorporated..... Stem cell separator......... X X
Guidant Corporation:
Cardiac Pacemakers,
Inc.................. Pacemaker system analyzer... X X
Gynecare, Inc............. Power console for
endometrial ablation
system...................... X X
Johnson & Johnson......... *........................... X
Marquette Electronics:
E for M................ Amplifier for
electrophysiology........... X X
Optical Sensors
Incorporated.............. *........................... X
ReSound Corporation....... Hearing aid programmer...... X X
Sorin Biomedical Inc...... Control console for
cardioplegia system......... X X
St. Jude Medical, Inc.:
Pacesetter, Inc........ Pacemaker system analyzer... X X
United States Surgical
Corporation............... *........................... X
Urologix, Inc............. Power control console for
transurethral thermal
therapy system.............. X X
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* At the request of the customer, the nature of the projects is not disclosed.
SeaMED currently is in the precommercial phase for multiple products for each of
Johnson & Johnson and United States Surgical Corporation.
28
<PAGE> 30
SeaMED from time to time selectively designs and manufactures nonmedical
commercial products that benefit from SeaMED's engineering and manufacturing
capabilities. Currently, SeaMED manufactures one such product, a coin-counting
machine that exchanges loose coins for currency, for Coinstar which represented
approximately 25% of SeaMED's revenues for the quarter ended September 30, 1996.
SeaMED currently manufactures these machines under a nonexclusive manufacturing
agreement with Coinstar that allows Coinstar to cancel or modify orders with
SeaMED on 90 days' notice. SeaMED believes its experience in manufacturing the
large and complex Coinstar machine has expanded its manufacturing expertise.
SeaMED also has one engineering contract to design one other nonmedical product.
SeaMED intends to maintain as its primary focus the design and manufacturing of
advanced medical instruments for medical technology companies. See "Risk
Factors -- Customer Concentration" and "-- Management of Growth."
ENGINEERING
SeaMED will provide its customers with engineering services at any stage of
an instrument's development. Customers in many cases rely on SeaMED for complete
instrument design (including engineering, testing, component analysis and
regulatory compliance). Since 1992, SeaMED's engineering staff has performed
substantially all of the engineering design work for 15 instruments. Customers,
however, often deliver final drawings for instruments they believe ready for
manufacturing. In such cases, SeaMED reviews and tests the existing design prior
to manufacturing the instrument and, in many cases, SeaMED's engineers are able
to identify and offer alternatives to the customer's design that improve
performance or produce manufacturing efficiencies.
SeaMED approaches each engineering project using a team structure, each
team being a multi-disciplinary collection of engineers and technicians who
understand the technical requirements of the particular project. Each team
includes representatives from other engineering disciplines, including one or
more manufacturing, test and quality engineers, who help design an instrument
that can be manufactured in a manner that meets or exceeds customer
specifications and applicable regulatory requirements.
SeaMED integrates its engineering staff throughout its operations,
including sales and marketing, customer relations, materials management, quality
assurance, regulatory compliance and manufacturing. SeaMED's engineers play a
critical role in sales and marketing by assisting SeaMED's Vice President, Sales
and Marketing, in evaluating requests for proposals and developing
project-specific, solution-oriented responses, bids, cost estimates and project
plans. Similarly, SeaMED project engineers act as customer contacts throughout
the engineering design phase and have responsibility for all aspects of a
customer's project, including coordinating the component parts necessary for the
instrument, quality assurance procedures, regulatory compliance and the
manufacturing process. SeaMED has made significant investments in state-of-
the-art equipment to support its engineering design effort, including
engineering design and testing stations and computer-aided design software.
Each instrument, product design, patent and other proprietary right
developed by SeaMED becomes the property of the customer, with SeaMED typically
retaining the manufacturing rights to such instrument for a period generally
ranging from three to five years. Generally, SeaMED provides nonrecurring
engineering services under a project plan that identifies the engineering tasks,
deliverables and schedule. Typically, such services are billed on a time and
materials basis and are cancelable at any time. The project plan usually states
that SeaMED is intended to be the manufacturer of the instrument, but does not
specify the manufacturing terms. SeaMED typically provides a design defect
warranty for 15 months to replace or repair instruments relating to the specific
elements for which SeaMED had primary design responsibility.
29
<PAGE> 31
At September 30, 1996, SeaMED's engineering staff consisted of 56 engineers
employed by SeaMED and 19 consulting or contract engineers. The engineering
staff includes a variety of disciplines, as follows:
<TABLE>
<CAPTION>
ENGINEERING CATEGORY NUMBER
-------------------------------------------- ------
<S> <C>
Component................................... 2
Electrical Design........................... 14
Electrical Test............................. 9
Manufacturing............................... 14
Mechanical Design........................... 19
Reliability and Quality..................... 10
Software Design............................. 7
--
Total............................. 75
</TABLE>
MANUFACTURING OPERATIONS
As the engineering project nears completion, the members of the project
team with direct responsibility for manufacturing, quality assurance,
manufacturing/test engineering and materials assume a greater role. The team
implements a materials management system and develops an assembly process and
product testing and quality assurance procedures to produce high-quality
instruments that satisfy customer specifications as well as GMP and ISO 9001
quality standards. Often, manufacturing begins with a relatively small number of
preproduction units, which are used by the customer for clinical trials. SeaMED
and the customer frequently make engineering and manufacturing refinements
during the preproduction phase.
Each instrument is manufactured in a dedicated manufacturing cell on the
Company's manufacturing floor. At September 30, 1996, SeaMED had 19 cells in
operation. These cells are flexible and can be expanded or modified as needed,
enabling SeaMED to adjust production volumes quickly in response to customer
orders.
SeaMED's customers generally submit purchase orders for delivery of
instruments in future periods. The Company does not regard backlog data as a
meaningful indicator of revenues for future periods because of its policy of
generally allowing its customers to cancel orders at any time without notice.
SeaMED uses a fully integrated materials requirements system. This system,
which includes sales order entry, purchasing, inventory control, production
control, and cost accounting, helps SeaMED manage material acquisitions and
inventory for the various projects in full production at any one time and
facilitates the planning and control essential to building products within
critical time schedules.
Manufacturing contracts are generally executed near completion of the
engineering project, at which time SeaMED and the customer negotiate the term,
pricing, warranty, indemnity and other provisions. Pricing typically is based on
SeaMED's expected cost and an agreed-upon margin, both of which are subject to
customer audit. Although manufacturing contracts rarely include minimum
production requirements, they typically grant SeaMED exclusive manufacturing
rights for periods generally ranging from three to five years. Contracts
typically are terminable only for cause, which generally is defined as the
failure to deliver instruments on a timely basis or the failure to comply with
design specifications. In each case, SeaMED usually has an opportunity to cure
the breach. SeaMED generally warrants conformity to design specifications and
against defects in materials and workmanship and indemnifies its customers
against losses arising out of a breach of such warranty. In addition, SeaMED in
many cases enters into repair and service agreements with its customers that set
forth the pricing and terms under which SeaMED provides repair and replacement
parts, and needed services and upgrades not covered under warranty. Although
most of SeaMED's manufacturing is performed under long-term manufacturing
contracts, five instruments, with revenues for the fiscal year ended June 30,
1996 totaling approximately $6.9 million, are manufactured only under purchase
orders. SeaMED, however, currently is negotiating master manufacturing contracts
with customers of four of such instruments.
QUALITY ASSURANCE AND REGULATORY COMPLIANCE
SeaMED emphasizes quality throughout its operations and integrates its
quality assurance and quality engineering programs throughout each instrument's
engineering and manufacturing phases, a process that
30
<PAGE> 32
involves SeaMED's senior management and executive officers. At September 30,
1996, SeaMED employed 37 personnel in its quality assurance, quality engineering
and regulatory departments, 10 of whom are engineers.
Quality assurance procedures are integrated into every aspect of an
instrument's manufacturing cycle. SeaMED establishes a quality assurance program
for each instrument, which includes a "zero defects" objective. Substantially
all component parts and outside-contracted product subassemblies receive a
control number and are inspected and, if necessary, tested. On the manufacturing
floor, quality assurance personnel implement quality procedures at interim
points during the assembly process and conduct a final-level test when the
instrument is fully assembled and ready for shipping. In addition, prior to
shipping, a quality inspector reviews each instrument for proper labeling and
paperwork.
SeaMED is registered with the FDA as a medical device manufacturer. As a
manufacturer of instruments reviewed under the PMA process, SeaMED is subject to
inspections by the FDA prior to PMA. SeaMED has experienced regularly scheduled
and unscheduled FDA audits in past years, none of which required significant
changes to its facilities or processes and none of which required
discontinuation of normal operations. See "-- Governmental Regulation."
In 1994, SeaMED received ISO 9001/EN 46001 certification. ISO 9000 is the
first quality system standard to gain worldwide recognition, including in the
European Community, Japan and the United States. As many medical technology
companies expand sales of products in international markets, compliance with
international quality standards has increased in importance. SeaMED's ISO 9001
designation is the highest level of ISO 9000 certification and indicates that
SeaMED has met design, manufacture and test standards for its products. SeaMED's
EN 46001 designation indicates that it has met additional standards specific to
medical instruments.
SeaMED's ISO 9001/EN 46001 certification serves as a marketing tool that
enhances SeaMED's competitive position in the industry, especially with respect
to medical technology companies with internal manufacturing facilities that have
not gone through the costly and time-consuming ISO certification process.
SALES AND MARKETING
SeaMED generates new business opportunities by promoting its engineering
design and manufacturing capabilities at industry trade shows, by advertising in
leading industry publications, and by obtaining referrals from customers, former
employees of customers and other parties familiar with SeaMED's services. While
SeaMED's sales and marketing department consists solely of the Vice President,
Sales and Marketing, other executive officers and project engineers participate
extensively in sales and marketing activities. SeaMED believes it can
effectively market and sell its engineering and manufacturing capabilities while
maintaining a small sales and marketing staff.
COMPETITION
For established medical technology companies, SeaMED's primary competitor
is the internal design and manufacturing facilities of its prospective customer.
For emerging companies, SeaMED competes both with the customer's internal design
and manufacturing facilities (planned or operational), other manufacturers that
operate in the medical technology industry and, to a lesser extent, with
specialty design firms, most of which do not have manufacturing capabilities.
The primary competitive factors in medical instrument design and manufacturing
include quality, regulatory compliance, technical engineering competence, cost
of the nonrecurring engineering design component, price of the manufactured
product, experience, customer service, and ability to meet a design and
production schedule.
Competition is primarily limited to those companies that meet the minimum
applicable regulatory requirements of the FDA and international manufacturing
and design standards. In the future, SeaMED is likely to compete against new
entrants into the industry as outsourcing expands in medical technology
products. For example, medical technology companies with design and
manufacturing capabilities (especially those with excess capacity) and large
electronic contract manufacturers and defense department contractors with
extensive nonmedical engineering expertise may undertake design and/or
manufacture of medical instruments. Although SeaMED is not aware of substantial
competition from these sources to date, there can
31
<PAGE> 33
be no assurance that these, or other formidable, competitors will not
aggressively expand into SeaMED's targeted market segment in the future.
GOVERNMENTAL REGULATION
SeaMED's business and operations are subject to substantial governmental
regulation, primarily from the FDA in the United States and the regulatory
bodies in other countries, as described below. While these regulations directly
affect SeaMED's design and manufacturing operations, to a greater extent they
affect SeaMED's customers and their products. To the extent that production of a
customer's instrument is delayed or cancelled due to regulatory noncompliance,
the timing and levels of revenues received by SeaMED may be affected adversely.
United States
Because SeaMED provides design and manufacturing services to producers of
medical devices, SeaMED's manufacturing facilities are subject to extensive
regulation by the FDA under the FDC Act. Manufacturers of medical devices must
comply with applicable provisions of the FDC Act and associated regulations
governing the development, testing, manufacturing, labeling, marketing and
distribution of medical devices and the reporting of certain information
regarding their safety. The FDC Act requires PMA approval before certain medical
devices can be marketed. Noncompliance with FDA regulations can result in, among
other things, SeaMED and its customer being subject to fines, injunctions, civil
penalties, criminal prosecution, recall or seizure of devices, total or partial
suspension of production, failure of the government to grant premarket clearance
or PMA approval for products, withdrawal of marketing approvals, or a
recommendation by the FDA that a customer not be permitted to enter into
government contracts. The FDA also has the authority to require repair,
replacement or refund of the cost of any device manufactured or distributed by a
customer of SeaMED.
The FDA classifies medical devices into three classes (Class I, II or III)
on the basis of the controls deemed necessary by the FDA to reasonably ensure
product safety and efficacy. Class I devices are subject to general controls
(e.g., labeling, premarket notification and adherence to GMP) and Class II
devices are subject to general and special controls (e.g., performance standards
and guidelines). Generally, Class III devices are higher-risk devices and cannot
be marketed until after receiving FDA PMA approval. Currently, 12 instruments of
SeaMED's customers are Class III devices that require PMA approval prior to
commercialization, two of which have received such approval.
A premarket approval application must be supported by valid scientific
evidence, which typically includes extensive data, including preclinical and
clinical trial data to demonstrate safety and efficacy of the device. The
application also must contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the instrument and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling. Although SeaMED's services do not extend to assistance with
testing, studies and human clinical trials, SeaMED does provide its customers
with required design information and other support during the PMA process.
Typically, the FDA will inspect the manufacturer prior to granting PMA approval.
If the FDA identifies deficiencies in the manufacturing process, it could delay
PMA approval. Delays in the PMA process can affect the timing of manufacturing
services provided by SeaMED. An FDA review of a PMA application generally takes
one to two years from the date the application is submitted, but often is
significantly extended by an FDA request for more information or clarification
of information previously submitted. The PMA process can be expensive, uncertain
and lengthy, and a number of devices for which PMA approval has been sought have
never been approved for marketing. Until a device receives PMA approval, it
cannot be sold commercially in the United States. After PMA approval is
obtained, subsequent modifications to the device may require additional FDA
approvals.
For Class I and Class II devices, and certain Class III devices, FDA
clearance may be obtained through a 510(k) notification, pursuant to which the
FDA determines that a medical device is "substantially equivalent" to an
existing, legally marketed predicate device or a predicate device marketed
before May 28, 1976. Clinical testing of certain devices may be required as part
of the 510(k) process. Currently, five of SeaMED's customers have submitted or
intend to submit a request to the FDA for clearance for marketing under a
32
<PAGE> 34
510(k) notification for devices to be manufactured by SeaMED. There can be no
assurance that the FDA will find a device substantially equivalent and allow
marketing of such device. Even if the device is found substantially equivalent,
the clearance process may be delayed.
Any instrument manufactured by SeaMED or distributed by its customers
pursuant to FDA clearances or approvals is subject to pervasive and continuing
regulation by the FDA, including record-keeping requirements and reporting of
adverse experiences associated with the use of the instrument. Device
manufacturers are required to register their establishments and list their
devices with the FDA and certain state agencies, and are subject to periodic
inspections by the FDA and certain state agencies. The FDC Act requires devices
to be manufactured in accordance with GMP regulations, which impose certain
procedural and documentation requirements upon SeaMED with respect to
manufacturing and quality assurance activities. The FDA has changed the GMP
regulations. Among other things, the new regulations will require design
controls and maintenance of service records. SeaMED believes that the new
regulations will not substantially increase SeaMED's cost of complying with GMP
requirements. SeaMED currently has implemented training and procedural changes
with respect to the changes to GMP. The failure to be found in compliance with
the GMP regulations would result in FDA enforcement action against the Company,
which could result in a diminution of the Company's reputation and an adverse
effect on the Company's business, results of operations and financial condition.
International
Sales of medical devices outside the United States are subject to
regulatory requirements that vary from country to country. The time required to
obtain approval for sale in foreign countries may be longer or shorter than that
required for FDA approval, and the requirements may differ. The export of
devices is subject to FDA regulation. In some instances, prior FDA approval is
needed. Commencing in 1998, all medical device manufacturers will be required to
obtain certifications necessary to enable the CE mark to be affixed to their
products sold in the European Community. SeaMED received in, and has maintained
since, June 1994 ISO 9001/EN 46001 certification. If a SeaMED customer is also
ISO 9001 certified, the customer may be permitted to affix the CE mark to an
instrument manufactured by SeaMED without the customer being subject to
additional requirements. In addition, all medical device manufacturers must
comply with other laws generally applicable to foreign trade, including
technology export restrictions, tariffs and other regulatory barriers.
EMPLOYEES AND LABOR RELATIONS
As of September 30, 1996, SeaMED employed a total of 226 people and
retained 60 consulting or contract personnel in the following areas:
<TABLE>
<CAPTION>
CATEGORY NUMBER
-------------------------------------------------------------------- ------
<S> <C>
Design and Engineering.............................................. 88
Preproduction and Manufacturing..................................... 142
Quality Assurance................................................... 37
Sales and Marketing, Financing and Administration................... 19
---
Total..................................................... 286
</TABLE>
SeaMED considers its labor relations to be good and none of its employees
are covered by a collective bargaining agreement.
PROPERTIES
SeaMED leases three buildings, two of which are under long-term leases
aggregating approximately 81,000 square feet. The third lease is for a building
with approximately 7,800 square feet, and expires in June 1997. The current
facilities are located in Redmond, Washington. In September 1996, the Company
entered into lease agreements to occupy 90,000 square feet of production space
in two new buildings. The Company will occupy the first 30,000 square feet on
May 1, 1997, the second 30,000 square feet on February 1, 1998 and the third
30,000 square feet on January 1, 1999. The lease term is 10 years with two five-
year renewal options.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which SeaMED is a party or to
which any of its property is subject.
33
<PAGE> 35
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of the executive officers and directors of
the Company as of September 30, 1996 are listed below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ---------------------------------------------------------
<S> <C> <C>
W. Robert Berg.............. 53 President, Chief Executive Officer and Director(1)
Edgar F. Rampy.............. 57 Vice President, Treasurer and Chief Financial Officer
Donald Rich................. 45 Vice President, Operations
Thomas F. Mrowca............ 47 Vice President, Sales and Marketing
Marcia A. Page.............. 37 Vice President, Quality Assurance and Regulatory Affairs
S. Erik Hagstrom............ 41 Vice President, Engineering
R. Scott Asen............... 52 Chairman of the Board(1)(2)(3)
Stephen J. Clearman......... 45 Director(1)(2)
William D. Ellis, Ph.D...... 53 Director(3)
Richard E. Engebrecht....... 69 Director(3)
William H. Gates, Sr........ 70 Director
Richard O. Martin, Ph.D..... 56 Director(2)
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Stock Option and Compensation Committee.
(3) Member of Audit Committee.
W. Robert Berg has been President, Chief Executive Officer and a Director
of the Company since 1988. Mr. Berg was the Company's Vice President, Operations
from 1985 to 1988. Mr. Berg has been involved in the management of
high-technology companies for the last 27 years. Mr. Berg also is a director of
the Washington State Biomedical and Biotechnology Association and the Washington
State Technology Alliance.
Edgar F. Rampy has been Vice President, Treasurer and Chief Financial
Officer of the Company since 1990. In 1990, Mr. Rampy served as Chief Financial
Officer of Quantum Medical Systems and assisted in its sale to Siemens
Corporation. From 1987 to 1989, Mr. Rampy was Chief Operating Officer of Carver
Corporation and, from 1979 to 1987, Chief Financial Officer of Data I/O
Corporation. He became a Certified Public Accountant in 1967.
Donald Rich has been Vice President, Operations of the Company since 1993.
From 1989 to 1993, Mr. Rich was employed by Interpoint Corporation, serving as
the Director of Quality Assurance from 1991 to 1993, and the Director of
Operations from 1989 to 1991.
Thomas F. Mrowca has been Vice President, Sales and Marketing of the
Company since 1990. From 1976 to 1990, Mr. Mrowca was employed by Physio-Control
Corporation, where he held sales and marketing positions and was responsible for
research, new product development, new market development, product planning,
forecasting and pricing.
Marcia A. Page has been Vice President, Quality Assurance and Regulatory
Affairs of the Company since 1993. From 1989 to 1993, Ms. Page was the Company's
Manager of Quality Assurance. Ms. Page is the Past-President and Chairwoman and
current co-chair of the Organization of Regulatory and Clinical Associates and
is a member of the American Society of Quality Control and the Regulatory
Affairs Professionals Society.
S. Erik Hagstrom has been Vice President, Engineering of the Company since
1995. Mr. Hagstrom joined the Company in 1986 as a design engineer, was named a
Project Director in 1989 and a Senior Project Director in 1992. From 1984 to
1986, Mr. Hagstrom was an engineer at Biotronik Cardiac Pacing Systems.
R. Scott Asen has been a director of the Company since 1978 and its
Chairman of the Board since 1992. Since 1983, Mr. Asen has been President of
Asen & Co., Inc., an investment management firm. Mr. Asen has been a general
partner of Pioneer IV, a venture capital investment fund, since 1984. Mr. Asen
also is a director of Biomagnetic Technologies, Inc. and Davox Corporation.
34
<PAGE> 36
Stephen J. Clearman has been a director of the Company since 1984. Since
1984, Mr. Clearman has been a principal of Geocapital Partners, a venture
capital fund that he cofounded, and has formed three other venture capital
partnerships. Mr. Clearman also is a director of MemberWorks Inc., Expert
Software, Inc. and World Access, Inc.
William D. Ellis, Ph.D. has been a director of the Company since 1981.
Since 1995, Dr. Ellis has been Chairman of the Board and Chief Executive Officer
of Personal Health Connections, Inc., an Internet-based health services company
that he cofounded. Dr. Ellis also is Chairman of PhyCom Corp., a managed health
care information services firm that he cofounded in 1988. From 1985 to 1988, Dr.
Ellis was the Company's President and Chief Executive Officer. Dr. Ellis is
Chairman of the Washington Software and Digital Media Alliance.
Richard E. Engebrecht has been a director of the Company since 1992. Since
1994, Mr. Engebrecht has been the Chairman of the Board of PrimeSource
Corporation (a successor to Momentum Corporation). From 1990 to 1994, Mr.
Engebrecht was Chairman of the Board and Chief Executive Officer of Momentum
Corporation, and, from 1986 to 1990, President and Chief Executive Officer of
VWR Corporation. Mr. Engebrecht also is a director of Penwest Ltd., VWR
Scientific Products Corporation and Prime Source Corporation.
William H. Gates, Sr. has been a director of the Company since January
1996. From 1983 to 1995, Mr. Gates was the Company's Secretary. Since 1964, Mr.
Gates has been a partner in the law firm Preston Gates & Ellis and its
predecessors. Mr. Gates also is a director of Mutual of America Capital
Management Corporation.
Richard O. Martin, Ph.D. has been a director of the Company since October
1995. Since 1991, Dr. Martin has been the President, Chief Executive Officer and
a director of Physio-Control Corporation. Dr. Martin also is a director of
Maxxim Medical, Inc. and Encore Orthopedic, Inc.
The Company's Board of Directors consists of seven directors. Directors are
elected at the annual meeting of shareholders to serve until they resign or are
removed, or are otherwise disqualified to serve, or until their successors are
elected and qualified. Messrs. Asen and Clearman were elected as directors
pursuant to an agreement among certain shareholders, which agreement terminates
on the closing of this offering.
Officers are elected annually and serve at the discretion of the Board of
Directors. The Company has not entered into employment agreements with any of
its executive officers. The Company intends to enter into indemnification
agreements with its directors and executive officers pursuant to which the
Company will agree to indemnify each director or executive officer against
certain liabilities arising by reason of such person's affiliation with the
Company.
DIRECTOR COMPENSATION AND BOARD COMMITTEES
Directors of the Company currently receive no cash compensation. The Board
may consider alternative director compensation arrangements from time to time.
Each of Mr. Martin and Mr. Gates was granted an option to purchase 17,000
shares of Common Stock, with an exercise price of $2.50 per share, upon his
initial election to the Board, subject to the terms and conditions of the
Company's stock option plan, under which options vest over a four-year period.
SeaMED currently intends to grant options with similar terms to new outside
directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
W. Robert Berg, the Company's President and Chief Executive Officer and a
director, served on the Stock Option and Compensation Committee during fiscal
year 1996.
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<PAGE> 37
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth certain information regarding the
compensation earned by the Company's Chief Executive Officer and the Company's
four other most highly compensated executive officers (the "Named Executive
Officers") for the fiscal year ended June 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS/SARS(#)(1) COMPENSATION($)(2)
- --------------------------------------- --------- -------- ------------------- ------------------
<S> <C> <C> <C> <C>
W. Robert Berg......................... $ 175,000 $117,544 -- $2,731
President and Chief Executive Officer
Edgar F. Rampy......................... 108,000 36,271 8,867 1,692
Vice President, Treasurer
and Chief Financial Officer
Thomas F. Mrowca....................... 105,000 35,263 9,714 1,676
Vice President, Sales and Marketing
Donald Rich............................ 99,000 24,936 7,095 1,520
Vice President, Operations
S. Erik Hagstrom....................... 92,000 23,173 14,104 1,345
Vice President, Engineering
</TABLE>
- ---------------
(1) Represents options granted pursuant to the Company's stock option plans.
(2) Represents matching contributions under the Company's 401(k) plan.
Option Grants
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended June 30,
1996. No stock options were granted to Mr. Berg during fiscal year 1996.
OPTION GRANTS DURING FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
- ---------------------------------------------------------------------------------- RATES OF STOCK
NUMBER OF PERCENT OF PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------------- ------------- ------------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Edgar F. Rampy............... 1,667 $2.50 10/25/05 $ 2,621 $ 6,642
7,200 6.7% 5.00 05/24/06 22,640 57,375
Thomas F. Mrowca............. 2,514 2.50 10/25/05 3,953 10,017
7,200 7.3% 5.00 05/24/06 22,640 57,375
Donald Rich.................. 2,295 2.50 10/25/05 3,608 9,144
4,800 5.3% 5.00 05/24/06 15,093 38,250
S. Erik Hagstrom............. 8,000 2.50 07/24/05 12,578 31,875
1,304 2.50 10/25/05 2,050 5,196
4,800 10.6% 5.00 05/24/06 15,093 38,250
</TABLE>
- ---------------
(1) Represents options granted pursuant to the Company's stock option plans. All
options were granted at fair market value at the date of grant. All options
vest 50% on the second anniversary of the date of grant, an additional 25%
on the third anniversary of the date of grant and an additional 25% on the
fourth anniversary of the date of grant.
(2) Represents amounts that may be realized upon exercise of the options
immediately prior to expiration of their terms assuming appreciation of 5%
and 10% over the option term. The 5% and 10% numbers are calculated based on
rules required by the Commission and do not reflect the Company's estimate
of future stock price growth. The actual value realized may be greater or
less than the potential realizable value set forth.
36
<PAGE> 38
Option Values
The following table sets forth certain information regarding the exercise
of stock options and unexercised stock options held as of June 30, 1996 by the
Named Executive Officers.
1996 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END (#) FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Robert Berg................ 40,000 $ 93,600 65,503 60,000 $ 274,885 $37,500
Edgar F. Rampy................ 9,500 30,875 15,875 10,992 69,675 12,643
Thomas F. Mrowca.............. 7,000 22,750 12,875 11,839 56,175 14,760
Donald Rich................... -- -- 8,000 11,095 48,000 21,738
S. Erik Hagstrom.............. 8,985 17,370 3,989 15,933 17,031 30,565
</TABLE>
- ---------------
(1) Based on a fair market value of $5.00 per share as of June 30, 1996, as
determined by the Board of Directors.
STOCK PLANS
1988 Stock Option Plan
The SeaMED Corporation 1988 Stock Option Plan (the "1988 Plan") permits the
grant of options to purchase an aggregate of 680,000 shares of Common Stock to
regular full-time officers and key employees of the Company. The 1988 Plan is
administered by the Board of Directors, which generally has the authority to
select individuals who are to receive options and to specify the terms and
conditions of each option so granted, including the number of shares covered by
the option, the type of option (incentive or nonqualified), the exercise price
(which must be at least equal to the fair market value of the Common Stock on
the date of grant with respect to incentive stock options), the vesting
provisions and the option term. Unless otherwise provided by the Board of
Directors, any option granted under the 1988 Plan expires on the date set forth
in the optionee's option agreement or, if earlier, (i) the date specified in the
option agreement following an optionee's termination of service with the
Company, but not later than 12 months after such termination, other than
termination for cause, in which case the option terminates immediately, (ii) 12
months after the optionee's death or disability, or (iii) on various specified
dates in the event of a merger, consolidation, tender offer, takeover bid, sale
of assets or majority vote of the shareholders of the Company in favor of
dissolving, subject to reinstatement if such event does not occur.
As of September 30, 1996, options to purchase 293,383 shares of Common
Stock granted under the 1988 Plan had been exercised, options to purchase
385,179 shares were outstanding and 1,438 shares remained available for grant.
1995 Employee Stock Option and Incentive Plan
The purpose of the SeaMED Corporation 1995 Employee Stock Option and
Incentive Plan (the "1995 Plan") is to offer incentives and awards to those
employees, agents and consultants of the Company who are key to the Company's
growth, development and financial success, thereby aligning the personal
interests of such persons, through the ownership of Common Stock and other
incentives, with those of the Company's shareholders. The 1995 Plan combines the
features of an incentive and a nonqualified stock option plan, a stock award
plan and a stock appreciation rights ("SAR") plan. The 1995 Plan is a long-term
incentive compensation plan and is designed to provide a competitive and
balanced incentive and reward program for participants. A total of 200,000
shares of Common Stock is available under the 1995 Plan, of which, as of
September 30, 1996, options to purchase 105,020 shares had been granted and
options to purchase 94,980 shares were available for future grant; no options
have been exercised.
Terms of Stock Option Grants. The Compensation Committee has the authority
to select individuals who are to receive options under the 1995 Plan and to
specify the terms and conditions of each option so granted (incentive or
nonqualified), the exercise price (which must be at least equal to the fair
market value
37
<PAGE> 39
of the Common Stock on the date of grant with respect to incentive stock options
and options awarded to nonemployee directors), the vesting provisions and the
option term.
Stock Awards. The Compensation Committee is authorized under the 1995 Plan
to issue shares of Common Stock to eligible participants upon such terms and
conditions and subject to such limitations, if any (including, without
limitation, restrictions based upon the achievement of specific business
objectives, tenure, and other measures of individual or business performance),
and/or restrictions under applicable federal or state securities laws, and
conditions under which the same shall lapse, as the Compensation Committee may
determine. As of September 30, 1996, the Company had granted no such awards.
Stock Appreciation Rights. A SAR is an incentive award that permits the
holder to receive (per share covered thereby) the amount by which the fair
market value of a share of Common Stock on the date of exercise exceeds the fair
market value of such share on the date the SAR was granted. The Compensation
Committee may grant SARs independently or in tandem (such that the exercise of
the SAR or related stock option will result in forfeiture of the right to
exercise the related stock option or SAR for an equivalent number of shares)
with a stock option award. The Compensation Committee is authorized under the
1995 Plan to determine the times of exercise of granted SARs and their times of
expiration, which may not exceed 10 years. As of September 30, 1996, the Company
had granted no SARs.
1996 Employee Stock Purchase Plan
The Company has reserved an aggregate of 70,000 shares of Common Stock for
issuance under the SeaMED Corporation 1996 Employee Stock Purchase Plan (the
"ESPP"). The ESPP is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended, and permits eligible employees of the Company
(unless otherwise waived by the Board of the Directors, all employees who have
been employed by the Company for at least six months, except employees whose
customary employment is less than 20 hours per week and employees whose
customary employment is for not more than five months in any calendar year) to
purchase Common Stock through payroll deductions of up to 10% of their
compensation, provided that no employee may purchase Common Stock worth more
than $25,000 in any calendar year. The ESPP will be implemented with 10
consecutive six-month purchase periods, the first such purchase period to
commence upon the date that the Common Stock begins to trade on the Nasdaq Stock
Market and to end on June 30, 1997. Thereafter, purchase periods shall commence
on each subsequent January 1 and July 1. The price of Common Stock purchased
will be 85% of the lesser of the fair market value of the Common Stock on the
first day of the purchase period and the fair market value of the Common Stock
on the last day of the purchase period. The ESPP will expire on December 31,
2001. No shares have been issued under the ESPP.
38
<PAGE> 40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of September 30, 1996, certain
information regarding beneficial ownership of Common Stock and as adjusted to
reflect the sale of the Common Stock offered in this offering, by (i) each
person known by the Company to own beneficially 5% or more of the Common Stock;
(ii) each director of the Company; (iii) each Named Executive Officer; (iv) the
Selling Shareholders; and (v) all directors and executive officers as a group.
For purposes of this table, distributions of Common Stock by Geocapital Ventures
to certain of its limited partners who will be Selling Shareholders are deemed
to have occurred as of September 30, 1996. Unless otherwise indicated, all
persons listed have sole voting and investment power with respect to such
shares, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP SHARES BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING TO BE AFTER THE OFFERING
----------------------- SOLD IN THE -----------------------
NAME AND ADDRESS SHARES(1) PERCENTAGE OFFERING SHARES PERCENTAGE
- -------------------------------------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
James G. Niven(2)..................... 420,550 11.7% 50,000 370,550 7.5%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Geocapital Ventures(3)................ 405,037 11.2% -- 405,037 8.2%
Pioneer IV(4)......................... 379,763 10.5% -- 379,763 7.7%
Pioneer III-B LLC(4).................. 253,069 7.0% -- 253,069 5.1%
Pioneer III-A LLC(4).................. 199,709 5.5% -- 199,709 4.0%
R. Scott Asen(4)(5)................... 1,328,695 36.8% -- 1,328,695 26.8%
Stephen J. Clearman(3)(6)............. 405,037 11.2% -- 405,037 8.2%
William D. Ellis, Ph.D.(7)............ 121,421 3.4% 10,000 111,421 2.2%
Richard E. Engebrecht(7).............. 27,667 * -- 27,667 *
William H. Gates, Sr.................. 28,000 * -- 28,000 *
Richard O. Martin, Ph.D............... -- -- -- -- --
W. Robert Berg(7)(8).................. 193,503 5.3% -- 193,503 3.9%
Edgar F. Rampy(7)(9).................. 38,375 1.1% -- 38,375 *
Donald Rich(7)(10).................... 12,000 * -- 12,000 *
Thomas F. Mrowca(7)(11)............... 38,375 1.1% -- 38,375 *
S. Erik Hagstrom(7)(12)............... 18,596 * -- 18,596 *
Collier Enterprises, Inc. ............ 161,347 4.5% 161,347 -- --
Allen & Company Incorporated(13)...... 105,732 2.9% 33,333 72,399 1.5%
Terry Allen Kramer.................... 66,666 1.9% 33,333 33,333 *
Gary Altman(14)....................... 36,676 1.0% 3,000 33,676 *
Other Selling Shareholders(15)........ 300,911 8.3% 197,045 103,866 2.0%
All directors and executive officers
as a group (12 persons)(7)(16)...... 2,226,608 59.7% 10,000 2,216,608 43.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Computed in accordance with Rule 13d-3(d)(1) of the Securities Exchange Act
of 1934, as amended.
(2) The address of Mr. Niven is c/o Burson-Marsteller, 230 Park Avenue South,
New York, NY 10003.
(3) The address of Mr. Clearman and Geocapital Ventures is One Bridge Plaza,
Fort Lee, NJ 07024.
(4) The address of Mr. Asen, Pioneer IV, Pioneer III-B LLC and Pioneer III-A
LLC is c/o Asen and Co., Inc., 224 East 49th Street, New York, NY 10017.
(5) Includes 5,000 shares of Common Stock held in an IRA and 199,709, 253,069
shares and 379,763 shares beneficially owned through Pioneer III-A LLC,
Pioneer III-B LLC and Pioneer IV (collectively, the "Pioneer Entities"),
respectively, of which Mr. Asen is either a managing member or a general
partner. Although Mr. Asen has full authority to vote and direct the
disposal of shares owned by the
39
<PAGE> 41
Pioneer Entities, he disclaims beneficial ownership of shares held by such
investment partnerships to the extent partnership interests in such
partnerships are held by other persons.
(6) Represents 405,037 shares beneficially owned through Geocapital Ventures,
of which Mr. Clearman is a general partner.
(7) May include stock jointly or separately owned with spouse.
(8) Includes 65,503 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(9) Includes 16,375 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(10) Represents 12,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(11) Includes 13,375 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(12) Includes 4,403 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
(13) Allen & Company Incorporated acted as placement agent with respect to the
sale of Class D Preferred Stock. Includes 39,066 shares of Common Stock
issuable upon exercise of a warrant that is currently exercisable.
(14) Mr. Altman is an employee of the Company. Includes 12,478 shares of Common
Stock issuable upon exercise of options that are currently exercisable or
will become exercisable within 60 days of September 30, 1996.
(15) Includes 20 Selling Shareholders holding Common Stock ranging from 38,535
shares to 322 shares. Four of the 20 Selling Shareholders will be
shareholders of the Company after this offering.
(16) Includes 122,023 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days of
September 30, 1996.
40
<PAGE> 42
CERTAIN TRANSACTIONS
In January 1995, the Company issued shares of Class D Preferred Stock
convertible into an aggregate of 390,666 shares of Common Stock at the ratio of
3.75 shares of Class D Preferred Stock for each share of Common Stock. Dr. Ellis
and Mr. Engebrecht, directors of the Company, purchased 25,000 and 40,000
shares, respectively, of Class D Preferred Stock, which shares are convertible
into 6,667 and 10,667 shares of Common Stock, respectively. The Company sold
such securities pursuant to a preferred stock purchase agreement on the same
terms as were sold to nonaffiliated purchasers. The terms of the Class D
Preferred Stock provides that all such shares shall be converted into Common
Stock upon the consummation of this offering.
On October 11, 1995, W. Robert Berg, the Company's Chief Executive Officer
and President, received a $75,000 loan from the Company, the proceeds of which
he used to purchase 30,000 shares of Common Stock. The loan is evidenced by an
unsecured promissory note that bears interest at the floating minimum statutory
rate of interest set by the Internal Revenue Service from time to time. Mr. Berg
may prepay principal and interest at any time without penalty; unpaid principal
and interest are due on October 11, 2000. As of September 30, 1996, aggregate
principal and accrued interest on this loan were approximately $80,000.
William H. Gates, Sr., a director of the Company, is also a partner in the
law firm Preston Gates & Ellis, the Company's counsel.
Physio-Control Corporation, a company of which Richard O. Martin, a
director of the Company, serves as President and Chief Executive Officer and a
director, has retained the Company to provide engineering and manufacturing
services. The Company recognized revenues with respect to such services of
approximately $1.0 million in fiscal year 1995 and $355,000 in fiscal year 1996.
The Company recognized no revenues in fiscal year 1994 with respect to such
services.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, no par value, 1,500,000 shares of Class A Preferred Stock, no
par value, 450,000 shares of Class B Preferred Stock, no par value, 5,100,000
shares of Class C Preferred Stock, no par value, 2,000,000 shares of Class D
Preferred Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value (the "Undesignated Preferred Stock"). The following summary description of
the Company's capital stock is qualified in its entirety by reference to the
Articles of Incorporation and the Bylaws of the Company, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
COMMON STOCK
As of September 30, 1996, there were 673,157 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders, and have no cumulative voting
rights and no preemptive, subscription or sinking fund rights. Subject to
preferences that may be applicable to any then-outstanding Preferred Stock,
holders of Common Stock will be entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock will be entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference to any then-outstanding Preferred Stock.
PREFERRED STOCK
As of September 30, 1996, there were outstanding 1,458,500, 450,000,
5,082,704, and 1,465,000 shares of Class A, B, C and D Preferred Stock,
respectively. The designations of rights and preferences with respect to the
Preferred Stock generally provides for liquidation, conversion, redemption,
voting and other rights. Holders of Class A and D Preferred Stock are entitled
to cumulative annual dividends of $0.10 and $0.08, respectively. All shares of
outstanding Preferred Stock will be converted automatically into an aggregate of
2,934,029 shares of Common Stock upon the closing of this offering. Upon such
closing, holders of Class A
41
<PAGE> 43
and D Preferred Stock are entitled to all cumulative dividends to the time of
such conversion, which were approximately $1.7 million as of September 30, 1996.
Pursuant to SeaMED's Articles of Incorporation, the Board of Directors is
authorized to issue 5,000,000 shares of the Undesignated Preferred Stock in one
or more classes or series, or both, and, without further approval of the
shareholders, to fix dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences and any other
rights, preferences, privileges and restrictions applicable to each class or
series of Undesignated Preferred Stock. The issuance of Undesignated Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a third party to gain control of the Company, discourage bids
for Common Stock at a premium or otherwise adversely affect the market price of
the Common Stock. The Company has no current plans to issue any Undesignated
Preferred Stock.
WARRANT
The investment banking firm of Allen & Company Incorporated acted as
placement agent with respect to the sale of Class D Preferred Stock. As partial
compensation for such services, it received, and beneficially owns, a warrant to
purchase 39,066 shares of Common Stock at a price of $4.70 per share.
REGISTRATION RIGHTS
Pursuant to certain agreements between the Company and certain purchasers
of capital stock (collectively, the "Holders"), who will hold approximately
2,555,637 shares of Common Stock (the "Registerable Securities") following this
offering, the Holders are entitled to certain rights with respect to
registration of such shares under the Securities Act. The Holders include R.
Scott Asen, each of the Pioneer Entities and Geocapital Ventures. If the Company
proposes to register any of its securities, with certain exceptions that include
a registration relating solely to employee benefit plans, either for its own
account or the account of other security holders, the Company is required to
notify the Holders and to use its best efforts to effect the registration, and
the Holders are entitled to include at the Company's expense their Registerable
Securities in such registration, subject to certain conditions and limitations.
In addition, at any time after the first anniversary of the closing of this
offering, the Holders may require the Company to file a registration statement
under the Securities Act at the Company's expense, and the Company is required
to use its best efforts to effect such registration, subject to certain
conditions and limitations.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
Shareholder Action by Written Consent; Special Meetings of Shareholders
The Company's Bylaws permit any action required or permitted to be taken by
the Company's shareholders to be effected at a duly called annual or special
meeting of shareholders or by unanimous consent in writing. Additionally, the
Articles of Incorporation and Bylaws require that special meetings of the
shareholders of the Company may be called only by a majority of the Board of
Directors or an authorized committee thereof.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations
The Company's Bylaws provide that shareholders seeking to bring business
before or to nominate directors at any meeting of shareholders must provide
timely notice thereof in writing. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than (i) with respect to an annual meeting, 120 calendar days
in advance of the one-year anniversary of the date that the Company's proxy
statement was released to shareholders in connection with the previous year's
annual meeting, except that if no annual meeting was held in the previous year
or if the date of the annual meeting has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, such notice must be received by the Company a reasonable time before
the Company's proxy statement is to be released and (ii) with respect to a
special meeting of
42
<PAGE> 44
shareholders, a reasonable time before the Company's proxy statement is to be
released. The Bylaws also specify certain requirements for a shareholder's
notice to be in proper written form. These provisions may preclude some
shareholders from bringing matters before the shareholders or from making
nominations for directors.
Director and Officer Indemnification
The Washington Business Corporation Act (the "Washington Business Act")
provides that a Washington corporation may include provisions in its articles of
incorporation relieving each of its directors of monetary liability arising out
of his or her conduct as a director for breach of his or her fiduciary duty,
except liability for (i) acts or omissions of a director finally adjudged to be
intentional misconduct or a knowing violation of law, (ii) conduct in violation
of Section 23B.08.310 of the Washington Business Act (which section relates to
unlawful distributions), or (iii) any transaction with respect to which it is
finally adjudged that a director personally received benefit in money, property
or services to which the director was not legally entitled. The Company's
Articles of Incorporation include such provisions.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall, to the fullest extent permitted by law, indemnify and advance expenses to
each of its currently acting and former directors and officers, and may so
indemnify and advance expenses to each of its current and former employees and
agents. The Company believes that the foregoing provisions are necessary to
attract and retain qualified persons as directors and officers. Prior to
consummation of this offering, the Company intends to enter into separate
indemnification agreements with each of its directors and executive officers in
order to effectuate such provisions.
PROVISIONS AFFECTING ACQUISITIONS AND BUSINESS COMBINATIONS
The Washington Business Act contains certain provisions that may have the
effect of delaying or discouraging a hostile takeover of the Company. Chapter
23B.19 of the Washington Business Act prohibits a target corporation, with
certain exceptions, from engaging in certain significant business transactions
(such as a merger or sale of assets) with a person or group of persons which
beneficially acquires 10% or more of the corporation's voting securities (an
"Acquiring Entity") for a period of five years after such acquisition, unless
the transaction is approved by a majority of the members of the target
corporation's board of directors prior to the date of the transaction. An
Acquiring Entity is further prohibited from engaging in significant business
transactions with the target corporation unless the per share consideration paid
to holders of outstanding shares of common stock and other classes of stock of
the target corporation meet certain minimum criteria. These provisions may have
the effect of delaying, deterring or preventing a change in control of the
Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.
43
<PAGE> 45
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 4,969,128 shares of
Common Stock outstanding, assuming the issuance of 1,361,942 shares by the
Company hereby (5,246,628 shares if the Underwriters' over-allotment option is
exercised in full). Of the outstanding shares, 1,850,000 (2,127,500 if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act.
The remaining 3,119,128 shares of Common Stock are "restricted securities"
within the meaning of Rule 144 under the Securities Act and were issued and sold
by the Company in private transactions and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. Of these restricted securities,
194,864 shares are not subject to lockup agreements and will be eligible for
sale following this offering in the public market as follows: 159,639 shares
will be eligible for sale immediately without restriction pursuant to Rule
144(k) and 8,558 shares will be eligible for sale 90 days after the date of this
offering under Rule 701 and in reliance on Rule 144 without having to comply
with certain restrictions of Rule 144 as described below. The Company, its
officers and directors, the Selling Shareholders and certain other shareholders
(representing 2,924,264 shares of restricted securities) have agreed pursuant to
lockup agreements that they will not sell, directly or indirectly, any Common
Stock without the prior consent of Piper Jaffray Inc. for a period of 180 days
after the closing of this offering. Upon the expiration of this 180-day period
(or earlier upon the consent of Piper Jaffray Inc.), 2,628,598 of these
restricted shares will become eligible for sale in the public market as follows:
2,442,358 shares will be eligible for immediate sale without restriction
pursuant to Rule 144(k) and 186,240 shares will be eligible for sale immediately
(or 90 days after the date of this offering with the earlier consent of Piper
Jaffray Inc.) under Rule 701 and in reliance on Rule 144 without having to
comply with certain restrictions of Rule 144 as described below.
In general, under Rule 144, as currently in effect, a person who has owned
shares for at least two years would be entitled to sell, within any three-month
period, that number of shares that does not exceed the greater of (i) 1% of the
then-outstanding shares of Common Stock (approximately 49,691 shares immediately
after this offering) and (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date the notice of sale is
filed with the Commission, subject to certain other limitations and
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years,
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Under Rule 701, persons who purchase shares upon
exercise of options granted prior to the effective date of this offering are
entitled to sell such shares 90 days after the effective date of this offering
and in reliance on Rule 144 without having to comply with the holding period
requirements of Rule 144 and, in the case of nonaffiliates, without having to
comply with the public information, volume limitation, or notice provisions of
Rule 144.
The holders of options to purchase 154,700 shares which have vested and are
not subject to lockup agreements could exercise their options and sell these
shares in compliance with Rule 701 beginning 90 days after the effective date of
this offering. The Company intends to file registration statements under the
Securities Act covering an aggregate of approximately 656,617 shares of Common
Stock reserved for issuance under the 1988 Plan, the 1995 Plan and the ESPP.
Such registration statements are expected to be filed 180 days after the date of
this Prospectus and will automatically become effective upon filing.
Accordingly, shares registered under such registration statements will be
available for sale in the open market, unless such shares are subject to vesting
restrictions with the Company or the contractual restrictions described above.
In addition, certain shareholders, representing approximately 2,555,637 shares
of Common Stock, have the right, subject to certain conditions, to include their
shares in future registration statements relating to SeaMED's securities and to
cause SeaMED to register certain shares of Common Stock owned by them.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price prevailing from time to time. Nevertheless, sales
of substantial amounts of Common Stock in the public markets or the perception
that such sales could occur could adversely affect the market price of the
Common Stock or the Company's ability to raise capital through an offering of
its equity securities.
44
<PAGE> 46
UNDERWRITING
The Company and the Selling Shareholders have entered into a Purchase
Agreement (the "Purchase Agreement") with the underwriters listed in the table
below (the "Underwriters"), for whom Piper Jaffray Inc. and Needham & Company,
Inc. are acting as representatives (the "Representatives"). Subject to the terms
and conditions set forth in the Purchase Agreement, the Company and the Selling
Shareholders have agreed to sell to the Underwriters, and each of the
Underwriters has severally agreed to purchase, the following number of shares of
Common Stock set forth opposite each Underwriter's name in the table below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
Piper Jaffray Inc.........................................
Needham & Company, Inc....................................
---------
Total........................................... 1,850,000
=========
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement, if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession of not
more than $ per share. Additionally, the Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable by the
Representatives within 30 days after the date of the Purchase Agreement, to
purchase up to an additional 277,500 shares of Common Stock at the same price
per share to be paid by the Underwriters for the other shares offered hereby. If
the Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.
The Representatives have informed the Company and the Selling Shareholders
that neither they, nor any other member of the National Association of
Securities Dealers, Inc. participating in the distribution of this offering,
will make sales of the Common Stock offered hereby to accounts over which they
exercise discretionary authority without the prior specific written approval of
the customer.
As of the date of this Prospectus, Needham Capital SBIC, L.P., an affiliate
of Needham & Company, Inc., beneficially owned shares of Class D Preferred Stock
convertible into 133,333 shares of Common Stock. These shares were purchased on
January 3, 1995 in reliance upon the exemption from registration set forth in
Section 4(2) of the Securities Act relating to sales by an issuer not involving
any public offering. Needham & Company, Inc. and certain of its affiliates may
be deemed to own shares convertible into 35,555 shares of Common Stock held by
Needham Capital SBIC, L.P. as a result of ownership interests in such
partnership.
45
<PAGE> 47
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The officers and directors of the Company, the Selling Shareholders and
certain other shareholders designated by the Representatives, who will
beneficially own in the aggregate 2,924,264 shares of Common Stock after this
offering, have agreed that they will not, directly or indirectly, sell, contract
to sell, make any short sale, pledge or otherwise dispose of any shares of
Common Stock, options to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock that such persons
may own, of record or beneficially, or have the right to acquire, for a period
of 180 days after the closing of this offering, without the prior written
consent of Piper Jaffray Inc. The Company has agreed that it will not, directly
or indirectly, without the prior written consent of Piper Jaffray Inc., issue,
offer, sell, contract to sell, pledge or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into Common Stock during the 180-day
period following the closing of this offering, except that the Company may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under the Company's existing stock option and purchase
plans.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price will be prevailing
market and economic conditions, the Company's revenues and earnings, estimates
of the Company's business potential and prospects, the present state of the
Company's business operations, an assessment of the Company's management and the
consideration of the above factors in relation to the market valuations of
companies in related businesses. The initial public offering price for the
Common Stock should not be considered as an indication of the actual value of
the Common Stock offered hereby. In addition, there can be no assurance that the
Common Stock may be resold at a price equal to or greater than the initial
public offering price. See "Risk Factors -- Absence of Prior Market; Potential
Volatility of Common Stock Price."
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Preston Gates & Ellis,
Seattle, Washington. William H. Gates, Sr., a partner of the firm and a director
of the Company, beneficially owns 28,000 shares of Common Stock. Mark R. Beatty,
a partner of the firm, serves as Secretary of the Company. Certain legal matters
will be passed upon for the Underwriters by Perkins Coie, Seattle, Washington.
EXPERTS
The financial statements and schedule of the Company as of June 30, 1995
and 1996, and for each of the three years in the period ended June 30, 1996,
appearing in this Prospectus and elsewhere in the Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby (the "Registration Statement"). This Prospectus, which constitutes part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and schedule thereto, certain
portions of which have been
46
<PAGE> 48
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, including the exhibits and schedule thereto.
Statements contained in this Prospectus as to the contents of any contract,
agreement or any other document referred to herein are not necessarily complete
and in each instance reference is made to the copy of such contract, agreement
or other document for a more complete description of the matters involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement, including the exhibits and schedule thereto, may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, the New York Regional Office located at 7
World Trade Center, Suite 1300, New York, New York 10048, and the Chicago
Regional Office located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, or obtained upon payment of prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. The Commission maintains a web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
47
<PAGE> 49
(This Page Intentionally Left Blank)
<PAGE> 50
SEAMED CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Financial Statements:
Balance Sheets as of June 30, 1995 and 1996 and September 30, 1996.................. F-3
Statements of Income for the Years Ended June 30, 1994, 1995 and 1996 and the
Quarters Ended September 30, 1995 and 1996....................................... F-4
Statements of Shareholders' Equity for the Years Ended June 30, 1994, 1995 and 1996
and the Quarter Ended September 30, 1996......................................... F-5
Statements of Cash Flows for the Years Ended June 30, 1994, 1995 and 1996 and the
Quarters Ended September 30, 1995 and 1996....................................... F-6
Notes to Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE> 51
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SeaMED Corporation
We have audited the accompanying balance sheets of SeaMED Corporation as of
June 30, 1995 and 1996, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1996. 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
misstatements. 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 financial position of SeaMED Corporation as of
June 30, 1995 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
Seattle, Washington
August 6, 1996 ERNST & YOUNG LLP
F-2
<PAGE> 52
SEAMED CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA AT
JUNE 30, SEPTEMBER SEPTEMBER
-------------------------- 30, 30,
1995 1996 1996 1996
---------- ----------- ----------- (NOTE 6)
(UNAUDITED) ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash................................. $ 70,383 $ 2,912 $ 3,512 $ 3,512
Short-term investments............... 200,000 -- -- --
Accounts receivable, net of allowance
of $204,483 in 1995; $252,226 in
1996; and $277,563 at September
30, 1996.......................... 3,354,542 5,875,933 5,546,874 5,546,874
Inventories.......................... 3,719,656 6,697,248 7,224,443 7,224,443
Deferred income taxes................ 529,682 625,221 625,221 625,221
Prepaid expenses..................... 60,148 63,536 80,073 80,073
---------- ----------- ----------- -----------
Total current assets................... 7,934,411 13,264,850 13,480,123 13,480,123
Fixed assets........................... 1,856,996 2,655,265 2,725,648 2,725,648
Deposits and other assets.............. 108,964 144,220 331,966 331,966
---------- ----------- ----------- -----------
Total assets........................... $9,900,371 $16,064,335 $16,537,737 $ 16,537,737
========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank................ $ 555,000 $ 1,817,000 $ 2,245,755 $ 2,245,755
Accounts payable..................... 1,185,539 2,688,160 2,350,205 2,350,205
Accrued expenses and reserves........ 1,401,042 3,301,064 2,823,716 4,553,502
Current portion of long-term debt.... 296,067 461,990 583,432 583,432
---------- ----------- ----------- -----------
Total current liabilities.............. 3,437,648 8,268,214 8,003,108 9,732,894
Long-term debt, less current portion... 1,221,106 1,285,782 1,535,236 1,535,236
Commitments
Convertible redeemable preferred stock,
issued and outstanding shares of all
classes -- 8,456,204 in 1995 and 1996
and at September 30, 1996; none pro
forma (liquidation
value -- $6,308,200)................. 5,279,514 5,279,514 5,279,514 --
Shareholders' equity (deficit):
Preferred stock, no par value:
Authorized shares -- 14,050,000,
of which 9,050,000 have been
designated convertible
redeemable shares............... -- -- -- --
Common stock, no par value:
Authorized shares -- 10,000,000;
issued and outstanding shares --
548,964 in 1995; 668,707 in
1996; 673,157 at September 30,
1996; 3,607,186 pro forma....... 783,560 886,828 889,298 5,344,607
Note receivable from officer......... -- (75,000) (75,000) (75,000)
Retained earnings (deficit).......... (821,457) 418,997 905,581 --
---------- ----------- ----------- -----------
Total shareholders' equity (deficit)... (37,897) 1,230,825 1,719,879 5,269,607
---------- ----------- ----------- -----------
Total liabilities and shareholders'
equity............................... $9,900,371 $16,064,335 $16,537,737 $ 16,537,737
========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 53
SEAMED CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------- --------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................. $14,720,064 $17,661,210 $26,130,235 $5,000,008 $10,076,169
Cost of sales............ 11,964,620 14,590,584 21,092,679 4,207,253 8,391,513
----------- ----------- ----------- ---------- -----------
2,755,444 3,070,626 5,037,556 792,755 1,684,656
Marketing, general and
administrative
expenses............... 1,818,177 1,930,734 2,937,556 490,898 846,670
----------- ----------- ----------- ---------- -----------
Operating income......... 937,267 1,139,892 2,100,000 301,857 837,986
Other income (expense):
Interest expense....... (138,177) (193,095) (198,274) (51,385) (82,215)
Other.................. (312) 7,966 6,665 2,668 (7,180)
----------- ----------- ----------- ---------- -----------
(138,489) (185,129) (191,609) (48,717) (89,395)
----------- ----------- ----------- ---------- -----------
Income before income
taxes.................. 798,778 954,763 1,908,391 253,140 748,591
Income tax benefit
(provision)............ 208,500 (180,000) (667,937) (86,068) (262,007)
----------- ----------- ----------- ---------- -----------
Net income............... $ 1,007,278 $ 774,763 $ 1,240,454 $ 167,072 $ 486,584
=========== =========== =========== ========== ===========
Net income per share
data:
Primary................ $ 0.39 $ 0.25 $ 0.42 $ 0.04 $ 0.17
=========== =========== =========== ========== ===========
Fully diluted.......... $ 0.30 $ 0.21 $ 0.32 $ 0.04 $ 0.12
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 54
SEAMED CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK NOTE RETAINED SHAREHOLDERS'
---------------------- RECEIVABLE EARNINGS EQUITY
SHARES AMOUNT FROM OFFICER (DEFICIT) (DEFICIT)
---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993............... 372,396 $ 735,473 $ -- $(2,603,498) $ (1,868,025)
Stock options exercised............ 122,237 33,822 -- -- 33,822
Net income......................... -- -- -- 1,007,278 1,007,278
---------- ---------- -------- ----------- -----------
Balance, June 30, 1994............... 494,633 769,295 -- (1,596,220) (826,925)
Stock options exercised............ 54,331 14,265 -- -- 14,265
Net income......................... -- -- -- 774,763 774,763
---------- ---------- -------- ----------- -----------
Balance, June 30, 1995............... 548,964 783,560 -- (821,457) (37,897)
Stock options exercised............ 89,735 28,268 -- -- 28,268
Common stock issued in exchange for
note receivable................. 30,000 75,000 (75,000) -- --
Fractional shares issued due to
reverse stock split............. 8 -- -- -- --
Net income......................... -- -- -- 1,240,454 1,240,454
---------- ---------- -------- ----------- -----------
Balance, June 30, 1996............... 668,707 886,828 (75,000) 418,997 1,230,825
Stock options exercised
(unaudited)..................... 4,450 2,470 -- -- 2,470
Net income (unaudited)............. -- -- -- 486,584 486,584
---------- ---------- -------- ----------- -----------
Balance, September 30, 1996
(unaudited)........................ 673,157 889,298 (75,000) 905,581 1,719,879
Pro forma accrual of cumulative
dividends on Class A and B
preferred stock (unaudited)..... -- (824,205) -- (905,581) (1,729,786)
Pro forma conversion of convertible
redeemable preferred stock
(unaudited)..................... 2,934,029 5,279,514 -- -- 5,279,514
---------- ---------- -------- ----------- -----------
Pro forma balance, September 30, 1996
(unaudited)........................ 3,607,186 $5,344,607 $(75,000) $ -- $ 5,269,607
========== ========== ======== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 55
SEAMED CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------- -----------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................. $ 1,007,278 $ 774,763 $ 1,240,454 $ 167,072 $ 486,584
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation............. 334,872 421,084 693,752 152,635 241,359
Provision for bad
debts................. 226,830 (25,127) 47,743 (17,500) 25,337
Deferred tax benefit..... (225,000) (54,682) (95,539) (30,203) --
Changes in operating
assets and
liabilities:
Decrease (increase) in
accounts
receivable.......... (1,513,221) (569,079) (2,569,134) (10,508) 303,722
Increase in
inventories......... (1,107,090) (682,803) (2,977,592) (251,355) (527,195)
Increase (decrease) in
accounts payable,
accrued expenses,
and deferred
revenue............. 354,315 801,426 3,402,643 (49,693) (815,303)
Increase in other
assets and prepaid
expenses............ (105,130) (7,615) (38,644) (8,914) (204,283)
----------- ----------- ----------- --------- ---------
Net cash provided by (used
in) operating
activities............... (1,027,146) 657,967 (296,317) (48,466) (489,779)
INVESTING ACTIVITIES
Purchases of equipment..... (875,957) (1,185,267) (1,492,021) (118,344) (311,742)
Purchase of short-term
investments.............. -- (200,000) -- -- --
Proceeds from short-term
investments.............. -- -- 200,000 -- --
----------- ----------- ----------- --------- ---------
Net cash used in investing
activities............... (875,957) (1,385,267) (1,292,021) (118,344) (311,742)
FINANCING ACTIVITIES
Proceeds from stock options
exercised................ 33,822 14,265 28,268 1,250 2,470
Proceeds from sale of
preferred stock.......... -- 1,309,391 -- -- --
Net proceeds from (payments
of) credit line.......... 988,710 (437,185) 1,261,999 171,000 428,755
Proceeds from notes
payable.................. 680,000 750,000 600,000 -- 500,000
Principal payments on notes
payable.................. (390,719) (882,072) (369,400) (72,968) (129,104)
Principal payments on
capital lease
obligations.............. (5,406) (1,368) -- -- --
----------- ----------- ----------- --------- ---------
Net cash provided by
financing activities..... 1,306,407 753,031 1,520,867 99,282 802,121
----------- ----------- ----------- --------- ---------
Net increase (decrease) in
cash..................... (596,696) 25,731 (67,471) (67,528) 600
Cash at beginning of
period................... 641,348 44,652 70,383 70,383 2,912
----------- ----------- ----------- --------- ---------
Cash at end of period...... $ 44,652 $ 70,383 $ 2,912 $ 2,855 $ 3,512
=========== =========== =========== ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 56
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. ACCOUNTING POLICIES
Description of Business
SeaMED Corporation (the "Company") is a leading manufacturer of advanced
medical instruments for medical technology companies. The Company manufactures
durable electronic medical instruments for its customers, often as part of
systems that also include single-use components. To assist its customers in
developing and commercializing their instruments for manufacture by the Company,
the Company provides a wide range of engineering services and regulatory
expertise.
Change in Accounting Period
During fiscal year 1995, the Company changed its fiscal year-end from June
30 to a 52/53-week fiscal year that ends on the Thursday nearest to June 30. For
convenience of presentation, all fiscal periods in these financial statements
are shown as ending on a calendar month-end.
Unaudited Interim Financial Information
The financial information as of September 30, 1996 and for the quarters
ended September 30, 1995 and 1996 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such dates and
the operations and cash flows for the periods then ended. Operating results for
the quarter ended September 30, 1996 are not necessarily indicative of results
that may be expected for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Credit Policies
The Company extends credit to various customers which are primarily in the
medical device industry. Receivables generally are due within 30 days and the
Company generally does not require collateral. The Company maintains reserves
for potential credit losses.
Short-Term Investments
Short-term investments consist of certificates of deposit with a maturity
date of less than one year from June 30, 1995.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
F-7
<PAGE> 57
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Depreciation
The Company provides for depreciation of furniture, fixtures, equipment and
manufacturing molds over their estimated useful lives of three to eight years
using the straight-line method.
Revenue Recognition
The Company recognizes revenues from contracts to perform engineering
design and product development as costs are incurred for cost-plus contracts, or
based on the percentage-of-completion method for fixed-price contracts. When
estimates indicate a probable loss on a contract, the full amount of such loss
is accrued at that time. The Company generally recognizes revenue from
manufacturing services when the related products are shipped.
Warranty Costs
Warranty reserves are recorded based on historical experience and estimates
of current warranty activity.
Income Taxes
The Company provides for income taxes based on the liability method which
requires the recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities
measured using enacted tax rates and laws that are expected to be in effect when
the differences are expected to reverse.
Stock Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock options. Generally, stock compensation, if
any, is measured as the difference between the exercise price of a stock option
and the fair market value of the Company's stock at the date of grant, which is
then amortized over the related vesting period.
Net Income Per Share and Pro Forma Net Income Per Share
Except as noted below, historical primary net income per share is based on
the weighted average number of common and common equivalent shares outstanding
during each period. Common equivalent shares include outstanding Class B and C
convertible redeemable preferred stock and outstanding stock options and an
outstanding warrant. Common equivalent shares are not included in the per share
calculations where the effect of their inclusion would be antidilutive, except
that, in accordance with Securities and Exchange Commission requirements, common
and common equivalent shares issued during the 12-month period prior to the
filing of a proposed initial public offering have been included in the
calculation as if they were outstanding for all periods (using the treasury
stock method and an assumed initial public offering price). In addition, net
income is adjusted for the accretion of cumulative preferred stock dividends to
determine earnings applicable to common stock.
Fully diluted net income per share has been computed as described above and
also gives effect to the dilutive effect of the conversion of outstanding Class
A and D convertible redeemable preferred stock net of the effect of the related
cumulative dividends.
F-8
<PAGE> 58
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Data used in calculating net income per share information follow:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------ ---------------------
1994 1995 1996 1995 1996
---------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income, as reported....... $1,007,278 $ 774,763 $ 1,240,454 $ 167,072 $ 486,584
Accretion of cumulative
preferred stock dividends... (145,850) (203,005) (263,050) (65,763) (65,763)
---------- --------- ---------- --------- ---------
Adjusted income for computing
primary net income
per share................... $ 861,428 $ 571,758 $ 977,404 $ 101,309 $ 420,821
========== ========= ========== ========= =========
Shares used in computing
primary net income
per share................... 2,223,790 2,302,359 2,330,739 2,302,109 2,477,686
========== ========= ========== ========= =========
Shares used in computing fully
diluted net income
per share................... 3,408,860 3,660,549 3,893,243 3,859,579 4,076,402
========== ========= ========== ========= =========
</TABLE>
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- SEPTEMBER 30,
1995 1996 1996
---------- ---------- -------------
<S> <C> <C> <C> <C>
Work-in-process.................. $1,602,146 $2,490,710 $ 2,888,094
Purchased and manufactured
parts.......................... 2,117,510 4,206,538 4,336,349
---------- ---------- ----------
$3,719,656 $6,697,248 $ 7,224,443
========== ========== ==========
</TABLE>
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- SEPTEMBER 30,
1995 1996 1996
---------- ---------- -------------
<S> <C> <C> <C> <C>
Equipment, at cost:
Furniture and fixtures......... $ 454,711 $ 514,950 $ 529,600
Equipment...................... 2,489,288 3,657,224 3,937,473
Manufacturing molds............ 514,433 523,999 524,111
Leasehold improvements......... 300,659 554,939 571,670
---------- ---------- ----------
3,759,091 5,251,112 5,562,854
Less accumulated depreciation
and amortization............ 1,902,095 2,595,847 2,837,206
---------- ---------- ----------
$1,856,996 $2,655,265 $ 2,725,648
========== ========== ==========
</TABLE>
F-9
<PAGE> 59
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
4. ACCRUED EXPENSES AND RESERVES
Accrued expenses and reserves consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- SEPTEMBER 30,
1995 1996 1996
---------- ---------- -------------
<S> <C> <C> <C> <C>
Taxes payable.................... $ 150,843 $ 630,036 $ 292,042
Accrued compensation............. 353,585 1,102,565 870,906
Deferred revenue and customer
deposits....................... 494,853 1,015,029 1,065,627
Other accrued expenses........... 215,350 338,146 350,418
Warranty reserve................. 186,411 215,288 244,723
---------- ---------- ----------
$1,401,042 $3,301,064 $ 2,823,716
========== ========== ==========
</TABLE>
5. NOTES PAYABLE
Line of Credit Agreement
The Company has a line of credit agreement with a bank under which the
Company can borrow up to 80% of eligible accounts receivable (less than 60 days
outstanding) up to a maximum of $4,000,000. Borrowings under this agreement are
payable on demand if certain covenants are not met. These covenants include,
among others, requirements that the Company maintain minimum working capital of
$4,000,000, combined net worth, including convertible redeemable preferred
stock, and subordinated debt of $6,000,000, a minimum current ratio of 1.5-to-1,
and a maximum debt-to-equity ratio of 1.5-to-1. The agreement also prohibits the
Company from paying dividends without prior approval of the bank. Borrowings
under this agreement bear interest at the bank's prime rate plus .25% (8.5% at
June 30, 1996) and are secured by receivables and inventories. The agreement is
subject to annual approval and extension by December 1 of each year. Borrowings
outstanding under the line of credit at June 30, 1995 and 1996 were $555,000 and
$1,817,000, respectively. Weighted average borrowings under this agreement were
$627,000, $428,000, $422,000 and $2,000,000 during fiscal years 1994, 1995, and
1996 and the quarter ended September 30, 1996, respectively. Weighted average
interest rates under this agreement were 7.5%, 8.8%, 8.9% and 8.5% during fiscal
years 1994, 1995, and 1996 and the quarter ended September 30, 1996,
respectively.
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- SEPTEMBER 30,
1995 1996 1996
---------- ---------- -------------
<S> <C> <C> <C>
Unsecured subordinated note payable, with monthly payments
of $17,000, including interest, through May 2001. Interest
is adjusted annually on July 1 to 2% over prime, with a
maximum of 10% and a minimum of 7% (10% at June 30,
1996)..................................................... $ 902,390 $ 782,650 $ 750,971
8.5% note payable, secured by equipment, with monthly
payments, including interest, through August 5, 1998...... 614,783 438,456 391,995
8.75% note payable, secured by equipment, with monthly
payments, including interest, through November 5, 1999.... -- 526,666 492,130
8.75% note payable, secured by equipment, with monthly
payments, including interest, through July 5, 2000........ -- -- 483,572
---------- ---------- ----------
1,517,173 1,747,772 2,118,668
Less current portion........................................ 296,067 461,990 583,432
---------- ---------- ----------
$1,221,106 $1,285,782 $ 1,535,236
========== ========== ==========
</TABLE>
F-10
<PAGE> 60
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Maturities of long-term debt as of June 30, 1996, including the $500,000
note payable issued in the first quarter of fiscal year 1997, are as follows:
<TABLE>
<S> <C>
1997............................. $ 560,674
1998............................. 624,148
1999............................. 491,460
2000............................. 391,832
2001............................. 179,658
----------
$2,247,772
==========
</TABLE>
Interest of $136,599, $193,095, $198,274, $51,385 and $82,215 was paid in
the fiscal years ended June 30, 1994, 1995, and 1996, and the quarters ended
September 30, 1995 and 1996, respectively.
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK
On January 3, 1995, the Company sold 1,465,000 shares of Class D
convertible redeemable preferred stock at $1.00 per share. These shares are
convertible into common stock at the ratio of 3.75 shares of preferred stock for
each share of common stock. In connection with the Class D preferred stock
offering, the Company also issued a warrant to purchase 39,066 shares of common
stock, with an exercise price of $4.70 per share. The warrant expires December
21, 1999.
If the initial public offering referred to in Note 13 is consummated, all
convertible redeemable preferred stock will convert into 2,934,029 shares of
common stock and the cumulative dividends on Class A and D preferred stock
($1,664,024 and $1,729,786 at June 30, 1996 and September 30, 1996,
respectively) will be declared and paid with a portion of the net proceeds of
the offering. The unaudited pro forma balance sheet and unaudited pro forma
statement of shareholders' equity reflect the assumed conversion of all
preferred stock and the accrual of cumulative preferred stock dividends as of
September 30, 1996.
At June 30, 1996 and September 30, 1996, the Company's convertible
redeemable preferred stock is as follows:
<TABLE>
<CAPTION>
COMMON SHARES
AUTHORIZED OUTSTANDING UPON CONVERSION
---------- ----------- ---------------
<S> <C> <C> <C>
Class A....................................... 1,500,000 1,458,500 1,166,804
Class B....................................... 450,000 450,000 360,016
Class C....................................... 5,100,000 5,082,704 1,016,543
Class D....................................... 2,000,000 1,465,000 390,666
---------- ----------- ------------
9,050,000 8,456,204 2,934,029
======== ========= ============
</TABLE>
In the event the offering referred to in Note 13 is not consummated, the
following terms and conditions will continue to apply. Convertible redeemable
preferred stock is convertible into common stock, at the option of the holder,
at various rates, subject to antidilution provisions and any accrued but unpaid
dividends. Unissued shares of common stock are reserved for issuance in the
event of full conversion of all convertible redeemable preferred stock. Subject
to certain conditions, convertible redeemable preferred stock also has mandatory
conversion requirements in the event of a qualified initial public offering of
the Company's common stock.
Each share of convertible redeemable preferred stock has voting rights
equivalent to the number of shares of common stock issuable, if converted. Class
A and D convertible redeemable preferred stock have
F-11
<PAGE> 61
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
cumulative dividend rights commencing at various dates and payable at $.10 and
$.08 per share, respectively. Each class of convertible redeemable preferred
stock also has preferential rights, in the event of any distribution of assets
upon liquidation of the Company, which are determined as fixed amounts per
share, plus any accrued but unpaid dividends, distributed pro rata on the basis
of liquidation value.
7. SHAREHOLDERS' EQUITY
Reverse Stock Split
Subsequent to year-end, in July 1996, the Company's shareholders approved a
1-for-5 stock split of the common stock, which resulted in an adjustment to the
preferred stock conversion ratio. All share and per share data in the
accompanying financial statements have been retroactively restated to reflect
the reverse stock split.
Stock Option and Incentive Plans
The Company has two stock option and incentive plans (collectively, the
"Plans"), the SeaMED Corporation 1988 Stock Option Plan and the SeaMED
Corporation 1995 Employee Stock Option and Incentive Plan. Under the terms of
the Plans, with respect to incentive stock options and options awarded to
nonemployee directors, the option price may not be less than fair market value
of the common stock at the date of grant. Generally, options granted under the
Plans become exercisable at the rate of 50% after two years, 75% after three
years, and 100% after four years from the date of grant. Certain options granted
under the 1988 plan, however, become exercisable ratably over seven years from
the date of grant. Unexercised options expire on the date set forth in the
optionee's option agreement (generally 10 years), subject to earlier termination
upon the happening of certain events set forth in the 1988 plan (with respect to
options granted under the 1988 plan) and each optionee's option agreement. Stock
options exercised, granted, and canceled during fiscal years 1994, 1995, and
1996 and the quarter ended September 30, 1996, are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------
NUMBER OF AGGREGATE PRICE PER
SHARES PRICE SHARE
--------- ---------- -----------
<S> <C> <C> <C>
Balance, July 1, 1993.......................... 489,676 $ 175,468 $ .16- .80
Options granted.............................. 87,015 128,758 1.00- 2.20
Options canceled............................. (25,690) (16,860) .50- 1.25
Options exercised............................ (122,237) (33,822) .16- .50
-------- ----------
Balance, June 30, 1994......................... 428,764 253,544 .16- 2.20
Options granted.............................. 89,200 485,500 2.50-10.00
Options canceled............................. (13,252) (10,848) .16- 2.50
Options exercised............................ (54,331) (14,265) .16- .75
-------- ----------
Balance, June 30, 1995......................... 450,381 713,931 .16-10.00
Options granted.............................. 132,824 454,060 2.50- 5.00
Options canceled............................. (8,031) (12,300) .50- 2.50
Options exercised............................ (89,735) (28,268) .16- 1.25
-------- ----------
Balance, June 30, 1996......................... 485,439 1,127,423 .16-10.00
Options granted (unaudited).................. 10,320 51,600 5.00
Options canceled (unaudited)................. (1,110) (2,745) 2.20- 2.50
Options exercised (unaudited)................ (4,450) (2,470) .50- 2.20
-------- ----------
Balance, September 30, 1996 (unaudited)........ 490,199 $1,173,808 $ .16-10.00
======== ==========
</TABLE>
F-12
<PAGE> 62
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
At June 30, 1996, 223,366 options were exercisable and 105,628 shares were
available for future grant. At September 30, 1996, 228,838 options were
exercisable and 96,418 shares were available for future grant.
Employee Stock Purchase Plan
Subsequent to year-end, in July 1996, the Company's shareholders approved
an employee stock purchase plan to be effective in the event the Company
completes an initial public offering of its common stock. The shareholders
authorized the sale of up to 70,000 shares of common stock over five years
pursuant to the plan.
Shares Reserved for Future Issuance
The following shares of common stock have been reserved for future issuance
as of June 30, 1996, including the stock purchase plan referred to above, and
pursuant to the various other agreements and plans discussed above:
<TABLE>
<S> <C> <C>
Convertible redeemable preferred stock......................... 2,934,029
Common stock purchase warrant.................................. 39,066
Stock purchase plan............................................ 70,000
Stock option and incentive plans:
Options outstanding.......................................... 485,439
Options available for grant.................................. 105,628 591,067
------- ---------
Total common shares reserved for future issuance
as of June 30, 1996.......................................... 3,634,162
=========
</TABLE>
F-13
<PAGE> 63
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
8. INCOME TAXES
The income tax benefit (provision) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Current income tax provision..................... $(16,500) $(234,682) $(763,476)
Deferred income tax benefit...................... 225,000 54,682 95,539
-------- --------- ---------
Income tax benefit (provision)................... $208,500 $(180,000) $(667,937)
======== ========= =========
</TABLE>
The current tax provisions are recorded net of the benefit of utilizing net
operating loss carryforwards and tax credit carryforwards.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets................................................. $(19,511) $(20,337)
Deferred tax assets:
Inventory reserves........................................... 247,780 356,175
Accrued expenses............................................. 111,803 147,712
Bad debt reserves............................................ 69,524 85,757
Tax credit carryforwards..................................... 102,517 --
Other........................................................ 17,569 55,914
-------- --------
Total deferred assets.......................................... 549,193 645,558
-------- --------
Net deferred asset balance..................................... $529,682 $625,221
======== ========
</TABLE>
A reconciliation from the U.S. statutory rate to the effective tax rate is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1994 1995 1996
----- ----- ----
<S> <C> <C> <C>
Tax at U.S. statutory rate................................... 34.0% 34.0% 34.0%
Change in valuation allowance................................ (55.5) (26.3) --
Other........................................................ (4.6) 11.2 1.0
----- ----- ----
(26.1)% 18.9% 35.0%
===== ===== ====
</TABLE>
The decrease in the valuation allowance of $443,000 in fiscal year 1994 and
$251,000 in fiscal year 1995 is primarily attributable to the utilization of net
operating loss carryforwards and tax credit carryforwards and related changes in
the estimate of the amount of deferred tax assets to be realizable.
Taxes of $15,000, $28,000, $330,000, $150,000 and $600,000 were paid in the
fiscal years ended June 30, 1994, 1995, and 1996, and the quarters ended
September 30, 1995 and 1996, respectively.
9. REVENUES AND OPERATIONS
During fiscal years 1994, 1995, and 1996, and the quarters ended September
30, 1995 and 1996, 51%, 49%, 41%, 53% and 52%, respectively, of total revenues
were from five customers. Receivables from these five customers represented 41%,
34% and 52% of total accounts receivable at June 30, 1995 and 1996 and September
30, 1996, respectively.
F-14
<PAGE> 64
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Revenues from customers that represent more than 10% of total revenues are
as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- -----------------------
CUSTOMER 1994 1995 1996 1995 1996
---------------------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
A.................. $2,774,000 $2,278,000 $2,665,000 $738,977 --
B.................. 2,229,000 -- -- 635,381 --
C.................. 1,622,000 -- -- -- --
D.................. -- 1,933,000 -- -- --
E.................. -- -- -- -- $2,521,655
</TABLE>
During fiscal years 1994, 1995, and 1996, and the quarter ended September
30, 1996, revenues recognized and costs incurred (included in cost of sales)
under engineering contracts were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues -- engineering
contracts...................... $4,690,876 $5,720,600 $8,405,352 $1,524,797 $3,352,451
Costs of engineering contracts,
exclusive of related marketing
and administrative expenses.... 4,426,852 5,260,489 7,551,399 1,477,687 2,952,746
---------- ---------- ---------- ---------- ----------
$ 264,024 $ 460,111 $ 853,953 $ 47,110 $ 399,705
========== ========== ========== ========== ==========
</TABLE>
10. LEASE COMMITMENTS
The Company currently leases office and production space, and equipment
under noncancelable operating leases. Rental expense under operating lease
agreements for fiscal years 1994, 1995, and 1996 and the quarters ended
September 30, 1995 and 1996 amounted to $358,085, $388,085, $655,079, $152,169
and $240,362, respectively.
In September 1996, the Company entered into lease agreements to occupy
90,000 square feet of production space in two new buildings. The Company will
occupy the first 30,000 square feet on May 1, 1997, the second 30,000 square
feet on February 1, 1998 and the third 30,000 square feet on January 1, 1999.
The lease term is 10 years with two five-year renewal options.
Future minimum lease commitments under noncancelable leases and service
agreements as of June 30, 1996, including the lease for an additional 90,000
square feet, are as follows:
<TABLE>
<S> <C>
1997............................ $ 1,148,312
1998............................ 1,509,818
1999............................ 1,896,476
2000............................ 2,179,100
2001............................ 2,144,291
Thereafter...................... 12,299,185
-----------
$21,177,182
===========
</TABLE>
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute amounts through payroll deductions.
The Company makes an annual contribution of 37.5% of the employees'
contributions up to 4% of the employees' salary. The 401(k) savings plan expense
was $40,100,
F-15
<PAGE> 65
SEAMED CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
$57,672, and $72,000 in fiscal years 1994, 1995, and 1996, respectively. The
Company does not provide other post-retirement benefits.
12. RELATED-PARTY TRANSACTIONS
In January 1995, the Company issued 1,465,000 shares of Class D preferred
stock, which are convertible into an aggregate of 390,666 shares of common stock
at an as-converted price of $3.75 per share. Two directors of the Company
purchased 25,000 and 40,000 shares, respectively, of Class D preferred stock,
which shares are convertible into 6,667 and 10,667 shares of common stock,
respectively. The Company sold such securities pursuant to a preferred stock
purchase agreement on substantially similar terms as were sold to nonaffiliated
purchasers. The terms of the Class D preferred stock provides that all such
shares shall be converted into Common Stock upon the consummation of the
offering referred to in Note 13.
On October 11, 1995, the Company's Chief Executive Officer and President
received a $75,000 loan from the Company, the proceeds of which he used to
purchase 30,000 shares of common stock. The loan is evidenced by an unsecured
promissory note that bears interest at the floating minimum statutory rate set
by the Internal Revenue Service from time to time. This officer may prepay
principal and interest at any time without penalty; unpaid principal and
interest are due on October 11, 2000. As of June 30, 1996, aggregate principal
and accrued interest on this loan was approximately $78,000.
A director of the Company is also a partner in the law firm Preston Gates &
Ellis, the Company's counsel.
A director of the Company serves as President and Chief Executive Officer
and a director of one of the Company's customers. The Company has provided
engineering and manufacturing services for this customer. The Company recognized
revenues with respect to such services of approximately $1.0 million in fiscal
year 1995 and $355,000 in fiscal year 1996. The Company recognized no revenues
in fiscal year 1994 with respect to such services.
13. SUBSEQUENT EVENTS
Registration Statement and Increase in Authorized Capital Stock
In July 1996, the Company's Board of Directors delegated authority to a
newly formed Executive Committee to authorize filing a Registration Statement
with the Securities and Exchange Commission to permit the Company to sell shares
of its common stock to the public. If the offering is consummated under the
terms presently anticipated, all of the Company's preferred stock will convert
into 2,934,029 shares of common stock and cumulative dividends will be paid from
a portion of the net proceeds of the offering. Also, in July 1996, the Company's
Board of Directors approved an increase in the total number of authorized shares
to 24,050,500, of which 10,000,000 are for common stock and 14,050,500 are for
preferred stock. The respective amounts have been retroactively adjusted on the
accompanying balance sheet and these notes to financial statements.
F-16
<PAGE> 66
(This Page Intentionally Left Blank)
<PAGE> 67
(This Page Intentionally Left Blank)
<PAGE> 68
No dealer, salesperson or other person is authorized to give any information or
to make any representations not contained in this Prospectus in connection with
the offer made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to anyone 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 any implication that the affairs of the Company since the
date hereof or the information herein is correct as of any time subsequent to
the date of this Prospectus.
-------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
Use of Proceeds......................... 14
Dividend Policy......................... 14
Dilution................................ 15
Capitalization.......................... 16
Selected Financial Data................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 18
Business................................ 26
Management.............................. 34
Principal and Selling Shareholders...... 39
Certain Transactions.................... 41
Description of Capital Stock............ 41
Shares Eligible for Future Sale......... 44
Underwriting............................ 45
Legal Matters........................... 46
Experts................................. 46
Additional Information.................. 46
Index to Financial Statements........... F-1
</TABLE>
-------------------------------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
1,850,000 SHARES
SEAMED
Corporation
COMMON STOCK
-------------------------
P R O S P E C T U S
-------------------------
PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
, 1996
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the Registrant in connection with the sale of
the Common Stock being registered hereby (all amounts are estimated except the
SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing
Fee):
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 7,737
NASD Filing Fee........................................................... 3,053
Nasdaq National Market Listing Fee........................................ 15,638
Blue Sky Fees and Expenses (Including Legal Fees)......................... 10,000
Transfer Agent and Registrar Fees......................................... 10,000
Legal Fees and Expenses................................................... 200,000
Printing Expenses......................................................... 130,000
Accounting Fees and Expenses.............................................. 150,000
Miscellaneous Expenses.................................................... 323,572
------
Total........................................................... $850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23B.08.500 through 23B.08.600 of the Washington Business Act
authorize Washington corporations to indemnify their officers, directors,
employees and agents under certain circumstances against certain expenses that
they may incur in such capacities, including liabilities under the Securities
Act, provided they acted in good faith and in a manner reasonably calculated to
be in or not opposed to the best interests of the corporation. The Registrant's
Articles of Incorporation (Exhibit 3.1 hereto) and Bylaws (Exhibit 3.2 hereto)
require indemnification of the Registrant's officers and directors to the
fullest extent permitted by Washington law. The Registrant also maintains
directors' and officers' liability insurance on its directors and officers.
The Registrant's Bylaws and Articles of Incorporation provide that the
Registrant shall, to the fullest extent permitted by the Washington Business
Act, indemnify all directors and officers of the Registrant. In addition, the
Registrant's Articles of Incorporation contain a provision eliminating the
personal liability of directors to the Registrant or its shareholders for
monetary damages arising out of a breach of fiduciary duty. Section 23B.08.320
of the Washington Business Act authorizes a corporation to limit or eliminate
such directors' liability for breaches of fiduciary duty, but does not eliminate
the personal liability of any director for (i) acts or omissions of a director
finally adjudged to be intentional misconduct or a knowing violation of law,
(ii) conduct finally adjudged to be in violation of Section 23B.08.310 of the
Washington Business Act (which section relates to unlawful distributions), or
(iii) any transaction with respect to which it is finally adjudged that a
director personally received a benefit in money, property or services to which
the director was not legally entitled.
The above discussion of the Washington Business Act and the Registrant's
Bylaws and Articles of Incorporation is not intended to be exhaustive and is
qualified in its entirety by reference to such statute, the Bylaws and the
Articles of Incorporation, respectively.
The Registrant will enter into indemnification agreements with each of its
directors and executive officers.
II-1
<PAGE> 70
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The table below sets forth sales of unregistered securities made by the
Registrant since August 1, 1993.
<TABLE>
<CAPTION>
TITLE AND AMOUNT OF SECURITY DATE OF SALE EXEMPTION
--------------------------------------------------- ------------- ---------
<S> <C> <C>
1,465,000 shares of convertible redeemable Class D January 1995 (1)
preferred stock
Warrant to purchase 39,066 shares of Common Stock January 1995 (2)
266,303 shares of Common Stock (3) (3)
</TABLE>
- ---------------
(1) Allen & Company Incorporated acted as placement agent with respect to the
sale. Issued for total proceeds of $1,465,000, before placement fees of
$73,500. In addition, the Registrant issued to the placement agent a warrant
to purchase 39,066 shares of Common Stock at a per share exercise price of
$4.70. All sales were made to accredited investors in private transactions
not involving any public offering in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act. A Form D with
respect to such sales was filed with the Commission under Regulation D under
the Securities Act.
(2) Issued to Allen & Company Incorporated as partial consideration for serving
as placement agent with respect to the sale of convertible redeemable Class
D preferred stock, as discussed in note (1) above.
(3) Issued from time to time upon the exercise of stock options granted under
the Registrant's stock option plans, for total proceeds of $76,355, in
reliance on Rule 701 promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C> <C> <C>
(a) Exhibits:
1.1 -- Form of Purchase Agreement
3.1+ -- Articles of Incorporation of the Registrant
3.2+ -- Bylaws of the Registrant
5.1 -- Opinion of Preston Gates & Ellis
10.1+ -- Promissory Note dated June 27, 1996, made by SeaMED Corporation payable
to Pacific Northwest Bank, in the amount of $4,000,000
10.2+ -- Promissory Note dated June 27, 1996, made by SeaMED Corporation payable
to Pacific Northwest Bank, in the amount of $500,000
10.3+ -- Promissory Note dated October 24, 1995, made by SeaMED Corporation
payable to Pacific Northwest Bank, in the amount of $600,000
10.4+ -- Loan Agreement dated August 1, 1994, between SeaMED Corporation and
Pacific Northwest Bank
10.5+ -- Amended and Restated Promissory Note dated September 1, 1993, made by
SeaMED Corporation payable to Cordis Corporation, in the amount of
$1,107,065
10.6+ -- Lease Agreement dated December 8, 1993, by and between Med Willows,
successor in interest to Jack Martin, and SeaMED Corporation
10.7+ -- Industrial Real Estate Lease (Building 1) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation
10.8+ -- Industrial Real Estate Lease (Building 2) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation
10.9+ -- Option Agreement dated September 10, 1996, by and between Washington
Capital Management, Inc. and SeaMED Corporation
10.10+ -- SeaMED Corporation 1988 Stock Option Plan
10.11+ -- SeaMED Corporation 1995 Employee Stock Option and Incentive Plan
10.12+ -- SeaMED Corporation 1996 Employee Stock Purchase Plan
10.13* -- Manufacturing Agreement dated as of September 1, 1996, made and entered
into by SeaMED Corporation and Coinstar, Inc.
10.14+ -- Promissory Note dated October 11, 1995, made by W. Robert Berg payable
to SeaMED Corporation, in the amount of $75,000
10.15 -- Form of Director and Officer Indemnification Agreement
</TABLE>
II-2
<PAGE> 71
<TABLE>
<S> <C> <C> <C>
10.16+ -- Preferred Stock Purchase Agreement dated as of March 28, 1984, by and
between SeaMED Corporation and the Purchasers listed therein
10.17+ -- First Amendment to Preferred Stock Purchase Agreement made as of July
31, 1986, by and between SeaMED Corporation and the Purchasers list
therein
10.18+ -- Second Amendment to Preferred Stock Purchase Agreement, Class A
Preferred Stock made as of October 28, 1994, by and between SeaMED
Corporation and the Purchasers list therein
10.19+ -- Preferred Stock Purchase Agreement, Class B Preferred Stock dated as of
August 25, 1986, by and among SeaMED Corporation and the Purchasers
listed therein
10.20+ -- First Amendment to Preferred Stock Purchase Agreement, Class B Preferred
Stock made as of October 28, 1994, by and between SeaMED Corporation and
the Purchasers listed therein
10.21+ -- Preferred Stock Purchase Agreement, Class D Preferred Stock made as of
January 3, 1995, by and among SeaMED Corporation and the Purchasers
listed therein
10.22 -- Purchase and Sale Agreement dated January 20, 1978, by and among Pioneer
Investors Corp., Doan Resources Corporation and SeaMED Corporation
10.23 -- First Amendment to Purchase and Sale Agreement dated October 28, 1994,
by and between Pioneer Associates and SeaMED Corporation
11.1 -- Statement regarding computation of net income per share
23.1 -- Consent of Ernst & Young LLP, Independent Auditors (see page II-6)
23.2 -- Consent of Preston Gates & Ellis (contained in Exhibit 5.1)
24.1+ -- Power of Attorney
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Portions of this Exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Securities Act.
+ Filed previously with the Registrant's Registration Statement on Form S-1
(Commission File No. 333-13455).
(b) Financial Statement Schedules:
Report of Ernst & Young LLP, Independent Auditors
Schedule II -- Valuation and Qualifying Accounts
All other financial statement schedules are omitted because the required
information is either included in the Registrant's financial statements or the
notes thereto or is inapplicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Purchase Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
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 adjudication of such
issue.
II-3
<PAGE> 72
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Redmond,
State of Washington, on this 23rd day of October, 1996.
SEAMED CORPORATION
By /s/ W. ROBERT BERG
------------------------------------
W. Robert Berg
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below on this 23rd day of October,
1996 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------------- ----------------------------------------------------
<C> <S>
/s/ W. ROBERT BERG President, Chief Executive Officer and Director
- -------------------------------------
W. Robert Berg (Principal Executive Officer)
/s/ EDGAR F. RAMPY Vice President, Treasurer and Chief Financial
- -------------------------------------
Edgar F. Rampy Officer (Principal Financial and Accounting Officer)
/s/ R. SCOTT ASEN Chairman of the Board
- -------------------------------------
R. Scott Asen
/s/ STEPHEN J. CLEARMAN Director
- -------------------------------------
Stephen J. Clearman
/s/ WILLIAM D. ELLIS Director
- -------------------------------------
William D. Ellis
/s/ RICHARD E. ENGEBRECHT Director
- -------------------------------------
Richard E. Engebrecht
/s/ WILLIAM H. GATES Director
- -------------------------------------
William H. Gates, Sr.
/s/ RICHARD O. MARTIN Director
- -------------------------------------
Richard O. Martin
</TABLE>
II-5
<PAGE> 74
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated August 6,
1996, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-13455)
and related Prospectus of SeaMED Corporation.
Seattle, Washington
October 23, 1996 ERNST & YOUNG LLP
II-6
<PAGE> 75
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the financial statements of SeaMED Corporation as of June
30, 1995 and 1996, and for each of the three years in the period ended June 30,
1996, and have issued our report thereon dated August 6, 1996 (included
elsewhere in this Registration Statement). Our audits also included the
financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Seattle, Washington
August 6, 1996 ERNST & YOUNG LLP
S-1
<PAGE> 76
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
SEAMED CORPORATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS -- DEDUCTIONS -- BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1994:
Deducted from asset accounts:
Allowance for uncollectible
accounts $ 2,780 $226,830 -- $ 229,610
Warranty reserve 136,302 131,160 $ 107,191(2) 160,271
-------- -------- --------- ---------
$139,082 $357,990 $ 107,191 $ 389,881
======== ======== ========= =========
Year Ended June 30, 1995:
Deducted from asset accounts:
Allowance for uncollectible
accounts $229,610 $104,320 $ 129,447(1) $ 204,483
Warranty reserve 160,271 171,515 145,375(2) 186,411
-------- -------- --------- ---------
$389,881 $275,835 $ 274,822 $ 390,894
======== ======== ========= =========
Year Ended June 30, 1996:
Deducted from asset accounts:
Allowance for uncollectible
accounts $204,483 $ 50,709 $ 2,966(1) $ 252,226
Warranty reserve 186,411 275,893 247,016(2) 215,288
-------- -------- --------- ---------
$390,894 $326,602 $ 249,982 $ 467,514
======== ======== ========= =========
</TABLE>
- ---------------
(1) Write-off of uncollectible accounts, net of recoveries.
(2) Actual warranty costs incurred.
S-2
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
1.1 -- Form of Purchase Agreement................................................
3.1+ -- Articles of Incorporation of the Registrant...............................
3.2+ -- Bylaws of the Registrant..................................................
5.1 -- Opinion of Preston Gates & Ellis..........................................
10.1+ -- Promissory Note dated June 27, 1996, made by SeaMED Corporation payable to
Pacific Northwest Bank, in the amount of $4,000,000.......................
10.2+ -- Promissory Note dated June 27, 1996, made by SeaMED Corporation payable to
Pacific Northwest Bank, in the amount of $500,000.........................
10.3+ -- Promissory Note dated October 24, 1995, made by SeaMED Corporation payable
to Pacific Northwest Bank, in the amount of $600,000......................
10.4+ -- Loan Agreement dated August 1, 1994, between SeaMED Corporation and
Pacific Northwest Bank....................................................
10.5+ -- Amended and Restated Promissory Note dated September 1, 1993, made by
SeaMED Corporation payable to Cordis Corporation, in the amount of
$1,107,065................................................................
10.6+ -- Lease Agreement dated December 8, 1993, by and between Med Willows,
successor in interest to Jack Martin, and SeaMED Corporation..............
10.7+ -- Industrial Real Estate Lease (Building 1) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation........
10.8+ -- Industrial Real Estate Lease (Building 2) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation........
10.9+ -- Option Agreement dated September 10, 1996, by and between Washington
Capital Management, Inc. and SeaMED Corporation...........................
10.10+ -- SeaMED Corporation 1988 Stock Option Plan.................................
10.11+ -- SeaMED Corporation 1995 Employee Stock Option and Incentive Plan..........
10.12+ -- SeaMED Corporation 1996 Employee Stock Purchase Plan......................
10.13* -- Manufacturing Agreement dated as of September 1, 1996, made and entered
into by SeaMED Corporation and Coinstar, Inc..............................
10.14+ -- Promissory Note dated October 11, 1995, made by W. Robert Berg payable to
SeaMED Corporation, in the amount of $75,000..............................
10.15 -- Form of Director and Officer Indemnification Agreement....................
10.16+ -- Preferred Stock Purchase Agreement dated as of March 28, 1984, by and
between SeaMED Corporation and the Purchasers listed therein..............
10.17+ -- First Amendment to Preferred Stock Purchase Agreement made as of July 31,
1986, by and between SeaMED Corporation and the Purchasers list therein...
10.18+ -- Second Amendment to Preferred Stock Purchase Agreement, Class A Preferred
Stock made as of October 28, 1994, by and between SeaMED Corporation and
the Purchasers list therein...............................................
10.19+ -- Preferred Stock Purchase Agreement, Class B Preferred Stock dated as of
August 25, 1986, by and among SeaMED Corporation and the Purchasers listed
therein...................................................................
10.20+ -- First Amendment to Preferred Stock Purchase Agreement, Class B Preferred
Stock made as of October 28, 1994, by and between SeaMED Corporation and
the Purchasers listed therein.............................................
10.21+ -- Preferred Stock Purchase Agreement, Class D Preferred Stock made as of
January 3, 1995, by and among SeaMED Corporation and the Purchasers listed
therein...................................................................
10.22 -- Purchase and Sale Agreement dated January 20, 1978, by and among Pioneer
Investors Corp., Doan Resources Corporation and SeaMED Corporation........
10.23 -- First Amendment to Purchase and Sale Agreement dated October 28, 1994, by
and between Pioneer Associates and SeaMED Corporation.....................
11.1 -- Statement regarding computation of net income per share...................
23.1 -- Consent of Ernst & Young LLP, Independent Auditors (see page II-6)........
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
23.2 -- Consent of Preston Gates & Ellis (contained in Exhibit 5.1)...............
24.1+ -- Power of Attorney.........................................................
27.1 -- Financial Data Schedule...................................................
</TABLE>
- ---------------
* Portions of this Exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Securities Act.
+ Filed previously with the Registrant's Registration Statement on Form S-1
(Commission File No. 333-13455).
<PAGE> 1
Exhibit 1.1
1,850,000 SHARES(1)
SeaMED CORPORATION
COMMON STOCK
PURCHASE AGREEMENT
November __, 1996
PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
As Representatives of the several
Underwriters named in Schedule II hereto
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
SeaMED Corporation, a Washington corporation (the "Company"), and the
shareholders of the Company listed in Schedule I hereto (the "Selling
Shareholders") severally propose to sell to the several underwriters named in
Schedule II hereto (the "Underwriters") an aggregate of 1,850,000 shares (the
"Firm Shares") of common stock, no par value (the "Common Stock"), of the
Company. The Firm Shares consist of 1,361,942 authorized but unissued shares
of Common Stock to be issued and sold by the Company and 488,058 outstanding
shares of Common Stock to be sold by the Selling Shareholders. The Company has
also granted to the several Underwriters an option to purchase up to 277,500
additional shares of Common Stock on the terms and for the purposes set forth
in Section 3 hereof (the "Option Shares"). The Firm Shares and any Option
Shares purchased pursuant to this Purchase Agreement (this "Agreement") are
herein collectively called the "Securities."
The Company and the Selling Shareholders hereby confirm their
agreement with respect to the sale of the Securities to the several
Underwriters, for whom you are acting as Representatives (the
"Representatives").
- ----------------
(1) Plus an option to purchase up to 277,500 additional shares to cover
over-allotments.
<PAGE> 2
1. REGISTRATION STATEMENT AND PROSPECTUS
A registration statement on Form S-1 (File No. 333-13455) with respect
to the Securities, including a preliminary form of prospectus, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has been filed with the Commission; one or more amendments to
such registration statement have also been so prepared and have been, or will
be, so filed; and, if the Company has elected to rely upon Rule 462(b) of the
Rules and Regulations to increase the size of the offering registered under the
Act, the Company will prepare and file with the Commission a registration
statement with respect to such increase pursuant to Rule 462(b) of the Rules
and Regulations. Copies of such registration statement(s) and amendments and
each related preliminary prospectus have been delivered to you. If the Company
has elected not to rely upon Rule 430A of the Rules and Regulations, the
Company has prepared and will promptly file an amendment to the registration
statement and an amended prospectus (including a term sheet meeting the
requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare
and file a prospectus (or a term sheet meeting the requirements of Rule 434 of
the Rules and Regulations) pursuant to Rule 424(b) of the Rules and Regulations
that discloses the information previously omitted from the prospectus in
reliance upon Rule 430A of the Rules and Regulations. Such registration
statement as amended at the time it is or was declared effective by the
Commission, and, in the event of any amendment thereto after the effective date
and prior to the First Closing Date (as hereinafter defined), such registration
statement as so amended (but only from and after the effectiveness of such
amendment), including a registration statement (if any) filed pursuant to Rule
462(b) of the Rules and Regulations increasing the size of the offering
registered under the Act and information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rules 430A(b)
of the Rules and Regulations and 434(d) of the Rules and Regulations, is
hereinafter called the "Registration Statement." The prospectus included in
the Registration Statement at the time it is or was declared effective by the
Commission is hereinafter called the "Prospectus," except that if any
prospectus (including any term sheet meeting the requirements of Rule 434 of
the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 of the Rules and
Regulations in order to meet the requirements of Section 10(a) of the Act)
filed by the Company with the Commission pursuant to Rule 424(b) (and Rule 434,
if applicable) of the Rules and Regulations or any other such prospectus
provided to the Underwriters by the Company for use in connection with the
offering of the Securities (whether or not required to be filed by the Company
with the Commission pursuant to Rule 424(b) of the Rules and Regulations)
differs from the prospectus on file at the time the Registration
-2-
<PAGE> 3
Statement is or was declared effective by the Commission, the term "Prospectus"
shall refer to such differing prospectus (including any term sheet within the
meaning of Rule 434 of the Rules and Regulations) from and after the time such
prospectus is filed with the Commission or transmitted to the Commission for
filing pursuant to such Rule 424(b) (and Rule 434, if applicable) of the Rules
and Regulations or from and after the time it is first provided to the
Underwriters by the Company for such use. The term "Preliminary Prospectus" as
used herein means any preliminary prospectus included in the Registration
Statement prior to the time it becomes or became effective under the Act and
any prospectus subject to completion as described in Rule 430A or 434 of the
Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS
(a) The Company represents and warrants to, and agrees with, the
several Underwriters as follows:
(i) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, did not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the
foregoing shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof.
(ii) As of the time the Registration Statement (or any
post-effective amendment thereto, including a registration statement (if any)
filed pursuant to Rule 462(b) of the Rules and Regulations increasing the size
of the offering registered under the Act) is or was declared effective by the
Commission, upon the filing or first delivery to the Underwriters of the
Prospectus (or any supplement to the Prospectus (including any term sheet
meeting the requirements of Rule 434 of the Rules and Regulations)) and at the
First Closing Date and Second Closing Date (as hereinafter defined), (A) the
Registration Statement and Prospectus (in each case, as so amended and/or
supplemented) conformed or will conform in all material respects to the
requirements of the Act and the Rules and Regulations, (B) the Registration
Statement (as so amended) did not or will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they are or were made, not misleading, and (C) the Prospectus (as so
supplemented) did not or will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
-3-
<PAGE> 4
make the statements therein, in light of the circumstances in which they are or
were made, not misleading; except that the foregoing shall not apply to
statements in or omissions from any such document in reliance upon, and in
conformity with, written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation thereof. If
the Registration Statement has been declared effective by the Commission, no
stop order suspending the effectiveness of the Registration Statement has been
issued, and no proceeding for that purpose has been initiated or, to the
Company's knowledge, threatened by the Commission.
(iii) The financial statements of the Company, together
with the notes thereto, set forth in the Registration Statement and Prospectus
comply in all material respects with the requirements of the Act and the Rules
and Regulations and fairly present the financial condition of the Company as of
the dates indicated and the results of operations and changes in cash flows for
the periods therein specified in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise stated therein); and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. No other financial statements or schedules are required to be
included in the Registration Statement or Prospectus. Ernst & Young LLP, which
has expressed its opinion with respect to the financial statements and
schedules filed as a part of the Registration Statement and included in the
Registration Statement and Prospectus, is an independent public accountant as
required by the Act and the Rules and Regulations.
(iv) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of
Washington. The Company has full corporate power and authority to own its
properties and conduct its business as currently being carried on and as
described in the Registration Statement and Prospectus, and is duly qualified
to do business as a foreign corporation in good standing in each jurisdiction
in which it owns or leases real property or in which the conduct of its
business makes such qualification necessary and in which the failure to so
qualify would have a material adverse effect upon its business, condition
(financial or otherwise) or properties, taken as a whole.
(v) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions, or declared or paid any dividends or made any distributions of
any kind with respect to its capital stock; and there has not been any change
in the capital stock (other than a change in the number of outstanding shares
of Common Stock due to the issuance of shares upon the exercise of outstanding
options or warrants), or any material change in the short-term or long-term
debt, or any issuance of options, warrants, convertible securities or other
rights to purchase the capital stock, of
-4-
<PAGE> 5
the Company, or any material adverse change, or any development involving a
prospective material adverse change, in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects, net
worth or results of operations of the Company, taken as a whole.
(vi) Except as set forth in the Prospectus, there is not
pending or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company is a party before or by any
court or governmental agency, authority or body, or any arbitrator, which might
reasonably be expected to result in any material adverse change in the
condition (financial or otherwise), business, prospects, net worth or results
of operations of the Company, taken as a whole.
(vii) There are no contracts or documents of the Company
that are required to be filed as exhibits to the Registration Statement by the
Act or by the Rules and Regulations that have not been so filed.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding obligation
of the Company, enforceable in accordance with its terms, except as rights to
indemnity hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity. The execution, delivery and
performance of this Agreement 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, any statute, any agreement or
instrument to which the Company is a party or by which it is bound or to which
any of its property is subject, the Company's charter or by-laws, or any order,
rule, regulation or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its properties; no consent, approval,
authorization or order of, or filing with, any court or governmental agency or
body is required for the execution, delivery and performance of this Agreement
or for the consummation of the transactions contemplated hereby, including the
issuance or sale of the Securities by the Company, except such as may be
required under the Act or state securities or blue sky laws; and the Company
has full power and authority to enter into this Agreement and to authorize,
issue and sell the Securities as contemplated by this Agreement.
(ix) All of the issued and outstanding shares of capital
stock of the Company, including the outstanding shares of Common Stock, are
duly authorized and validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws (other than
such noncompliance as would not have a material adverse effect on the condition
(financial or otherwise), prospects, net worth or results of operations of the
Company), were not issued in violation of or subject to any
-5-
<PAGE> 6
preemptive rights or other rights to subscribe for or purchase securities, and
the holders thereof are not subject to personal liability by reason of being
such holders; the Securities which may be sold hereunder by the Company have
been duly authorized and, when issued, delivered and paid for in accordance
with the terms hereof, will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability by reason of being such holders; and the capital stock of the
Company, including the Common Stock, conforms to the description thereof in the
Registration Statement and Prospectus. Except as otherwise stated in the
Registration Statement and Prospectus, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's charter,
by-laws or any agreement or other instrument to which the Company is a party or
by which the Company is bound. Except to the extent of the sales by the
Selling Shareholders contemplated by this Agreement, neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any rights which have not been
waived for or relating to the registration of any shares of Common Stock or
other securities of the Company. Except as described in the Registration
Statement and the Prospectus, there are no options, warrants, agreements,
contracts or other rights in existence to purchase or acquire from the Company
any shares of the capital stock of the Company. The Company has an authorized
and outstanding capitalization as set forth in the Registration Statement and
the Prospectus.
(x) The Company holds, and is operating in compliance in
all material respects with, all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders of any governmental or
self-regulatory body required for the conduct of its business, except where the
failure, individually or in the aggregate, to obtain or noncompliance with such
would not have a material adverse effect on the condition (financial or
otherwise), prospects, net worth or results of operations of the Company; all
such franchises, grants, authorizations, licenses, permits, easements,
consents, certifications and orders are valid and in full force and effect; and
the Company is in compliance in all respects with all applicable federal,
state, local and foreign laws, regulations, orders and decrees, which
noncompliance would have a material adverse effect on the condition (financial
or otherwise), prospects, net worth or results of operations of the Company.
(xi) The Company has good and marketable title to all
property described in the Registration Statement and Prospectus as being owned
by it, in each case free and clear of all liens, claims, security interests or
other encumbrances, except such as are described in the Registration Statement
and the Prospectus or such as do not materially affect the value of such
property, are not material in amount and do not interfere in any material
respect with the use of the property or the conduct of the business of the
Company; the property held under lease by the Company is held by it under
valid,
-6-
<PAGE> 7
subsisting and enforceable leases with only such exceptions with respect to any
particular lease as do not interfere in any material respect with the conduct
of the business of the Company; the Company owns or possesses all patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses, inventions,
trade secrets and rights necessary for the conduct of the business of the
Company as currently carried on and as described in the Registration Statement
and Prospectus; except as stated in the Registration Statement and Prospectus,
no name which the Company uses and no other aspect of the business of the
Company will involve or give rise to any infringement of, or license or similar
fees for, any patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets or other similar rights of others material
to the business or prospects of the Company, and the Company has not received
any notice alleging any such infringement or fee.
(xii) The Company is not in violation of its charter or
by-laws or in breach of or otherwise in default in the performance of any
material obligation, agreement or condition contained in any bond, debenture,
note, indenture, loan agreement or any other material contract, lease or other
instrument to which it is subject or by which it is bound, or to which any of
the material property or assets of the Company is subject.
(xiii) The Company has filed all federal, state, local and
foreign income and franchise tax returns required to be filed and is not in
default in the payment of any taxes which were payable pursuant to said returns
or any assessments with respect thereto, other than any which the Company is
contesting in good faith.
(xiv) The Company has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary Prospectus or
the Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xv) The Securities have been conditionally approved for
listing on the Nasdaq National Market ("Nasdaq") and, on the date the
Registration Statement became or becomes effective, the Company's Registration
Statement on Form 8-A or other applicable form under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), became or will become effective.
(xvi) The Company owns no capital stock or other equity or
ownership or proprietary interest in any corporation, partnership, association,
trust or other entity.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific authorization; (B)
transactions are
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<PAGE> 8
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in accordance
with management's general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(xviii) Other than as contemplated by this Agreement, the
Company has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(xix) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(xx) Except as disclosed in the Registration Statement and
except as would not, singly or in the aggregate, reasonably be expected to have
a material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company, (A) to the
best knowledge of the Company, the Company is in compliance with all applicable
Environmental Laws (as defined below), (B) to the best knowledge of the
Company, the Company has all permits, authorizations and approvals required
under any applicable Environmental Laws and is in compliance with the
requirements of such permits, authorizations and approvals, (C) there are no
pending or, to the best knowledge of the Company, threatened Environmental
Claims against the Company and (D) under applicable law, there are no
circumstances with respect to any property or operations of the Company that
are reasonably likely to form the basis of an Environmental Claim against the
Company.
For purposes of this Agreement, the following terms shall have
the following meanings: "Environmental Law" means any United States (or other
applicable jurisdiction's) federal, state, local or municipal statute, law,
rule, regulation, ordinance, code or rule of common law and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or any chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority. "Environmental Claims"
means any and all administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
(xxi) No labor dispute with the employees of the Company
exists or, to the best knowledge of the Company, is imminent; and the Company
is not aware of any existing or imminent labor dispute by the employees of any
of its principal suppliers,
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<PAGE> 9
manufacturers, contractors or customers which might, singly or in the
aggregate, be expected to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company.
(xxii) To the best of the Company's knowledge, neither the
Company nor any employee or agent of the Company has made any payment of funds
of the Company or received or retained any funds in violation of any law, rule
or regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
(xxiii) The Company is not now, and after sale of the
Securities to be sold by it hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(xxiv) The Company maintains insurance of the types and in
amounts adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering product liability and real and personal property
owned or leased against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full
force and effect.
(b) Each Selling Shareholder, severally and not jointly,
represents and warrants to, and agrees with, the several Underwriters as
follows:
(i) Such Selling Shareholder is the record and beneficial
owner of, and has, and on the First Closing Date and/or the Second Closing Date
(as hereinafter defined), as the case may be, will have, good and marketable
title to the Securities to be sold by such Selling Shareholder, free and clear
of any adverse claims (within the meaning of Revised Code of Washington ("RCW")
62A.8-102(1)(a)), all restrictions on transferability, legends, proxies or
other encumbrances; and upon delivery of and payment (within the meaning of RCW
62A.1-201(44)) for such Securities hereunder, the several Underwriters will
acquire good and marketable title thereto, free and clear of any adverse claims
(within the meaning of RCW 62A.8-102(1)(a) and RCW 62A.8-105) and obtain
control thereto (within the meaning of RCW 62A.8-106). Such Selling
Shareholder is selling the Securities to be sold by such Selling Shareholder
for such Selling Shareholder's own account and is not selling such Securities,
directly or indirectly, for the benefit of the Company, and no part of the
proceeds of such sale received by such Selling Shareholder will inure, either
directly or indirectly, to the benefit of the Company.
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<PAGE> 10
(ii) Such Selling Shareholder has duly authorized,
executed and delivered a Letter of Transmittal and Custody Agreement ("Custody
Agreement"), which Custody Agreement is a valid and binding obligation of such
Selling Shareholder, to ChaseMellon Shareholder Services, as Custodian (the
"Custodian"); pursuant to the Custody Agreement such Selling Shareholder has
placed or caused to be placed in custody with the Custodian, for delivery under
this Agreement, the certificates representing the Securities to be sold by such
Selling Shareholder; such certificates represent validly issued, outstanding,
fully paid and nonassessable shares of Common Stock; and such certificates were
duly and properly endorsed in blank for transfer, or were accompanied by all
documents duly and properly executed that are necessary to validate the
transfer of title thereto, to the Underwriters, free of any legend, restriction
on transferability, proxy, lien or claim, whatsoever.
(iii) Such Selling Shareholder has the power and authority
to enter into this Agreement and to sell, transfer and deliver the Securities
to be sold by such Selling Shareholder; and such Selling Shareholder has duly
authorized, executed and delivered to W. Robert Berg and Edgar F. Rampy, as
attorneys-in-fact (the "Attorneys-in-Fact"), an irrevocable power of attorney
(a "Power of Attorney") authorizing and directing the Attorneys-in-Fact, or
either of them, to effect the sale and delivery of the Securities being sold by
such Selling Shareholder, to enter into this Agreement and to take all such
other action as may be necessary hereunder.
(iv) This Agreement, the Custody Agreement and the Power
of Attorney have each been duly authorized, executed and delivered by or on
behalf of such Selling Shareholder and each constitutes a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its
terms, except as rights to indemnity hereunder or thereunder may be limited by
federal or state securities laws and except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or laws affecting the rights
of creditors generally and subject to general principles of equity. The
execution and delivery of this Agreement, the Custody Agreement and the Power
of Attorney and the performance of the terms hereof and thereof and the
consummation of the transactions herein and therein contemplated will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any agreement or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder is bound, or any
law, regulation, order or decree applicable to such Selling Shareholder; no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Custody Agreement and the Power of Attorney
or for the consummation of the transactions contemplated hereby and thereby,
including the sale of the Securities being sold by such Selling Shareholder,
except such as may be required under the Act or state securities laws or blue
sky laws.
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<PAGE> 11
(v) Such Selling Shareholder has not distributed and will
not distribute any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary Prospectus or
the Prospectus or other materials permitted by the Act to be distributed by
such Selling Shareholder.
(vi) To the extent that any statements or omissions made
in the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, insofar as such statements or omissions
relate to such Selling Shareholder, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any amendments or
supplements to the Registration Statement or Prospectus (including any term
sheet meeting the requirements of Rule 434 of the Rules and Regulations) will,
when they become effective or are filed with the Commission, as the case may
be, not contain 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
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the
matters covered thereby; any certificate signed by or on behalf of any Selling
Shareholder as such and delivered to you or to counsel for the Underwriters
shall be deemed a representation and warranty by such Selling Shareholder to
each Underwriter as to the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF SECURITIES
(a) 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 issue and sell 1,361,942 Firm Shares, and each Selling
Shareholder agrees, severally and not jointly, to sell the number of Firm
Shares set forth opposite the name of such Selling Shareholder in Schedule I
hereto, to the several Underwriters, and each Underwriter agrees, severally and
not jointly, to purchase from the Company and the Selling Shareholders the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto. The purchase price for each Firm Share shall be [$_____]
per share. The obligation of each Underwriter to each of the Company and the
Selling Shareholders shall be to purchase from each of the Company and the
Selling Shareholders that number of Firm Shares (to be adjusted by the
Representatives to avoid fractional shares) which represents the same
proportion of the number of Firm Shares to be sold by each of the Company and
the Selling Shareholders pursuant to this Agreement as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule II hereto
represents to the total number of Firm Shares to be purchased by all
Underwriters pursuant to this Agreement. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraph (c) of this Section 3 and in
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<PAGE> 12
Section 8 hereof, the agreement of each Underwriter is to purchase only the
respective number of Firm Shares specified in Schedule II.
The Firm Shares will be delivered by the Company and the Custodian to
you for the accounts of the several Underwriters against payment of the
purchase price therefor by wire transfer of same-day funds payable to the order
of the Company and the Custodian, as appropriate, at the offices of Piper
Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable, at 9:00 a.m.
Central time on the third (or if the Securities are priced, as contemplated by
Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern time, the
fourth) full business day following the date hereof, or at such other time and
date as you and the Company determine pursuant to Rule 15c6-1(a) under the
Exchange Act, such time and date of delivery being herein referred to as the
"First Closing Date." If the Representatives so elect, delivery of the Firm
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. Certificates
representing the Firm Shares, in definitive form and in such denominations and
registered in such names as you may request upon at least two business days'
prior notice to the Company and the Custodian, will be made available for
checking and packaging not later than 10:30 a.m., Central time, on the business
day next preceding the First Closing Date at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company, with respect to the Option Shares hereby grants to the several
Underwriters an option to purchase all or any portion of the Option Shares at
the same purchase price as the Firm Shares, for use solely in covering any
over-allotments made by the Underwriters in the sale and distribution of the
Firm Shares. The option granted hereunder may be exercised at any time (but
not more than once) within 30 days after the effective date of this Agreement
upon notice (confirmed in writing) by the Representatives to the Company
setting forth the aggregate number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which
the certificates for the Option Shares are to be registered and the date and
time, as determined by you, when the Option Shares are to be delivered, such
time and date being herein referred to as the "Second Closing" and "Second
Closing Date," respectively; provided, however, that the Second Closing Date
shall not be earlier than the First Closing Date nor earlier than the second
business day after the date on which the option shall have been exercised. The
First Closing Date and the Second Closing Date are sometimes herein
individually called the "Closing Date" and collectively called the "Closing
Dates." The number of Option Shares to be purchased by each Underwriter shall
be the same percentage of the total number of Option Shares to be purchased by
the several Underwriters as the number of
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<PAGE> 13
Firm Shares to be purchased by such Underwriter is of the total number of Firm
Shares to be purchased by the several Underwriters, as adjusted by the
Representatives in such manner as the Representatives deem advisable to avoid
fractional shares. No Option Shares shall be sold and delivered unless the
Firm Shares previously have been, or simultaneously are, sold and delivered.
The Option Shares will be delivered by the Custodian and the Company,
as appropriate, to you for the accounts of the several Underwriters against
payment of the purchase price therefor by wire transfer of same-day funds
payable to the order of the Custodian or the Company, as appropriate, at the
offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable at
9:00 a.m., Central time, on the Second Closing Date. If the Representatives so
elect, 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
Representatives. Certificates representing the Option Shares in definitive
form and in such denominations and registered in such names as you have set
forth in your notice of option exercise will be made available for checking and
packaging not later than 10:30 a.m., Central time, on the business day next
preceding the Second Closing Date at the offices of Piper Jaffray Inc., Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other
location as may be mutually acceptable.
(c) It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment to the Company or the Selling Shareholders, on behalf of any
Underwriter for the Securities to be purchased by such Underwriter. Any such
payment by you shall not relieve any such Underwriter of any of its obligations
hereunder. Nothing herein contained shall constitute any of the Underwriters
an unincorporated association or partner with the Company or any Selling
Shareholder.
4. COVENANTS
(a) The Company covenants and agrees with the several Underwriters
as follows:
(i) If the Registration Statement has not already been
declared effective by the Commission, the Company will use its best efforts to
cause the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you promptly
of the time when the Registration Statement or any post-effective amendment to
the Registration Statement has become effective or any supplement to the
Prospectus (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations) has been filed and of any request by the Commission for
any amendment or supplement to the Registration Statement or
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<PAGE> 14
Prospectus or additional information; if the Company has elected to rely on
Rule 430A of the Rules and Regulations, the Company will prepare and file a
Prospectus (or term sheet within the meaning of Rule 434 of the Rules and
Regulations) containing the information omitted therefrom pursuant to Rule 430A
of the Rules and Regulations with the Commission within the time period
required by, and otherwise in accordance with the provisions of, Rules 424(b),
430A and 434, if applicable, of the Rules and Regulations; if the Company has
elected to rely upon Rule 462(b) of the Rules and Regulations to increase the
size of the offering registered under the Act, the Company will prepare and
file a registration statement with respect to such increase with the Commission
within the time period required by, and otherwise in accordance with the
provisions of, Rule 462(b) of the Rules and Regulations; the Company will
prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) that, in your opinion, may be necessary or advisable in connection
with the distribution of the Securities by the Underwriters; and the Company
will not file any amendment or supplement to the Registration Statement or
Prospectus (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations) to which you shall reasonably object by notice to the
Company after having been furnished a copy a reasonable time prior to the
filing.
(ii) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any proceeding for
any such purpose; and the Company will promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if such a stop order
should be issued.
(iii) Within the time during which a prospectus (including
any term sheet within the meaning of Rule 434 of the Rules and Regulations)
relating to the Securities is required to be delivered under the Act, the
Company will comply as far as it is able with all requirements imposed upon it
by the Act, as now and hereafter amended, and by the Rules and Regulations, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities as contemplated by the provisions hereof
and the Prospectus. If during such period any event occurs as a result of
which the Prospectus would include an 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 then existing, not misleading, or if during such
period it is necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act, the Company will promptly notify you and
will amend the Registration Statement or supplement the Prospectus (at the
expense of the Company) so as to correct such statement or omission or effect
such compliance.
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<PAGE> 15
(iv) The Company will use its best efforts to qualify the
Securities for sale under the securities laws of such jurisdictions as you
reasonably designate and to continue such qualifications in effect so long as
required for the distribution of the Securities, except that the Company shall
not be required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any state.
(v) The Company will furnish to the Underwriters copies
of the Registration Statement (three of which will be signed and will include
all exhibits), each Preliminary Prospectus, the Prospectus, and all amendments
and supplements (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations) to such documents, in each case as soon as available and
in such quantities as you may from time to time reasonably request.
(vi) During a period of five years commencing with the
date hereof, the Company will furnish to the Representatives, and to each
Underwriter who may so request in writing, copies of all periodic and special
reports furnished to the shareholders of the Company and all information,
documents and reports filed with the Commission, the National Association of
Securities Dealers, Inc., Nasdaq or any securities exchange.
(vii) The Company will make generally available to its
shareholders as soon as practicable, but in any event not later than 15 months
after the end of the Company's current fiscal quarter, an earnings statement
(which need not be audited) covering a 12-month period beginning after the
effective date of the Registration Statement that shall satisfy the provisions
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations.
(viii) The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective under the provisions of Section 9(a) hereof or is
terminated, will pay or cause to be paid (A) all expenses (including transfer
taxes allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's accountants
and counsel but, except as otherwise provided below, not including fees of the
Underwriters' counsel) incurred in connection with the preparation, printing,
filing, delivery, and shipping of the Registration Statement (including the
financial statements therein and all amendments, schedules, and exhibits
thereto), the Securities, each Preliminary Prospectus, the Prospectus, and any
amendment thereof or supplement thereto, and the printing, delivery, and
shipping of this Agreement and other underwriting documents, including Blue Sky
Memoranda, (C) all filing fees and fees and disbursements of the Underwriters'
counsel incurred in connection with the qualification of the Securities for
offering and sale by the Underwriters or by dealers under the securities or
blue sky laws
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<PAGE> 16
of the states and other jurisdictions which you shall designate in accordance
with Section 4(a)(iv) hereof, (D) the fees and expenses of any transfer agent
or registrar, (E) the filing fees incident to any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of
the Securities, (F) listing fees, if any, and (G) all other costs and expenses
incident to the performance of its obligations hereunder that are not otherwise
specifically provided for herein. If the sale of the Securities provided for
herein is not consummated by reason of action by the Company pursuant to
Section 9(a) hereof which prevents this Agreement from becoming effective, or
by reason of any failure, refusal or inability on the part of the Company or
the Selling Shareholders to perform any agreement on its or their part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company or the Selling Shareholders
is not fulfilled, the Company will reimburse the several Underwriters for all
out-of-pocket disbursements (including fees and disbursements of counsel)
incurred by the Underwriters in connection with their investigation, preparing
to market and marketing the Securities or in contemplation of performing their
obligations hereunder. The Company shall not in any event be liable to any of
the Underwriters for loss of anticipated profits from the transactions covered
by this Agreement.
(ix) The Company will apply the net proceeds from the sale
of the Securities to be sold by it hereunder for the purposes set forth in the
Prospectus and will file such reports with the Commission with respect to the
sale of the Securities and the application of the proceeds therefrom as may be
required in accordance with Rule 463 of the Rules and Regulations.
(x) The Company will not, without Piper Jaffray's prior
written consent, offer for sale, sell, contract to sell, grant any option for
the sale of or otherwise issue or dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase or
acquire, Common Stock, except to the Underwriters pursuant to this Agreement
for a period of 180 days after the commencement of the public offering of the
Securities by the Underwriters, other than (i) the grant of options (but not
the issuance of the Common Stock underlying such options) currently authorized
under the Company's 1988 Stock Option Plan and 1995 Employee Stock Option and
Incentive Plan and (ii) the issuance of shares of Common Stock pursuant to
stock options or warrants outstanding on the date of the Prospectus and
disclosed in the Prospectus.
(xi) The Company either has caused to be delivered to you
or will cause to be delivered to you prior to the effective date of the
Registration Statement a letter from each of the Company's directors and
officers, each of the Selling Shareholders, and holders of _______ shares of
the Company's Common Stock and ______ shares of Preferred Stock stating that
such person agrees that he, she or it will not, without your prior written
consent, sell, contract to sell, make any short sale, pledge or otherwise
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<PAGE> 17
dispose of any shares of Common Stock or rights to purchase Common Stock,
except to the Underwriters pursuant to this Agreement, for a period of 180 days
after the closing of the public offering of the Securities by the Underwriters.
(xii) The Company has not taken and will not take, directly
or indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities, and has not sold any Common Stock which are required to be
disclosed in response to Item 701 of Regulation S-K under the Act which have
not been so disclosed in the Registration Statement.
(xiii) The Company will inform the Florida Department of
Banking and Finance at any time prior to the consummation of the distribution
of the Securities by the Underwriters if it commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba. Such
information will be provided within 90 days after the commencement thereof or
after a change occurs with respect to previously reported information.
(xiv) During a period of one hundred eighty (180) days
after the commencement of the public offering of the Securities by the
Underwriters, the Company will not file a registration statement for the
purpose of registering shares of the Company's equity securities issuable under
any option plan or other employee benefit plan.
(b) Each Selling Shareholder, severally and not jointly, covenants
and agrees with the several Underwriters as follows:
(i) Except as otherwise agreed to by the Company and the
Selling Shareholder, such Selling Shareholder will pay all taxes, if any, on
the transfer and sale, respectively, of the Securities being sold by such
Selling Shareholder, the fees of such Selling Shareholder's counsel and such
Selling Shareholder's proportionate share (based upon the number of Securities
being offered by such Selling Shareholder pursuant to the Registration
Statement) of all costs and expenses (except for legal and accounting expenses
and fees of the registrar and transfer agent) incurred by the Company pursuant
to the provisions of Section 4(a)(viii) of this Agreement; provided, however,
that each Selling Shareholder severally agrees to reimburse the Company for any
reimbursement made by the Company to the Underwriters pursuant to Section
4(a)(viii) hereof to the extent such reimbursement resulted from the failure or
refusal on the part of such Selling Shareholder to comply under the terms or
fulfill any of the conditions of this Agreement.
(ii) If this Agreement shall be terminated by the
Underwriters because of any failure, refusal or inability on the part of such
Selling Shareholder to perform any
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<PAGE> 18
agreement on such Selling Shareholder's part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled by such Selling Shareholder is not fulfilled, such Selling
Shareholder agrees to reimburse the several Underwriters for all out-of-pocket
disbursements (including fees and disbursements of counsel for the
Underwriters) incurred by the Underwriters in connection with their
investigation, preparing to market and marketing the Securities or in
contemplation of performing their obligations hereunder. The Selling
Shareholder shall not in any event be liable to any of the Underwriters for
loss of anticipated profits from the transactions covered by this Agreement.
(iii) The Securities to be sold by such Selling
Shareholder, represented by the certificates on deposit with the Custodian
pursuant to the Custody Agreement of such Selling Shareholder, are subject to
the interest of the several Underwriters and the other Selling Shareholders;
the arrangements made for such custody are, except as specifically provided in
the Custody Agreement, irrevocable; and the obligations of such Selling
Shareholder hereunder shall not be terminated, except as provided in this
Agreement or in the Custody Agreement, by any act of such Selling Shareholder,
by operation of law, whether by the liquidation, dissolution or merger of such
Selling Shareholder, by the death of such Selling Shareholder, or by the
occurrence of any other event. If any Selling Shareholder should liquidate,
dissolve or be a party to a merger or if any other such event should occur
before the delivery of the Securities hereunder, certificates for the
Securities deposited with the Custodian shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such
liquidation, dissolution, merger or other event had not occurred, whether or
not the Custodian shall have received notice thereof.
(iv) Such Selling Shareholder will not, without your prior
written consent, offer for sale, sell, contract to sell, grant any option for
the sale of or otherwise dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase or
acquire, Common Stock, except to the Underwriters pursuant to this Agreement,
for a period of 180 days after the commencement of the public offering of the
Securities by the Underwriters.
(v) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to or which might reasonably
be expected to cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Securities,
and has not effected any sales of Common Stock which, if effected by the
Company, would be required to be disclosed in response to Item 701 of
Regulation S-K.
(vi) Such Selling Shareholder shall immediately notify you
if any event occurs, or of any change in information relating to such Selling
Shareholder or the Company or any new information relating to the Company or
relating to any matter stated
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<PAGE> 19
in the Prospectus or any supplement thereto (including any term sheet within
the meaning of Rule 434 of the Rules and Regulations), which results in the
Prospectus (as supplemented) including an untrue statement of a material fact
or omitting to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS
The obligations of the several Underwriters hereunder are subject to
the accuracy, as of the date hereof and at each of the First Closing Date and
the Second Closing Date (as if made at such Closing Date), of and compliance
with all representations, warranties and agreements of the Company and the
Selling Shareholders contained herein, to the performance by the Company and
the Selling Shareholders of their respective obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., Central time, on the date of this Agreement, or such
later time and date as you, as Representatives of the several Underwriters,
shall approve, and all filings required by Rules 424, 430A and 434 of the Rules
and Regulations shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereof shall have
been issued; no proceedings for the issuance of such an order shall have been
initiated or threatened; 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 your satisfaction.
(b) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto (including any term sheet within the meaning of Rule 434 of
the Rules and Regulations), contains an untrue statement of fact which, in your
reasonable opinion, is material, or omits to state a fact which, in your
opinion, is material and is required to be stated therein or necessary to make
the statements therein not misleading.
(c) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, the Company shall not have incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business, or declared or paid any
dividends or made any distribution of any kind with respect to its capital
stock; and there shall not have been any change in the capital stock (other
than a change in the number of outstanding shares of Common Stock due to the
issuance of shares upon the exercise of outstanding options or warrants), or
any material change in the short-term or long-term debt of the Company, or any
issuance of options, warrants, convertible securities or other rights to
purchase the capital stock of the
-19-
<PAGE> 20
Company, or any material adverse change or any development involving a
prospective material adverse change (whether or not arising in the ordinary
course of business), in the general affairs, condition (financial or
otherwise), business, key personnel, property, prospects, net worth or results
of operations of the Company, taken as a whole, that, in your judgment, makes
it impractical or inadvisable to offer or deliver the Securities on the terms
and in the manner contemplated in the Prospectus.
(d) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, the opinion of Preston Gates &
Ellis, counsel for the Company and the Selling Shareholders, dated such Closing
Date and addressed to you, in the form attached hereto as Exhibit A.
In rendering such opinions such counsel may rely (i) as to matters of
law other than the law of the State of Washington and federal law, upon the
opinion or opinions of local counsel, provided that the extent of such reliance
is specified in such opinion and that such counsel shall state that such
opinion or opinions of local counsel are satisfactory to them and that they
believe they and you are justified in relying thereon and (ii) as to matters of
fact, to the extent such counsel deems reasonable upon certificates of officers
of the Company provided that the extent of such reliance is specified in such
opinion.
(e) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, such opinion or opinions from
Perkins Coie, counsel for the several Underwriters, dated such Closing Date and
addressed to you, with respect to the formation of the Company, the validity of
the Securities, the Registration Statement, the Prospectus and other related
matters as you reasonably may request, and such counsel shall have received
such papers and information as they request to enable them to pass upon such
matters.
(f) On each Closing Date you, as Representatives of the several
Underwriters, shall have received a letter of Ernst & Young LLP, dated such
Closing Date and addressed to you, confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under
Rule 2-01 of Regulation S-X of the Commission, and stating, as of the date of
such letter (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than five days prior to the date of
such letter), the conclusions and findings of said firm with respect to the
financial information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the letter
so to be delivered on such Closing Date shall be to confirm the conclusions and
findings set forth in such prior letter.
-20-
<PAGE> 21
(g) On each Closing Date, there shall have been furnished to you,
as Representatives of the Underwriters, a certificate, dated such Closing Date
and addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company, to the effect that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, in all material respects, as if made at
and as of such Closing Date, 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 such Closing Date;
(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment thereof or the
qualification of the Securities for offering or sale has been issued, and no
proceeding for that purpose has been instituted or, to the best of their
knowledge, is contemplated by the Commission or any state or regulatory body;
and
(iii) The signers of said certificate have carefully
examined the Registration Statement and the Prospectus, and any amendments
thereof or supplements thereto (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations), and (A) such documents contain all
statements and information required to be included therein, the Registration
Statement, or any amendment thereof, does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, and the Prospectus, as amended or
supplemented, 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, (B) 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, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions, not in the ordinary
course of business, or declared or paid any dividends or made any distributions
of any kind with respect to its capital stock, except for those dividends on
the Company's Class A Preferred Stock and Class D Preferred Stock to be paid at
the First Closing in the amount set forth in the Registration Statement under
"Use of Proceeds" and except as disclosed in the Prospectus, there has not been
any change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock, of the Company, or
any material adverse change or any development involving a prospective material
adverse change (whether or not arising
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<PAGE> 22
in the ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects, net
worth or results of operations of the Company, taken as a whole, and (D) except
as stated in the Registration Statement and the Prospectus, there is not
pending, or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company is a party before or by any
court or governmental agency, authority or body, or any arbitrator, which might
result in any material adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the Company, taken
as a whole.
(h) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, a certificate or certificates,
dated such Closing Date and addressed to you, signed by each of the Selling
Shareholders or such Selling Shareholder's Attorneys-in-Fact to the effect
that the representations and warranties of such Selling Shareholder contained
in this Agreement are true and correct as if made at and as of such Closing
Date, and that such Selling Shareholder has complied with all the agreements
and satisfied all the conditions on such Selling Shareholder's part to be
performed or satisfied at or prior to such Closing Date.
(i) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or
they may have reasonably requested.
(j) The Securities shall have been approved for quotation on
Nasdaq.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and counsel for the Underwriters.
The Company will furnish you with such conformed copies of such opinions,
certificates, letters and other documents as you shall reasonably request.
6. INDEMNIFICATION AND CONTRIBUTION
(a) The Company and each Selling Shareholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise (including in
settlement of any litigation if such settlement is effected with the written
consent of the Company and/or such Selling Shareholders, as the case may be),
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, including
the information deemed to be a part of the Registration Statement at the time
of effectiveness pursuant to Rules 430A and 434(d) of the Rules and
Regulations, if applicable, any Preliminary
-22-
<PAGE> 23
Prospectus, the Prospectus, or any amendment or supplement thereto (including
any term sheet within the meaning of Rule 434 of the Rules and Regulations), or
arise out of or are based upon 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, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending against such loss, claim, damage, liability or
action; provided, however, that neither the Company nor any Selling Shareholder
shall 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, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof; and further provided, however,
that in no event shall any Selling Shareholder be liable under the provisions
of this Section 6 for any amount in excess of the aggregate amount of proceeds
such Selling Shareholder received from the sale of the Securities pursuant to
this Agreement.
In addition to their other obligations under this Section 6(a), the
Company and each Selling Shareholder, jointly and severally, agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 6(a),
they will reimburse each Underwriter on a monthly basis for all reasonable
legal fees 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 and/or the Selling Shareholder'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 Underwriter that received such payment shall
promptly return it to the party or parties that made such payment, 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)
announced from time to time by The Chase Manhattan Bank, N.A. (the "Prime
Rate"). Any such interim reimbursement payments which are not made to an
Underwriter within 30 days of a request for reimbursement shall bear interest
at the Prime Rate from the date of such request. This indemnity agreement
shall be in addition to any liabilities which the Company or the Selling
Shareholders may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company
and each Selling Shareholder against any losses, claims, damages or liabilities
to which the Company and the Selling Shareholders may become subject, under the
Act or otherwise (including in settlement of any litigation, if such settlement
is effected with the written
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<PAGE> 24
consent of such Underwriter), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations), or arise out of or are based upon 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, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by you, or by such Underwriter
through you, specifically for use in the preparation thereof, and will
reimburse the Company and the Selling Shareholders for any legal or other
expenses reasonably incurred by the Company or any such Selling Shareholder in
connection with investigating or defending against any such loss, claim,
damage, liability or action.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, that if, in the sole reasonable judgment of the Representatives, it is
advisable for the Underwriters to be represented as a group by separate
counsel, the Representatives shall have the right to employ a single counsel to
represent the Representatives and all Underwriters who may be subject to
liability arising from any claim in respect of which indemnity may be sought by
the Underwriters under subsection (a) of this Section 6, in which event the
reasonable fees and expenses of such separate counsel shall be borne by the
indemnifying party or parties and reimbursed to the Underwriters as incurred
(in accordance with the provisions of the second paragraph in subsection (a)
above). An indemnifying party shall not be
-24-
<PAGE> 25
obligated under any settlement agreement relating to any action under this
Section 6 to which it has not agreed in writing.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholders on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and Selling Shareholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Shareholders or the
Underwriters and the parties' relevant intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Shareholders and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were to
be determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the first
sentence of this subsection (d). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending against any action or claim which is the subject of
this subsection (d). Notwithstanding the provisions of this subsection (d),
(i) no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and
(ii) no Selling Shareholder shall be required to contribute any amount in
excess of the
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<PAGE> 26
aggregate amount of proceeds such Selling Shareholder received from the sale of
the Securities pursuant to this Agreement. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Shareholders
under this Section 6 shall be in addition to any liability which the Company
and the Selling Shareholders may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 6 shall be in addition to any liability that the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company (including any person who, with his
consent, is named in the Registration Statement as about to become a director
of the Company), to each officer of the Company who has signed the Registration
Statement and to each person, if any, who controls the Company or any Selling
Shareholder within the meaning of the Act.
7. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY
All representations, warranties, and agreements of the Company herein
or in certificates delivered pursuant hereto, and the agreements of the several
Underwriters, the Company and the Selling Shareholders contained in Section 6
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
thereof, or the Company or any of its officers, directors, or controlling
persons, or any Selling Shareholders or any controlling person thereof, and
shall survive delivery of, and payment for, the Securities to and by the
Underwriters hereunder.
8. SUBSTITUTION OF UNDERWRITERS
(a) If any Underwriter or Underwriters shall fail to take up and
pay for the amount 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 the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule II
hereto, the remaining Underwriters shall be obligated to take up and pay for
(in proportion to their respective underwriting obligations hereunder as set
forth in Schedule II hereto except as may otherwise be determined by you) the
Firm Shares that the withdrawing or defaulting Underwriters agreed but failed
to purchase.
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<PAGE> 27
(b) If any Underwriter or Underwriters shall fail to take up and
pay for the amount 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 the amount of Firm Shares not purchased aggregates more than
10% of the total amount of Firm Shares set forth in Schedule II hereto, and
arrangements satisfactory to you for the purchase of such Firm Shares by other
persons are not made within 36 hours thereafter, this Agreement shall
terminate. In the event of any such termination neither the Company nor any
Selling Shareholder shall be under any liability to any Underwriter (except to
the extent provided in Section 4(a)(viii), Section 4(b)(ii) and Section 6
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 amount of Firm Shares agreed by such Underwriter to be purchased
hereunder) be under any liability to the Company or the Selling Shareholders
(except to the extent provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased by the
non-defaulting Underwriters or by any other party or parties, the
non-defaulting Representatives or the Company shall have the right to postpone
the First Closing Date for not more than seven business days in order that the
necessary changes in the Registration Statement, Prospectus and any other
documents, as well as any other arrangements, may be effected. As used herein,
the term "Underwriter" includes any person substituted for an Underwriter under
this Section 8.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION
(a) This Agreement shall become effective at 10:00 a.m., Central
time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall
become effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section 9, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to
securities dealers, whichever shall first occur. By giving notice as
hereinafter specified before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company may prevent this
Agreement from becoming effective without liability of any party to any other
party, except that the provisions of Section 4(a)(viii), Section 4(b)(ii) and
Section 6 hereof shall at all times be effective.
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<PAGE> 28
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the First Closing Date, and the option
referred to in Section 3(b), if exercised, may be cancelled at any time prior
to the Second Closing Date, if (i) the Company shall have failed, refused or
been unable, at or prior to such Closing Date, to perform any agreement on its
part to be performed hereunder, (ii) any other condition of the Underwriters'
obligations hereunder is not fulfilled, (iii) trading on the New York Stock
Exchange, the American Stock Exchange or Nasdaq shall have been wholly
suspended, (iv) minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the New
York Stock Exchange, the American Stock Exchange or Nasdaq, by such exchange or
by order of the Commission or any other governmental authority having
jurisdiction, (v) a banking moratorium shall have been declared by federal, New
York or Washington authorities, or (vi) there has occurred any material adverse
change in the financial markets in the United States or an outbreak of major
hostilities (or an escalation thereof) in which the United States is involved,
a declaration of war by Congress, any other substantial national or
international calamity or any other event or occurrence of a similar character
since the execution of this Agreement that in your judgment, makes it
impractical or inadvisable to proceed with the completion of the sale of and
payment for the Securities. Any such termination shall be without liability of
any party to any other party except that the provisions of Section 4(a)(viii),
Section 4(b)(ii) and Section 6 hereof shall at all times be effective.
(c) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 9, the Company and
an Attorney-in-Fact, on behalf of the Selling Shareholders, shall be notified
promptly by you by telephone or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, you and an
Attorney-in-Fact, on behalf of the Selling Shareholders, shall be notified by
the Company by telephone or telegram, confirmed by letter.
10. DEFAULT BY ONE OR MORE OF THE SELLING SHAREHOLDERS OR THE COMPANY
If one or more of the Selling Shareholders shall fail at the First
Closing Date to sell and deliver the number of Securities which such Selling
Shareholder or Selling Shareholders are obligated to sell hereunder, and the
remaining Selling Shareholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder to the total number of Securities to be sold by all Selling
Shareholders as set forth in Schedule I hereto, then the Underwriters may at
your option, by notice from you to the Company and the non-defaulting Selling
Shareholders, either (a) terminate this Agreement without any liability on the
part of any non- defaulting party or (b) elect to purchase the Securities which
the Company and the non-defaulting Selling Shareholders have agreed to sell
hereunder.
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<PAGE> 29
In the event of a default by any Selling Shareholder as referred to in
this Section 10, either you or the Company or, by joint action only, the
non-defaulting Selling Shareholders shall have the right to postpone the First
Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
If the Company shall fail at the First Closing Date to sell and
deliver the number of Securities which it is obligated to sell hereunder, then
this Agreement shall terminate without any liability on the part of any
non-defaulting party.
No action taken pursuant to this Section 10 shall relieve the Company
or any Selling Shareholders so defaulting from liability, if any, in respect of
such default.
11. INFORMATION FURNISHED BY UNDERWRITERS
The statements set forth in the last paragraph of the cover page and
under the caption "Underwriting" in any Preliminary Prospectus and in the
Prospectus constitute the written information furnished by or on behalf of the
Underwriters referred to in Section 2 and Section 6 hereof.
12. NOTICES
Except as otherwise provided herein, all communications hereunder
shall be in writing or by telegraph and, if to the Underwriters, shall be
mailed, telegraphed or delivered to the Representatives, c/o Piper Jaffray
Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota
55402, except that notices given to an Underwriter pursuant to Section 6 hereof
shall be sent to such Underwriter at the address stated in the Underwriters'
Questionnaire furnished by such Underwriter in connection with this offering;
if to the Company, shall be mailed, telegraphed or delivered to it at 14500
Northeast 87th Street, Redmond, Washington 98052-3431, Attention: Edgar F.
Rampy; if to any of the Selling Shareholders, at the address of the
Attorneys-in-Fact as set forth in the Powers of Attorney, or in each case to
such other address as the person to be notified may have requested in writing.
All notices given by telegram shall be promptly confirmed by letter. Any party
to this Agreement may change such address for notices by sending to the parties
to this Agreement written notice of a new address for such purpose.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns and the controlling
persons, officers and directors referred to in Section 6. Nothing in this
Agreement is intended or shall be construed to give to any other person, firm
or corporation any legal or equitable remedy
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<PAGE> 30
or claim under or in respect of this Agreement or any provision herein
contained. The term "successors and assigns" as herein used shall not include
any purchaser, as such purchaser, of any of the Securities from any of the
several Underwriters.
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota.
[Signature Page Follows]
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<PAGE> 31
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement among the Company,
the Selling Shareholders and the several Underwriters in accordance with its
terms.
Very truly yours,
SEAMED CORPORATION
By
---------------------------------
W. Robert Berg
President and Chief Executive Officer
SELLING SHAREHOLDERS NAMED IN
SCHEDULE I ATTACHED HERETO
By
---------------------------------
Attorney-in-Fact
Confirmed as of the date first
above mentioned, on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
PIPER JAFFRAY INC.
By
--------------------------------
Managing Director
NEEDHAM & COMPANY, INC.
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<PAGE> 32
By
--------------------------------
Managing Director
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<PAGE> 33
SCHEDULE I
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
NAME TO BE SOLD
----------------------------------------------- ----------
<S> <C>
Allen & Co., Inc. 33,333
Gary Altman 3,000
Peter Anastos 322
Robert Arnold 12,400
Brae Group Inc. 25,000
Robert M. Bridgforth, Jr. 3,689
Collier Enterprises 161,347
The Equitable Life Assurance Society of the
United States 38,535
Equitable Variable Life Insurance Company 15,358
William D. Ellis 10,000
IBM Retirement Plan Trust 27,788
J.K. Jamieson 4,166
Dorothy Mae Kennedy 20,000
Lee Paul Klingenstein 2,781
Terry Allen Kramer 33,333
James G. Niven 50,000
Pantaleoni Associates 17,367
Thomas M. Podl 5,000
John W. Poduska 8,342
Allen Puckett 800
Jerry R. Pyle 2,781
Albert T. Robinson 8,412
John P. Rosenthal 1,385
S. B. Enterprises 734
Irwin W. Silverberg 1,385
Gerald M. Starek, Trustee 800
------------
Total 488,058
============
</TABLE>
<PAGE> 34
SCHEDULE II
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM SHARES (1)
----------- -------------------------
<S> <C>
Piper Jaffray Inc.
Needham & Company, Inc.
---------------
Total . . . . . . . . . . . . . . . . . . . . . .
===============
</TABLE>
- ----------------
(1) The Underwriters may purchase up to an additional 277,500 Option
Shares, to the extent the option described in Section 3(b) of the
Agreement is exercised.
<PAGE> 1
EXHIBIT 5.1
__________ __, 1996
SeaMED Corporation
14500 Northeast 87th Street
Redmond, Washington 98052-3431
Re: Registration Statement on Form S-1 of SeaMED Corporation (Commission
File No. 333-13455)
Ladies and Gentlemen:
We have acted as counsel to SeaMED Corporation (the "Company") in
connection with the filing of the above-referenced Registration Statement (the
"Registration Statement") relating to the registration of shares (the "Shares")
of Common Stock, no par value per share, of the Company. In connection
therewith, we have reviewed the Company's Articles of Incorporation, Bylaws,
minutes of appropriate meetings, and such other matters we deemed appropriate.
Based on that review, it is our opinion that the Shares will be, when
sold pursuant to the terms contemplated by the Registration Statement, validly
issued, fully paid and non-assessable under the Washington Business
Corporation Act.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement.
Very truly yours,
<PAGE> 1
Exhibit 10.13
MANUFACTURING AGREEMENT
THIS AGREEMENT, dated as of September 1, 1996, is made and entered into
by SeaMED Corporation ("Seller") and Coinstar, Inc., a Delaware corporation
("Buyer").
Seller and Buyer agree as follows:
SECTION 1. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
following specified meanings:
1.1 "BUYER'S PLANT" means Buyer's plant located in Bellevue, Washington
or such other location in the United States as Buyer may specify for delivery of
any Product.
1.2 "CUSTOMER" means any customer of Buyer, any subsequent owner,
operator or user of any Product and any other Person that has or acquires an
interest in any Product.
1.3 "ORDER" means Buyer's purchase order for Products.
1.4 "DOCUMENTATION" means Specifications and/or Inspection Procedures.
1.5 "INSPECTION PROCEDURES" means detailed inspection procedures for
Product quality assurance and to assure compliance with Specifications in the
form delivered to Seller.
1.6 "LOT" means the number of Products to be delivered for acceptance
testing at the end of each week pursuant to firm delivery dates under an Order.
1.7 "PERSON" means any individual, corporation, partnership, trust,
association or other entity.
1.8 "PURCHASED PRODUCT" means Product purchased by Buyer in accordance
with the acceptance procedures under Section 4.1.
1.9 "PRODUCT" means the Coinstar, Inc. Jefferson-1000 Self Service Coin
Machine (and any spare parts or components of the same) manufactured or to be
manufactured by Seller, as more particularly described in the Specifications.
1.10 "SELLER'S PLANT" means Seller's plant where it manufactures or
will manufacture Products, currently located at 15450 N.E. 95th Street, Redmond,
Washington 98052.
<PAGE> 2
1.11 "SPECIFICATIONS" means the specifications for each Product in the
form delivered to Seller, as may be changed from time to time pursuant to
paragraph 2.1.
1.12 "TERM" means the period commencing with the date of this Agreement
and ending on the anniversary of the date of this Agreement. Thereafter, the
Agreement shall continue automatically for subsequent one (1) year terms. Either
party can terminate this Agreement by giving written notice to the other more
than thirty (30) days prior to the end of any one (1) year term.
1.13 "TOOLING" means Buyer purchased tooling set forth in Exhibit A, as
the same may be amended from item to time.
1.14 "WARRANTY PERIOD" means, with respect to each Purchased Product,
the period ending upon the expiration of *
SECTION 2. PRODUCT CHANGES; TOOLING
2.1 CHANGES TO DOCUMENTATION. Seller shall revise the Documentation
only in accordance with the change control procedures set forth in Exhibit B.
Buyer shall be the owner of all Documentation and all associated patent,
copyright, trade secret and other proprietary rights.
2.2 TOOLING. Seller shall hold the Tooling for use in the manufacture,
assembly and testing of the Products. Buyer shall bear the cost of
manufacturing, preventative maintenance and normal wear repairing of all
Tooling. Buyer shall be the owner of all Tooling (and Seller shall place a
permanent marking on all Tooling showing Buyer's ownership and shall execute and
deliver any and all documents as Buyer may reasonably request to vest, evidence
or give public notice of Buyer's ownership). Seller shall deliver any and all
Tooling to Buyer promptly on request and in any event at the end of the Term in
good operating condition and state of repair, ordinary wear and tear excepted,
together with any and all related specifications, drawings, manuals,
documentation and records (e.g., pertaining to the operation, maintenance and
repair of the Tooling).
2.3 BUYER SUPPLIED COMPONENTS. Buyer will supply the coin counting
mechanism and sheet feeder to Seller for assembly into the Product. Any parts
inventory of such Buyer supplied components shall remain the sole and exclusive
property of Buyer.
SECTION 3. PURCHASE AND SALE OF PRODUCTS
3.1 PRODUCTION PRODUCTS. Seller shall manufacture, sell and deliver to
Buyer such Products as Buyer may order from Seller during the Term.
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 under the Securities Act of 1933, as
amended.
-2-
<PAGE> 3
3.2 ORDERS; DELIVERY SCHEDULE. Each of Buyer's Orders for Products
shall be submitted to Seller substantially in the form of the purchase order
attached as Exhibit C or such other form as may be utilized by Buyer for
ordering Products under this Agreement. Each Order shall contain a description
of the Products ordered, specify the shipping destination (if any at that time),
specify the quantity of Products ordered and specify the dates on which each
ordered Product is to be made available to Buyer for acceptance testing with
respect to the first three month period covered by the Order schedule, along
with a forecast of when additional Product will be acceptance tested for the
remaining quarters covered by the Order. No less than ninety (90) days prior to
any such forecasted quarter, Buyer will supply Seller with a definitive schedule
for Product acceptance testing timing and quantities for such quarter. The
definitive quantity may vary from the forecasted quantity by plus or minus
thirty percent (30%). Time is of the essence in this Agreement. If one or more
Lots is not made available for delivery and acceptance testing in accordance
with the definitive schedule provided by Buyer ("Short Lot(s)"), and the
reason(s) for such delay are within the reasonable control of Seller, and Seller
fails to ensure that, within eight (8) weeks from the date of the first Short
Lot, the cumulative number of Products in Lots actually made available for
acceptance testing and delivery is again equal to the number required through
that date under the definitive schedule, Seller shall be in material breach of
this Agreement and Buyer may terminate this Agreement and all or part of any
outstanding Orders at any time thereafter. Upon such termination, Buyer shall
pay Seller an amount equal to Seller's Burdened Costs (as defined in Section
3.5.2 below) for raw materials which are purchased by Seller (or for which
Seller has then placed noncancelable purchase orders) specifically for the
manufacture of such Products and which are returned to Seller's suppliers, sold
or otherwise disposed of as directed by Buyer.
3.3 PURCHASE PRICE. As full compensation for the Products and the
performance of Seller's obligations under this Agreement, Buyer shall pay Seller
the price for each Product as established in each Order. Buyer requested changes
to (a) the Documentation or (b) to ordering components for subassemblies
resulting in a quantity less than the total purchase quantity for such Products
under such Order, may cause an increase or decrease in underlying materials
costs, and therefore in the price of Products.* The parties will work together
to ensure that the mechanics and documentation of implementing price changes
occur in an efficient manner for both Buyer and Seller.
3.4 PAYMENT. Seller shall issue its invoice for the price of a Product
upon Buyer's approval of the Product pursuant to paragraph 4.1. Buyer shall pay
Seller the amount due under each of Seller's invoices within thirty (30) days
after Buyer's receipt of the invoice. Seller shall promptly furnish Buyer with
such documentation and information as Buyer may reasonably request to verify the
amount due under any of Seller's invoices.*
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 under the Securities Act of 1933, as
amended.
-3-
<PAGE> 4
3.5 CANCELLATION OF ORDERS.
3.5.1 Buyer may not cancel any Order as it applies to Products
scheduled for delivery within ninety (90) days after Buyer gives Seller notice
of the cancellation.
3.5.2 Buyer may cancel any Order as it applies to Products
scheduled for delivery more than ninety (90) days after Buyer gives Seller
notice of the cancellation; provided that, with respect to canceled Products
scheduled for delivery more than ninety (90) but less than three hundred sixty
five (365) days after Buyer gives Seller notice of the cancellation, Buyer shall
agree to pay Seller an amount equal to Seller's Burdened Costs (as defined
below) for raw materials which are purchased by Seller (or for which Seller has
then placed noncancelable purchase orders) specifically for the manufacture of
such Products and which are returned to Seller's suppliers, sold or otherwise
disposed of as directed by Buyer. Seller's "Burdened Costs" shall equal the
difference between the amount paid by Seller for such materials plus a handling
charge of * plus any bill back by Seller's suppliers for taking less than
amounts ordered with respect to Product Orders and the amount of any refund,
credit, allowance or compensation received by or on behalf of Seller for such
return, sale or other disposition. Seller shall furnish Buyer such receipts,
documents and other information as Buyer may reasonably request to verify
Seller's net Burdened Costs under this Agreement.
3.5.3 No cancellation shall relieve Buyer or Seller of any of
their respective obligations under this Agreement as to any Products not
canceled. If Buyer purports to cancel all or any part of any Order for Seller's
breach or default and it is determined that Seller was not in breach or default
that would permit such cancellation, then such cancellation shall be deemed to
have been a cancellation pursuant to this paragraph and the rights and
obligations of the parties shall be determined accordingly.
3.6 SPARE PARTS. Seller will produce and sell and provide Buyer with
spare parts for the Products, which are configured and tested to the current
Product Specifications pursuant to Orders for such spare parts. * On Orders for
spares that provide for future delivery to Buyer, Seller will reasonably
accommodate Buyer's requests, as necessary, to delay delivery or utilize some
portion of such spares in future Product manufacturing.
SECTION 4. ACCEPTANCE, DELIVERY AND SHIPMENT
4.1 ACCEPTANCE. Delivery of Products to Buyer shall be deemed to have
occurred upon acceptance of each lot of Products under any Order in accordance
with the following acceptance procedure. Seller shall notify Buyer when a
particular Product Lot is ready for acceptance testing. Buyer will promptly
inspect all or a portion of such Product Lot at Seller's Plant. Buyer may
conduct a statistical sampling of each such Lot of Products. If five percent
(5%) or more of the lot fails to comply with the warranties set forth in
paragraph 7.1, then Seller shall repair the nonconforming Products at Seller's
Plant using Seller's labor, tools and materials,
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 under the Securities Act of 1933, as
amended.
-4-
<PAGE> 5
all at Seller's expense. However, if Seller will not be able to make, or does
not make, such required repairs within a reasonable time, Buyer may, at its
option, repair the noncomplying Products and charge Seller the reasonable cost
of the repair. Even if a Product Lot is accepted, Seller shall remain
responsible to correct nonconformities in any Product in such Lot under
paragraph 7.2.
4.2 STORAGE OF COMPLETED PRODUCTS. Accepted Product lots shall be
stored in a clean and safe condition by Seller at Seller's Plant or any other
mutually acceptable location until Buyer requests shipment of individual
Products to Buyer's Plant. Seller shall retain all risk of loss with respect to
such stored Products until shipment. Once accepted pursuant to Section 4.1,
Buyer shall retain all right, title and interest in and to such Products. Seller
shall execute any and all documents reasonably required in order to protect
Buyer's ownership interest in all accepted and delivered Products. Seller shall
maintain general liability and any other insurance reasonably required to insure
against loss or damage of any nature to the Products and Tooling in amounts
equal to the full insurable value thereof. At Buyer's request, Seller shall
provide a certificate evidencing the above required insurance coverage.
4.3 SHIPMENT. Upon Buyer's request, Seller shall properly mark and
otherwise identify each accepted Product for shipment to Buyer's Plant. Buyer
shall arrange and pay for all transportation, handling, transit insurance,
duties, governmental inspections and other requirements for delivery of the
Products in accordance with this Agreement. Shipments shall be F.O.B. Seller's
Plant.
4.4 PACKAGING. Seller shall properly package the Purchased Products
according to Buyer's instructions for protection against damage or deterioration
that may result from shipment, handling, storage or other cause.
4.5 SCHEDULE. Seller shall make the Products available for Buyer's
acceptance testing in accordance with the schedule set forth in the applicable
Order, as revised and updated as described in Section 3.2. However, Seller shall
not be liable for delays in delivery due to causes which are not reasonably
foreseeable, which are beyond Seller's control and which cannot be overcome by
the exercise of reasonable diligence; provided that Seller gives Buyer prompt
written notice of the circumstances giving rise to the delay, the anticipated
duration of the delay and the action being taken by Seller to overcome or
mitigate the delay. The specified delivery date shall be extended by the period
of any such delay.
SECTION 5. INSPECTION
5.1 SELLER'S PLANT. Seller's Plant and all Tooling shall be subject to
inspection by Buyer at any time during normal business hours upon twenty-four
(24) hours prior notice. Seller shall provide Buyer with safe and sufficient
access for such inspection.
5.2 BY SELLER. Seller shall perform such detailed inspections and tests
of each Purchased Product as are necessary to ensure that such Product complies
with the requirements of this Agreement. Without limiting the generality of the
foregoing, Seller shall:
-5-
<PAGE> 6
(a) comply with the Inspection Procedures applicable to each
Purchased Product;
(b) inspect and test all materials and components to be
incorporated in any Purchased Product on receipt in order to assure material and
component quality; and
(c) keep and maintain complete and adequate records of all
inspections and tests performed on Purchased Products, and make such records
available to Buyer for examination, copying and audit.
5.3 BY BUYER. All Products shall at all times be subject to inspection
and testing by Buyer upon 24 hours prior notice to Seller. Seller shall provide
Buyer with safe and sufficient access, equipment and facilities for any such
inspection or tests prior to delivery. No acceptance of any Products shall be
construed to result from any inspection, test or delay or failure to inspect or
test by Buyer prior to final inspection and test of such Products by Buyer.
Buyer shall be afforded a reasonable opportunity to inspect each Product for
damage at its specified destination. No inspection, test, delay or failure to
inspect or test, or failure to discover any defect or noncompliance by Buyer
shall relieve Seller of any of its obligations under this Agreement or impair
Buyer's right to reject defective or noncomplying Products or any other right or
remedy afforded to Buyer.
SECTION 6. COMPLIANCE WITH LAWS AND STANDARDS
6.1 GENERAL. Seller shall comply (and shall ensure that all Products
and Seller's subcontractors and suppliers of every tier comply) with all
applicable laws, ordinances, rules, regulations, orders, licenses, permits and
other requirements, now or hereafter in effect, of any governmental authority.
Seller shall furnish such documents as may be required to effect or evidence
such compliance. All laws, ordinances, rules, regulations and orders required to
be incorporated in agreements of this character are incorporated in this
Agreement by this reference.
6.2 INDUSTRY STANDARDS. Seller shall produce all Products in accordance
with, and shall ensure that each Product complies with, the following
requirements as now or hereafter in effect:
(a) Federal Communications Commission ("FCC") Class "A"
Standard agency approvals; and
(b) Underwriters Laboratory ("UL") Standard 751 agency
approvals.
Seller shall provide Buyer with such specifications, testimony and other
assistance as Buyer may reasonably request in connection with the listing,
approval, registration or satisfaction of similar requirements of any trade
association or other organization, as the same may apply to the Product.
-6-
<PAGE> 7
SECTION 7. WARRANTY
7.1 WARRANTY. Seller warrants to Buyer that*
7.2 CORRECTION OF NONCOMPLIANCE. If at any time during the Warranty
Period Buyer notifies Seller of any failure to comply with the warranty set
forth in paragraph 7.1, Seller shall promptly correct such noncompliance (e.g.,
by repair or replacement of the noncomplying Product) and remedy any damage to
the Product resulting from such failure.* If Buyer rejects any Products that do
not comply with the warranty set forth in paragraph 7.1, Seller shall have a
reasonable time to correct the noncompliance. If Seller fails to correct the
noncompliance within a reasonable time, Buyer may cancel the Order as it applies
to the noncomplying Products only without any cost, obligation or liability to
Buyer with respect to such noncomplying Products and without prejudice to any
other rights or remedies of Buyer with respect to such noncompliance (e.g., as
to damages or cover).
7.3 SELLER'S FAILURE TO CORRECT NONCOMPLIANCE. If during the Warranty
Period Buyer requests Seller to correct any Product that does not comply with
the warranty set forth in paragraph 7.1 and Seller thereafter fails to correct
the noncompliance or otherwise comply with the requirements of paragraph 7.2, or
indicates its inability or unwillingness to comply, then Buyer may perform (or
cause performance of) the correction or otherwise achieve compliance by the most
expeditious means available to it (by contract or otherwise) and charge to or
otherwise recover (for example, by offset against the compensation otherwise
payable to Seller under this Agreement) from Seller all reasonable costs thereof
that are associated with the direct repair of the Product. Buyer's rights to
perform corrections, achieve compliance and recover the costs thereof from
Seller shall not be interpreted or construed as obligating Buyer to make any
correction or otherwise achieve compliance. Further, Seller's obligations
(including warranty) shall not be limited or reduced in any way because of any
corrections performed or caused to be performed by Buyer or Buyer's rights to
perform the same. However, Seller will have no obligation for damage to a
Product where such damage is caused by the efforts of Buyer or Buyer's
representative in correcting the noncompliance.
7.4 RESPONSE TIME. Seller shall use its best efforts to perform such
warranty service by a qualified service technician within* from the time that
Seller receives the defective Product part, assuming material availability. If
the claim is not within Seller's warranty obligations under this paragraph 7,
Seller shall immediately notify Buyer and, at Buyer's option, shall either
return such Product part to Buyer or shall perform the required service under
paragraph 7.5 as directed by Buyer.
7.5 SERVICE NOT COVERED BY WARRANTY. In the event that any Product
requires repair or other service that is not covered by Seller's warranty
obligations under this paragraph 7 (e.g., after expiration of the Warranty
Period), Seller shall provide such service *. Seller shall use its best efforts
to complete such repairs within *.
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 under the Securities Act of 1933, as
amended.
-7-
<PAGE> 8
*
SECTION 8. ADDITIONAL OBLIGATIONS OF SELLER
8.1 PROPRIETARY NATURE OF PRODUCTS. The Documentation, Tooling and
Products involve valuable patent, copyright, trade secret and other proprietary
rights of Buyer. Accordingly, Seller shall not, without Buyer's prior written
consent:
(a) sell any Product to any Person other than Buyer;
(b) manufacture any Product except for sale to Buyer under
this Agreement;
(c) deliver or disclose any Documentation, Tooling, or any
confidential or proprietary information of or relating to Buyer (e.g., whether
of a technical, financial, business, trade secret or other nature) to any Person
other than Buyer; or
(d) use any Documentation or Tooling for any purpose other
than the manufacture of Products for sale to Buyer under this Agreement.
8.2 COMPONENT SPECIFICATIONS. Seller shall provide upon request from
Buyer a complete list of all pans and components used in the Product and the
manufacturers of such parts and components, specifically noting which parts or
components are available only from the manufacturer listed. Seller shall ensure
that all Products and pertinent parts and components of all Products are
serialized and otherwise identified in accordance with any reasonable
requirements specified by Buyer.
8.3 PRODUCT DEFECT NOTIFICATION. Seller shall immediately notify Buyer
by fax or telephone of any material or recurring defect, deficiency or
nonconformity discovered with respect to any Product or any similar product
manufactured by Seller.
8.4 MODIFICATION. Seller shall not modify or authorize any modification
affecting fit, form or function of any Product, or which would be significant
with respect to requirements of any governmental authority, without the prior
written consent of Buyer. Seller shall promptly disclose in writing to Buyer all
potential modifications (including, but not necessarily limited to, alterations,
improvements and enhancements), methods, applications, inventions, ideas and
know-how relating to the Product, or any similar product manufactured by Seller,
obtained, developed or made by Seller during the Term.
SECTION 9. MISCELLANEOUS
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 under the Securities Act of 1933, as
amended.
-8-
<PAGE> 9
9.1 NOTICES. Any notice, request, authorization, direction or other
communication under this Agreement shall be given in writing and be delivered in
person or by first-class U.S. mail, properly addressed and stamped with the
required postage, to the intended recipient as follows:
If to Seller: SeaMED Corporation
14500 N.E. 87th Street
Redmond, WA 98052
Attention: President
If to Buyer: Coinstar, Inc.
13231 SE 36th St., Suite 200
Bellevue, Washington 98006
Attention: President
Either party may change its address specified above by giving the other party
notice of such change in accordance with this paragraph.
9.2 INDEPENDENT CONTRACTOR. Seller is an independent contractor, not an
agent or representative of Buyer. Seller shall not have any right, power or
authority to enter into any agreement for or on behalf of, or incur any
obligation or liability of or to otherwise bind Buyer. This Agreement shall not
be interpreted or construed to create an association, joint venture or
partnership between the parties or to impose any partnership obligation or
liability upon either party.
9.3 NONWAIVER. The failure of either party to insist upon or enforce
strict performance by the other party of any provision of this Agreement or to
exercise any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same shall be
and remain in full force and effect.
9.4 SURVIVAL. Paragraphs 6, 7 and 8.1 (and all provisions of this
Agreement which may reasonably be interpreted or construed as surviving the
completion, expiration, termination or cancellation of this Agreement) shall
survive the completion, expiration, termination or cancellation of this
Agreement.
9.5 ENTIRE AGREEMENT. This Agreement and all outstanding purchase
orders from Buyer to Seller for Product set forth the entire agreement, and
supersede any and all prior agreements, of the parties with respect to the
Products. Buyer shall not be bound by, and specifically objects to, any term,
condition or other provision which is different from or in addition to the
provisions of this Agreement (whether or not it would materially alter this
Agreement) and which is proffered by Seller in any quotation, invoice, shipping
document, acceptance, confirmation, correspondence or otherwise, unless Buyer
specifically agrees to such provision in a written instrument signed by Buyer.
The rights, remedies and warranties afforded to Buyer pursuant to any provision
of this Agreement are in addition to and do not in any way limit any
-9-
<PAGE> 10
other rights, remedies or warranties afforded to Buyer by any other provisions
of this Agreement, by any of Seller's subcontractors or suppliers of any tier or
by law.
9.6 AMENDMENT. No change, amendment or modification of any provision of
this Agreement shall be valid unless set forth in a written instrument signed by
the party to be bound thereby.
9.7 SUCCESSORS AND ASSIGNS. Neither party shall assign (voluntarily, by
operation of law or otherwise) this Agreement or any right, interest or benefit
under this Agreement without the prior written consent of the other party;
provided, however, that either party may assign this Agreement or any of its
rights, interests or benefits in this Agreement without such consent to any
entity which is wholly owned or controlled by, which owns or controls or which
is under common control with the assigning party. No assignment with or without
such consent shall relieve or release either party of any of its obligations
under this Agreement. Subject to the foregoing restriction on assignments, this
Agreement shall be fully binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors, assigns and legal
representatives.
9.8 APPLICABLE LAW. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Washington, except to the
extent such laws may be preempted by the laws of the United States of America.
Seller shall not commence or prosecute any suit, proceeding or claim to enforce
the provisions of this Agreement, to recover damages for breach of or default
under this Agreement, or otherwise arising under or by reason of this Agreement,
other than in the courts of the State of Washington or the District Court of the
United States, Western Division, State of Washington. Seller irrevocably
consents to the jurisdiction of the courts of the State of Washington with venue
laid in King County and of the District Court of the United States, Western
Division, State of Washington.
9.9 FORCE MAJEURE. Neither party shall be liable for any failure to
perform or delay in performing any of its obligations hereunder when such
failure or delay is due to one or more of the following circumstances: any
natural catastrophe, fire, war, riot or civil unrest, or any act, regulation,
restriction, order or intervention of any governmental authority. Upon the
occurrence of such circumstance(s), the affected party shall immediately notify
the other party, keep the other party informed of any further developments and
use all commercially reasonable efforts to overcome the force majeure event.
Immediately after such condition is removed the affected party shall perform
such obligation with all due speed.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on
the day and year first above written.
Seller:
SeaMED Corporation
-10-
<PAGE> 11
By /s/ Donald Rich
V.P. of Operations
Coinstar, Inc.
By /s/ [unreadable]
V.P. Operations
<PAGE> 1
EXHIBIT 10.15
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made as of this
___ day of ___________, ____, by and between SEAMED CORPORATION, a Washington
corporation (the "Company"), and _______________ ("Indemnified Party").
RECITALS
A. As of the date hereof, the Company has provisions for
indemnification of its directors and officers in Article 10 of its Articles of
Incorporation (the "Articles of Incorporation") and Article VII of its Bylaws
(the "Bylaws") which provide for indemnification of the Company's directors and
officers to the fullest extent permitted by law.
B. The indemnification provisions in the Articles of
Incorporation and the Bylaws provide that the right of indemnification is a
contract right of the covered parties.
C. The Bylaws provide that the Company may maintain, at its
expense, insurance to protect itself and any of its directors and officers
against liability asserted against such persons incurred in such capacity
whether or not the Company has the power to indemnify such persons against the
same liability under Section 23B.08.510 or .520 of the Act (as defined below)
or a successor statute.
D. The Company and the Indemnified Party recognize that the
officers and directors of publicly owned companies are frequently joined as
parties to Proceedings (as defined below) against their respective companies as
a result of their serving in such capacity.
E. In order to induce Indemnified Party to serve or continue to
serve the Company, the Company wishes to confirm the contract indemnification
rights provided in the Bylaws and agrees to provide Indemnified Party with the
benefits contemplated by this Agreement and to supplement the provisions of
this Agreement with directors' and officers' liability insurance maintained by
the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and Indemnified Party hereby agree as follows:
1. Definitions. The following terms, as used herein, shall have
the following respective meanings; other capitalized terms used and not
specifically defined in this Section 1 shall have the meanings provided
elsewhere in the Agreement and in the Bylaws:
<PAGE> 2
"Act" means the Washington Business Corporation Act, RCW Title
23B, as amended from time to time.
"Adjudication" shall refer to a final, non-appealable decision
by a court of competent jurisdiction. "Adjudged" shall have a correlative
meaning.
"Covered Amount" means any Loss, Fine and Expense, to the
extent such Loss, Fine or Expense, in type or amount, is not insured under the
D&O Insurance maintained by the Company from time to time.
"Covered Act" means any act or omission of the Indemnified
Party in, or any officer, director, shareholder, agent, employee, fiduciary or
consultant of the Company for which there is alleged by any claimant any claim
against the Indemnified Party by reason of, his or her capacity as a director,
officer, shareholder, employee, agent, fiduciary or consultant of the Company
alleged by any claimant or any claim against Indemnified Party by reason of him
or her serving in such a capacity, or by reason of Indemnified Party serving,
at the request of the Company, in such capacity with another corporation,
partnership, employee benefit plan, trust or other enterprise, in all cases,
whether such alleged act or omission occurred before or after the date of this
Agreement.
"D&O Insurance" means the liability insurance which the
Company may purchase on behalf of Indemnified Party against liability asserted
against or incurred by Indemnified Party in connection with claims arising from
Covered Acts, whether or not the Company would have the power to indemnify the
individual against the same liability under Section 23B.08.510 or 23B.08.520 of
the Act.
"Determination" means a determination, based on the facts
known at the time, made:
(a) by the Board of Directors by majority vote of a
quorum consisting of directors not at the time parties to the Proceeding;
(b) if a quorum cannot be obtained under clause (i), by
majority vote of a duly designated committee of the Board of Directors, in the
manner provided by Section 23B.08.550(2)(b) of the Act;
(c) by special legal counsel, selected in the manner
provided by Section 23B.08.550(2)(c) of the Act, in a written opinion; or
(d) by a majority of the shareholders of the Company,
excluding shares owned or voted under the control of directors who are at the
time parties to the Proceeding.
"Determined" shall have a correlative meaning.
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"Excluded Claim" means any payment for Losses or Expenses in
connection with any claim relating to or arising out of:
(a) acts or omissions of the Indemnified Party Adjudged
to be intentional misconduct or a knowing violation of law;
(b) conduct of the Indemnified Party Adjudged to be in
violation of Section 23B.08.310 of the Act; or
(c) any transaction with respect to which it was Adjudged
that such Indemnified Party personally received a benefit in money, property,
or services to which the Indemnified Party was not legally entitled.
"Expenses" means any reasonable expenses incurred by
Indemnified Party as a result of a claim or claims made against Indemnified
Party from Covered Acts, including, without limitation, reasonable counsel fees
and costs of investigative, judicial or administrative proceedings or appeals.
"Fines" means any fine or penalty including, with respect to
an employee benefit plan, any excise tax assessed with respect thereto.
"Losses" means amounts, as determined by an Adjudication,
which the Indemnified Party is legally obligated to pay as a result of a claim
or claims arising from Covered Acts, including, without limitation, Fines,
damages and judgments and sums paid in settlement of such claim or claims.
"Proceeding" means any threatened, pending or completed
action, suit, proceeding or investigation, whether civil, criminal or
administrative whether formal or informal.
2. Maintenance of D&O Insurance.
(a) The Company hereby covenants and agrees that, so long
as Indemnified Party shall continue to serve as a director or executive officer
of the Company and thereafter, for so long as Indemnified Party shall be
subject to any possible Proceeding arising from any Covered Act, the Company,
subject to Section 2(c), shall maintain in full force and effect D&O Insurance.
(b) In all policies of D&O Insurance, Indemnified Party
shall be named as an insured in such a manner as to provide Indemnified Party
the same rights and benefits, and the same limitations, as are accorded to the
Company's directors or executive officers most favorably insured by such
policy.
(c) The Company shall have no obligation to maintain D&O
Insurance if the Company, by majority vote of the Board of Directors,
determines in good faith that such insurance is not reasonably available, the
premium costs for such insurance are disproportionate to the amount of coverage
provided, or the coverage provided by such insurance is limited by
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<PAGE> 4
exclusions so as to provide an insufficient benefit; provided, however, that
such decision shall not adversely affect coverage of D&O Insurance for periods
prior to such decision without the unanimous vote of all directors.
3. Indemnification. The Company shall indemnify Indemnified
Party up to the Covered Amount and shall advance or reimburse the Expenses
incurred by Indemnified Party in a Proceeding or in connection with any Covered
Acts, subject, in each case, to the further provisions of this Agreement. This
Agreement is made pursuant to and to effectuate the indemnification provisions
set forth in Article 10 of the Articles of Incorporation and Article VII of the
Bylaws. Notwithstanding any other provision of this Agreement, the Company
shall indemnify Indemnified Party to the extent Indemnified Party is
successful, on the merits or otherwise, in the defense of any Proceeding to
which Indemnified Party was a party because of being a director, officer,
employee, agent, fiduciary or consultant of the Company, against reasonable
Expenses incurred by Indemnified Party in connection with the Proceeding.
4. Excluded Coverage. The Company shall have no obligation to
indemnify Indemnified Party for any Losses or Expenses which arise from an
Excluded Claim.
5. Indemnification Procedures.
(a) Promptly after receipt by Indemnified Party of notice
of the commencement of or the threat of commencement of any Proceeding, if
indemnification or advancement or reimbursement of Expenses with respect
thereto may be sought from the Company under this Agreement, Indemnified Party
shall notify the Company of the commencement or the threat of commencement
thereof.
(b) If, at the time of the receipt of such notice, the
Company has D&O Insurance in effect, the Company shall give prompt notice of
the commencement or the threat of commencement of such Proceeding to the
appropriate insurers in accordance with the procedures set forth in the
respective policies in favor of Indemnified Party. The Company thereafter
shall take all necessary or desirable action to cause such insurers to pay, on
behalf of the Indemnified Party, all amounts (including, without limitation,
Losses and Expenses) payable as a result of such Proceeding in accordance with
the terms of such policies.
(c) To the extent that, at the time of the commencement
of or the threat of commencement of such Proceeding, the Company does not have
applicable D&O Insurance, or if a Determination is made that any Loss, Fine or
Expense of the Indemnified Party arising out of such Proceeding will not be
payable under the D&O Insurance then in effect, the Company shall be obligated
to pay the Covered Amount with respect to any Proceeding and provide counsel
satisfactory to Indemnified Party, upon the delivery to Indemnified Party of
written notice of the Company's election to do so. After delivery of such
notice, the Company will not be liable to Indemnified Party under this
Agreement for any legal or other Expenses subsequently incurred by the
Indemnified Party in connection with such defense other than the reasonable
Expenses of investigation of Indemnified Party; provided, however, that
Indemnified Party shall have the right to employ his or her own counsel in
connection with the defense of any such Proceeding, the fees
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<PAGE> 5
and expenses of such counsel incurred after delivery of notice from the Company
of its assumption of such defense to be at the Indemnified Party's sole
expense. Notwithstanding the foregoing, if (i) the employment of counsel by
Indemnified Party has been previously authorized by the Company, (ii)
Indemnified Party shall have been advised by counsel that there may be a
conflict of interest between the Company and Indemnified Party in the conduct
of any such defense or (iii) the Company, in fact, shall not have employed
counsel to assume the defense of such Proceeding, in each such case, the fees
and expenses of such counsel retained by Indemnified Party shall be at the
expense of the Company.
(d) All payments on account of the Company's
indemnification, advancement and reimbursement obligations under this Agreement
shall be made within sixty (60) days of Indemnified Party's written request
therefor unless a Determination is made that the claims giving rise to
Indemnified Party's request are Excluded Claims or otherwise not payable under
this Agreement; provided, however, that all payments on account of the
Company's obligations under Paragraph 5(c) of this Agreement prior to the
Adjudication of any Proceeding shall be made within twenty (20) days of
Indemnified Party's written request therefor and such obligation shall not be
subject to any such Determination but shall be subject to Paragraph 5(e) of
this Agreement.
(e) Indemnified Party agrees that he or she will
reimburse the Company for all Losses and Expenses paid by the Company in
connection with any Proceeding against Indemnified Party in the event and only
to the extent that it is Adjudged that the Indemnified Party is not entitled to
be indemnified by the Company for such Losses or Expenses under this Agreement,
the Articles of Incorporation, the Bylaws or the Act.
6. Settlement. The Company shall have no obligation to indemnify
Indemnified Party under this Agreement for any amounts paid in settlement of
any Proceeding effected without the Company's prior written consent. The
Company shall not settle any claim in any manner which would impose any loss or
expense on Indemnified Party without Indemnified Party's prior written consent,
unless the Company provides a written undertaking to the Indemnified Party to
pay for such loss or expense on behalf of the Indemnified Party. Neither the
Company nor Indemnified Party shall unreasonably withhold their consent to any
proposed settlement.
7. Rights Not Exclusive. The rights provided hereunder shall be
in addition to any other rights to which Indemnified Party may be entitled
under the Articles of Incorporation, the Bylaws, the Act, any agreement or vote
of shareholders or directors or otherwise, both as to action in Indemnified
Party's official capacity and as to action in any other capacity, and such
rights shall continue after Indemnified Party ceases to serve the Company as a
director or officer.
8. Enforcement.
(a) Indemnified Party's rights to indemnification or
reimbursement or advancement of Expenses hereunder shall be enforceable by
Indemnified Party notwithstanding any adverse Determination, other than a
Determination which has been made by Adjudication. In any such action, if a
prior adverse Determination has been made, the burden of proving that
indemnification or reimbursement or advancement of Expenses is required under
this Agreement,
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<PAGE> 6
the Articles of Incorporation, the Bylaws or the Act shall be on the
Indemnified Party. The Company shall have the burden of proving that
indemnification or reimbursement or advancement of Expenses is not required
under this Agreement if no prior adverse Determination shall have been made.
(b) In the event that any action is instituted by
Indemnified Party under this Agreement, or to enforce or interpret any of the
terms of this Agreement, Indemnified Party shall be entitled to be paid all
court costs and expenses, including reasonable counsel fees, incurred by
Indemnified Party with respect to such action, unless the court determines that
each of the material assertions made by Indemnified Party as a basis for such
action were not made in good faith or were frivolous.
9. No Presumptions. For purposes of this Agreement, the
termination of any Proceeding by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendre, or its
equivalent, shall not create a presumption that the Indemnified Party did not
meet any particular standard of conduct or have any particular belief or that a
court has determined that indemnification or reimbursement or advancement of
Expenses by the Company is not permitted hereunder or by applicable law. In
addition, neither the absence of a Determination as to whether Indemnified
Party has met any particular standard of conduct or had any particular belief
or the existence of a Determination that Indemnified Party has not met such
standard of conduct or did not have such belief, prior to the commencement of
legal proceedings by Indemnified Party to secure an Adjudication that
Indemnified Party should be indemnified or advanced or reimbursed Expenses
hereunder or under applicable law, shall be a defense to Indemnified Party's
claim or create a presumption that Indemnified Party has not met any particular
standard of conduct or did not have any particular belief.
10. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnified Party, who shall execute all papers required
and shall do everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the Company to effectively
bring suit to enforce such rights.
11. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any Proceeding
against Indemnified Party to the extent Indemnified Party has otherwise
actually received payment (under any D&O Insurance, the Articles of
Incorporation, the Bylaws, the Act or otherwise) of the amounts which may be
paid hereunder.
12. Severability. In the event that any provision of this
Agreement is determined by a court of competent jurisdiction to require the
Company to do or to fail to do an act which is in violation of the Articles of
Incorporation, the Bylaws or the Act or other applicable law, such provision
shall be limited or modified in its application to the minimum extent necessary
to avoid such violation, and, as so limited or modified, such provision and the
remainder of this Agreement shall be enforceable in accordance with the
respective terms.
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<PAGE> 7
13. Choice of Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of Washington.
14. Successors and Assigns. This Agreement shall be (a) binding
upon all successors and assigns of the Company (including any transferee of all
or substantially all of the Company's assets and any successor by merger or
otherwise by operation of law) and (b) binding on and inure to the benefit of
the heirs, personal representatives and estate of Indemnified Party.
Indemnified Party may not assign this Agreement or any of Indemnified Party's
rights hereunder without the prior written consent of the Company.
15. Amendment. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in a writing
signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company and Indemnified Party have executed
this Indemnification Agreement as of the date first above written.
SEAMED CORPORATION
By:___________________________
Name:_________________________
Title:________________________
______________________________
, Indemnified Party
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<PAGE> 1
EXHIBIT 10.22
PURCHASE AND SALE AGREEMENT
January 20, 1978
Cynergy, Inc.
13240 Northrup Way
Suite 20
Bellevue, WA 98005
Gentlemen:
The undersigned, Pioneer Investors Corp., a New York corporation and a
federally-licensed Small Business Investment Company and Doan Resources
Corporation, a Michigan corporation and a federally-licensed Small Business
Investment Company (sometimes hereinafter referred to collectively as the
"Purchasers" and individually as a "Purchaser"), hereby agree, severally and not
jointly, with Cynergy, Inc., a Delaware corporation (the "Company"), as follows:
1. Purchase of Notes. On the closing date defined in Section 7 below (the
"Closing Date"), subject to the terms and conditions hereof and in reliance upon
the representations, warranties and agreements contained herein, the Company
agrees to sell to each Purchaser, and each Purchaser agrees to purchase from the
Company, the Company's 7-year, 10% Subordinated Notes (the "Notes") in the
principal amount of $62,500, each, at a price equal to the principal amount of
the Notes. The Notes shall be dated the Closing Date, shall be issued in the
names of the respective Purchasers and shall be substantially in the form
attached hereto as Exhibit "A". The purchase price for the Notes shall be paid
by certified or official bank check payable to the order of the Company.
The Company, at is election, may prepay the outstanding Notes at any time
as a whole, or from time to time in part, without payment of any premium or
prepayment charge, provided that interest accrued on such principal amount being
prepaid to the date of such prepayment shall be paid together with such
prepayment. In the case of any prepayment notice thereof shall be given not less
than 30 nor more than 60 days prior to the date fixed for such prepayment. In
the case of any prepayment of less than the entire unpaid principal amount of
all outstanding Notes, the amount to be prepaid shall be applied pro rata to all
outstanding Notes according to the respective unpaid principal amounts thereof.
2. Purchase of Stock. On the Closing Date, subject to the terms and
conditions hereof and in reliance upon the representations, warranties and
agreements contained herein, the Company agrees to sell to each Purchaser, and
each Purchaser agrees to purchase from the Company, 142 shares (the "Sale
Stock") of the common stock of the Company, no par value (the "Common Stock"),
at a price of $440.14 per share, or an aggregate purchase price to each
<PAGE> 2
Purchaser of $62,500. The purchase price for the Sale Stock shall be paid by
certified or official bank check payable to the Company.
3. Delivery of Warrants. On the Closing Date and contemporaneously with
the consummation of the purchase of the Notes and Sale Stock pursuant to
Sections 1 and 2 above, the Company will deliver to each Purchaser a Warrant
Certificate (the "Warrants") evidencing the right to purchase 141 shares (the
"Underlying Shares") of Common Stock. The Warrant Certificates shall be dated
the Closing Date, shall be issued in the names of the respective Purchasers and
shall be in substantially the form attached hereto as Exhibit B. The Warrants
are granted to the Purchasers in consideration of their purchase of the Notes
and Sale Stock and no additional payment shall be made or consideration given to
the Company, except as provided in Sections 1 and 2 above, in respect to the
delivery of the Warrants.
4. Representations and Warranties by the Company. The Company represents
and warrants to the Purchasers, as follows:
4.1 Organization, Standing and Qualification of the Company.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The copies of the Company's
certificate of incorporation, by-laws, and all amendments to each to date, which
have been delivered to the Purchaser, are complete and correct as at the date of
this Agreement. The Company has the corporate power and authority to own its
property, to enter into, deliver and perform its obligations and undertakings
under this Agreement, to issue the Notes, Sale Stock and Warrants and to conduct
its business as now being conducted and as proposed to be conducted. The Company
is qualified to do business as a foreign corporation in the State of Washington,
which is the only jurisdiction in which the nature of the business conducted by
it or its ownership or leasing of property makes such qualification necessary.
4.2 Subsidiaries. The Company has no subsidiaries and does not
control, directly or indirectly, any other corporation, association or business
organization.
4.3 Capitalization. The Company's authorized capital stock consists
of 2,000 shares of Common Stock, of which 630 shares are issued and presently
outstanding. Attached hereto as Schedule 1 is a complete and correct list of all
the holders of Common Stock as of the date of this Agreement and the number of
shares held by each. All such outstanding shares are duly authorized, validly
issued, fully paid and nonassessable. The Sale Stock and Underlying Shares when
issued upon exercise of the Warrants will be validly authorized, issued and
outstanding, fully paid and non-assessable and the Sale Stock and Underlying
Shares have been duly authorized and reserved for issuance. The Company has not
granted or issued, or agreed to grant or issue, any option, warrant or other
commitment to issue or to acquire any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to acquire from the Company or sell to the Company, any shares
of its capital stock, except in accordance with the provisions of Sections 2 and
4.14 of this Agreement and under the terms of the Warrants. The Company holds no
shares of its capital stock in its treasury.
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<PAGE> 3
No holder of any security of the Company is entitled to pre-emptive or similar
rights as of the date of this Agreement. The Company will not place any
restrictions on the transfer of the Notes, Sale Stock, Warrants or Underlying
Shares, except to the extent set forth in Subsection 10.2 hereof. The Company
has not agreed to register any of its securities under the Securities Act of
1933, as amended (the "Act"), except as provided for in this Agreement and
except as set forth in Schedule 10 annexed hereto.
4.4 Financial Information. The Company has delivered to each of the
Purchasers copies of the following financial statements:
(a) A balance sheet of the Company as at November 30, 1977,
and a statement of income, profit and loss for the period from December 16, 1976
and ended November 30, 1977, prepared by the chief financial officer of the
Company.
Subject to normal year-end and audit adjustments, such financial
statements, including the related notes thereto, if any, are complete and
correct, have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods involved and show all
liabilities, absolute or contingent, of the Company, and fairly present the
condition of the Company as at the dates thereof. There has been no change in
the accounting principles applied throughout the periods involved.
4.5 Outstanding Debt. The Company has outstanding no indebtedness
for borrowed money, except as reflected on the Company's balance sheet as at
November 30, 1977 and except the Company is indebted to Pioneer Investors Corp.
in the amount of $20,000 pursuant to the demand loan made December 2, 1977, and
the Company is not a guarantor or otherwise contingently liable for any such
indebtedness. There exists no default under the provisions of any instrument
evidencing such indebtedness or of any agreement relating thereto.
4.6 Absence of Undisclosed Liabilities. At November 30, 1977, the
Company had no material liabilities (fixed or contingent, including without
limitation any tax liabilities due or to become due) which are not fully
reflected or provided for on the balance sheet of the Company as at that date,
except obligations, all of which are listed on Schedule 2 hereto, to perform
after November 30, 1977, under commitments incurred in the ordinary course of
business, which in the aggregate do not involve the payment or expenditure by
the Company of more than $5,000. The Company does not know and has no reasonable
ground to know of any basis for the assertion against the Company, as at
November 30, 1977 (or as the date hereof) of any liability of any nature, direct
or indirect, contingent or otherwise, or in any amount not adequately reflected
or reserved against in said November 30, 1977, balance sheet, except as set
forth on Schedule 2 hereto.
4.7 Absence of Certain Changes. Except to the extent described
in Schedule 3 hereto, since November 30, 1977, there has not been:
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<PAGE> 4
(a) any material adverse change in the condition (financial or
otherwise), assets, liabilities, financial condition, business or prospects of
the Company from that shown on the Company's November 30, 1977 balance sheet;
(b) any damage, destruction or loss of any of the properties
or assets of the Company (whether or not covered by insurance) materially
adversely affecting the business or prospects of the Company;
(c) any declaration, setting-aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company; or
(d) any labor trouble, or any event or condition of any
character, materially adversely affecting the business or prospects of the
Company.
4.8 Taxes. For all periods ended prior to November 30, 1977, the
Company has filed or will file within the time prescribed by law (including
extensions of time approved by the appropriate taxing authority) all tax returns
and reports required to be filed with the United States Internal Revenue
Service, with the States of Delaware and Washington and with all other
jurisdictions where such filing is required by law and has paid or made adequate
provision in said balance sheet dated November 30, 1977, for the payment of all
taxes, interest, penalties, assessments or deficiencies shown to be due or
claimed to be due on or in respect of such tax returns and reports. The Company
knows of (i) no other taxes which are required to be filed which have not been
so filed and (ii) no unpaid assessment for additional taxes for any fiscal
period or any basis thereof. The Company's federal income tax returns have not
been audited by the Internal Revenue Service.
4.9 Contracts; Insurance. Except as set forth in Schedule 4 hereto,
the Company has no presently existing contract, obligation or commitment
(written or oral) of any nature extending beyond June 1, 1978, or involving
payment by the Company of more than $20,000, including without limitation the
following:
(a) Employment, bonus or consulting agreements pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company and agreements among shareholders and the
Company;
(b) Loan or other agreements, notes, indentures, or
instruments relating to or evidencing indebtedness for borrowed money, or
mortgaging, pledging or granting or creating a lien or security interest or
other encumbrance on any of the Company's property or any agreement or
instrument evidencing any guaranty by the Company of payment or performance by
any other person;
(c) Agreements with dealers, sales representatives, brokers
and other distributors, jobbers, advertisers, sales agencies;
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<PAGE> 5
(d) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(e) Any contract or series of contracts with the same person
for the furnishing or purchase of machinery, equipment, goods or services,
including without limitation agreements with processors and subcontractors;
(f) Any indenture, agreement, or other document (including
private placement brochures) relating to the sale of repurchase of shares;
(g) Any joint venture contract or arrangement or other
agreement involving a sharing of profits or expenses to which the Company is a
party;
(h) Agreements limiting the freedom of the Company to compete
in any line of business or in any geographic area or with any person;
(i) Agreements providing for disposition of the business and
assets, or shares, of the Company, agreements of merger or consolidation to
which the Company is a party or letters of intent with respect to the foregoing;
and
(j) Agreements involving or letters of intent with respect to
the acquisition of the business, assets or shares of any other business.
True and complete copies including all amendments of the contracts and
commitments listed in Schedule 4 hereto have been delivered to the Purchasers.
The Company has complied with all the material provisions of said contracts and
commitments and of all other contracts and commitments to which it is a party,
and is not in default under any thereof.
The Company maintains the types of insurance with the coverages set forth
in Schedule 4 hereto, which insurance is adequate to protect the Company and its
financial condition against the risks involved in the business conducted by the
Company.
4.10 Shareholders, Directors, and Officers; Compensation;
Indebtedness. Attached hereto as Schedule 5 is a correct and complete list
of the following:
(a) the names of all persons whose compensation from the Company for
the current fiscal year is expected to equal or exceed $10,000 and the annual
rate of such compensation for each such person as of November 30, 1977; and
(b) a list or description of all indebtedness of the Company to its
officers, directors or shareholders or any of their respective relatives and of
all indebtedness of such persons to the Company.
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<PAGE> 6
To the best of the Company's knowledge and belief, none of the officers,
directors or shareholders of the Company, or, their respective spouses or
relatives, owns directly or indirectly, individually or collectively, a material
interest in any entity which is a competitor, customer or supplier of (or has
any existing contractual relationship with) the Company.
4.11 Litigation. There are no actions, suits, proceedings or claims
(whether or not purportedly on behalf of the Company) pending or, to the
Company's knowledge, threatened, against or relating to the Company, its
properties or business, nor does the Company know or have reasonable grounds to
know of any basis for any such action or any claim against the Company
(contingent or otherwise) or of any proceeding before or investigation by any
governmental or professional commission, administrative agency, or accrediting
organization relative to the Company, its properties or business, except as
disclosed on Schedule 6 hereto.
4.12 Validity of this Agreement. The execution, delivery and
performance by the Company of this Agreement, the issue and sale of the Notes,
the Sale Stock and the Warrants and the issue of Underlying Shares on the
exercise of the Warrants have been duly authorized and approved by all necessary
corporate action. The Notes when issued will constitute the legal, valid
obligations of the Company, enforceable in accordance with their terms, except
for bankruptcy, moratorium and similar laws affecting the rights of creditors
generally. The execution and delivery of this Agreement and the issue of the
Notes, Sale Stock, Warrants and the Underlying Shares will not violate any
provision of law and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, the Company's Certificate of
Incorporation, by-laws or any agreement, instrument or other restriction to
which the Company is a party or by which it is bound.
4.13 Consents. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority, except as
provided in this Agreement, is required in connection with the valid execution,
delivery or performance of this Agreement, or the offer, sale or issuance of the
Notes, Sale Stock, Warrants or Underlying Shares or the consummation of any
other transaction contemplated hereby.
4.14 Brokers. The Company has no contract, arrangement or
understanding with brokers, finders and similar agents with respect to the
transactions contemplated by this Agreement; provided that it is understood and
agreed that on the Closing Date the Company will issue and sell 63 shares of
Common Stock to Channing, Weinberg & Co., Inc. or its designees in connection
with such transactions, for a total consideration of $500 and services
previously rendered by it to the Company.
4.15 Title to Properties; Liens and Encumbrances. The Company has
good and marketable title in the simple absolute to all the real property and a
valid and indefeasible ownership interest in all the other property and assets
reflected in the Company's November 30, 1977 balance sheet (except as sold or
otherwise disposed of in the ordinary course of business since that date), free
from all mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges, except (i) as shown on said balance sheet
or listed on
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<PAGE> 7
Schedule 7 hereto; (ii) tax, materialmen's or like liens for obligations not yet
due or payable or being contested in good faith by appropriate proceedings, as
set forth on Schedule 7 hereto.
4.16 Leases. Set forth on Schedule 7 hereto is a correct and
complete list of all leases under which the Company is a lessee or under which
it is operating. The Company enjoys peaceful and undisturbed possession under
all such leases, none of such leases contains any unusual or burdensome
provisions which might materially and adversely affect the operation or use of
the property so leased, all of such leases are valid and subsisting and none of
them is in default in any material respect.
4.17 Business of the Company. The Company is engaged in the business
of designing and manufacturing medical electronic equipment consisting primarily
of external cardiac pacemakers, pacemaker follow-up systems and therapeutic
fluid infusion pumps as set forth in the Company's private placement memorandum
dated June 9, 1977 (the "Memorandum") and cardiac rate meters. Nothing has come
to the attention of the Company or of any of its directors or officers to the
effect that (i) there is pending or threatened any claim or litigation against
or affecting the Company contesting its right to produce, manufacture, sell or
use any product, process, method, substance, part or other material presently
produced, manufactured, sold or used or contemplated to be produced,
manufactured, sold or used by the Company in connection with the business of the
Company or (ii) there presently exists, or there is pending or proposed any
patent, invention, device, application or principle, or any statute, rule, law,
regulation, standard or code which would prevent, inhibit or render obsolete the
production or sale of any significant product of, or substantially reduce the
projected revenue of, or otherwise materially adversely affect the business of
the Company.
The Company intends to engage in the business of the same general type as
is now being conducted by it.
4.18 Franchises, Licenses, Trademarks and other Rights. The Company
has all franchises, permits, licenses and other authority as are necessary to
enable it to conduct its business as now being conducted and as proposed to be
conducted, and it is not in default in any material respect under any of such
franchises, permits, licenses or other authority. The Company possesses all
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights and copy rights necessary to conduct its business as now being conducted
and as proposed to be conducted, without conflict with or infringement on any
valid rights of others which could materially and adversely affect the business,
properties, operations or condition, financial or otherwise, of the Company.
4.19 Qualification as Small Business Concern. The Company is a
"small business concern" within the meaning of the Small Business Investment
Act of 1958, as amended.
4.20 Offering. The offer, sale and issuance of the Notes, Sale Stock
and Warrants as contemplated by this Agreement are exempt from the registration
requirements of the Act and neither the Company nor anyone acting on its behalf
will take any action hereafter that would cause the loss of such exemption.
-7-
<PAGE> 8
4.21 Disclosure. This Agreement and the schedules attached hereto,
the Memorandum furnished the Purchasers and the financial statements referred to
herein do not contain any untrue statement of a material fact and do not omit to
state a material fact necessary in order to make the statements contained
therein or herein not misleading in the light of the circumstances under which
they were made. There is, to the best of the Company's knowledge, no fact which
materially adversely affects the business, prospects, condition, affairs or
operations of the Company or any of its properties or assets which has not been
set forth in this Agreement, the schedules hereto, or said financial statements.
5. Representations of Purchasers. Each Purchaser represents and warrants
to the Company, severally and not jointly, as follows:
5.1 Private Offering. Each Purchaser is fully aware that the Company
is selling the Notes, Sale Stock and Warrants in reliance upon the exemption
from registration provided by Section 4(2) of the Act and upon the truth and
accuracies of the representations and warranties contained in this Agreement.
5.2 Investment Representations. Each Purchaser represents, as
follows:
(a) that the Notes, Sale Stock and Warrants to be acquired by
it hereunder are being acquired by it for investment, with no present intention
of distributing or selling any portion thereof or with a view to any
distribution thereof within the meaning of the Act, and none of the Notes, Sale
Stock, Warrants or Underlying Shares will be sold or distributed in violation of
the Act or the rules or regulations thereunder then applicable;
(b) that its financial condition is such that it is able to
bear all risks of holding the Notes, Sale Stock, Warrants and Underlying Shares
for an indefinite period of time;
(c) that it understands that any routine sales of the Sale
Stock, Warrants or Underlying Shares made in reliance upon Rule 144 can be made
only in limited amounts in accordance with the terms and conditions of that Rule
and that in the case of securities to which that Rule is not applicable,
compliance with Regulation A or some other disclosure exemption will be
required;
(d) that it understands and agrees that the certificates
representing the Notes, Sale Stock Warrants and Underlying Shares shall bear a
legend on the face thereof restricting transfer except in compliance with the
Act;
(e) that it has been informed and understands that stop
transfer orders will be placed against the transfer of the Notes, Sale Stock,
Warrants and Underlying Shares on the records of the Company;
(f) that it has been furnished by the Company with all
information which the Purchaser has deemed necessary or appropriate in order to
form a decision concerning
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<PAGE> 9
the purchase of the Notes, Sale Stock and Warrants, including copies of the
Memorandum and the Company's unaudited financial statements as at and for the
period ended November 30, 1977.
(g) that the Company has made available to it all additional
information which it has requested in connection with the transactions
contemplated by this Agreement;
(h) that it has been afforded an opportunity to ask questions
of and receive answers from the Company and from persons authorized to act on
its behalf, concerning the terms and conditions of the purchase of the Notes,
Sale Stock and Warrants, and the opportunity to obtain any additional
information (to the extent the Company had such information or could acquire it
without unreasonable effort or expense) necessary to verify the accuracy of
information otherwise furnished by the Company hereunder;
(i) that it has investigated acquisition of the Notes, Sale
Stock and Warrants to the extent it deems necessary or desirable, and the
Company has provided it with any assistance in connection therewith which it
requested;
(j) that it has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
acquisition of the Notes, Sale Stock and Warrants and of making an informed
investment decision with respect thereto;
(k) that it will not offer for sale, sell, transfer or
otherwise dispose of the Notes, Sale Stock, Warrants or Underlying Shares,
unless (i) such sale, transfer or other disposition is permitted under and made
in accordance with Rule 144, or (ii) it shall have obtained an opinion of
counsel to the Company or Messrs. Reavis & McGrath, to the effect that no
registration (or perfection of an exemption) under the Act is required with
respect to such sale or other disposition or exercise (which opinion may be
conditioned upon the transferee's assuming the Purchaser's obligations under
this Section 5), or (iii) such holder, upon proper submission by such holder to
the Securities and Exchange Commission (the "Commission"), shall have obtained
written assurance that no administrative action is proposed to be taken by the
Commission in the event of such sale, transfer or other disposition, or (iv) an
appropriate registration statement with respect to such sale, transfer or other
disposition has been filed by the Company with the Commission and declared
effective by the Commission.
6. Closing Conditions. The obligations of the Purchasers to purchase the
Notes and Sale Stock and acquire the Warrants are subject to satisfaction of the
following:
6.1 Accuracy of Representations and Warranties. The Company's
representations and warranties herein or otherwise made in connection herewith
shall be true and correct on and as of the Closing Date with the same effect as
though made on and as of the Closing Date.
6.2 Closing Certificates. The Purchasers shall have received a
certificate dated the Closing Date on behalf of the Company and signed by its
president and chief financial officer
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<PAGE> 10
and certificates signed by each director and officer of the Company,
individually, to the effect that the conditions of Section 6.1 hereof have been
satisfied.
6.3 Opinion of Company's Counsel. The Purchasers shall have received
an opinion dated the Closing Date of Messrs. Jones, Grey & Bayley, counsel for
the Company, satisfactory to the Purchasers and their special counsel, Reavis &
McGrath, to the effect that:
(a) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to conduct its business as now being conducted and
presently proposed to be conducted; and the Company is duly qualified as a
foreign corporation to do business in each jurisdiction in which the character
of the properties owned by it therein or in which the transaction of its
business makes such qualification necessary;
(b) this Agreement has been authorized by all necessary
corporate action, has been duly executed and delivered by the Company and is a
legal, valid and binding obligation of the Company in accordance with its terms;
(c) the Company has duly authorized the issuance and sale of
the Notes, Sale Stock and Warrants, and the Notes, Sale Stock and Warrants, when
issued in accordance with the terms hereof, will be duly and validly issued and
in the case of the Sale Stock will be fully paid and non-assessable; the Notes
when issued will constitute the legal, valid obligations of the Company
enforceable in accordance with their terms, subject, as to enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency and similar laws
affecting the rights of creditors generally and to moratorium laws from time to
time in effect.
(d) the Company has duly authorized the issuance of the
Underlying Shares and has duly reserved for such purpose the full number of
shares of Common Stock initially issuable upon the exercise thereof, and, when
issued and paid for in accordance with the terms of the Warrants, the Underlying
Shares will be duly and validly issued, fully paid and non-assessable;
(e) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated herein and compliance with the
terms and provisions hereof and of the Notes, Sale Stock and Warrants will not,
violate any provisions of law, any order of any Court or other agency of
government or of the Certificate of Incorporation or by-laws of the Company, and
will not conflict with or result in any breach of any condition or provision of,
or constitute a default under, any agreement or instrument which is binding upon
the Company and all necessary consents under any such agreements or instruments
in this connection have been obtained, and will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company;
(f) no consent, approval or other order of any governmental or
administrative board or body is required for the execution and delivery by the
Company of this Agreement or the Notes, Sale Stock, Warrants or Underlying
Shares;
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<PAGE> 11
(g) there are no actions, suits, proceedings, investigations
or claims pending or, to the knowledge of such counsel, threatened against or
affecting the Company or its subsidiary, which in the opinion of such counsel
might result in any material adverse change in the business, properties or
condition, financial or otherwise, of the Company or its subsidiary;
(h) the statement of the capitalization of the Company set
forth in Section 4.3 hereof and the information set forth therein as to numbers
of shares of Common Stock reserved for issuance, is complete and correct;
(i) to the knowledge of such counsel, there is no material
contract, to which the Company or its subsidiary is a party or by which it may
be bound, except as listed in Schedule 4 hereto;
(j) to the knowledge of such counsel, the Company is not in
default under any provision of its Certificate of Incorporation or by-laws or
any agreement or instrument to which it is a party or by which it may be bound;
(k) to the best of such counsel's knowledge, the matters
specified in Sections 4.15, 4.16, 4.17 (second sentence only) and 4.18 are true
and correct;
(1) based on the facts and circumstances contemplated by this
Agreement, and in reliance on the accuracy of the representations of each
Purchaser under Section 5 hereof, it is not necessary, in connection with the
offer, issuance, sale and delivery of the Notes, Sale Stock and Warrants to you
and the other Purchasers, to register the Notes, Sale Stock, Warrants or
Underlying Shares under the Act or any applicable Blue Sky laws;
(m) the Company qualifies as a "small business concern"
within the meaning of the Small Business Investment Act of 1958;
(n) Upon the filing of the amendment to the Company's
Certificate of Incorporation provided for in Section 6.4 hereof, the holders of
Common Stock will be entitled to and will have the full benefit of the
cumulative voting and preemptive rights contained in the amended Certificate of
Incorporation.
(o) Upon the due execution and delivery of the Shareholders'
Agreement provided for in Section 6.5, that agreement will constitute a legal,
valid obligation of the parties thereto, enforceable in accordance with its
terms.
6.4 Charter Amendments. An amendment to the Company's Certificate of
Incorporation in the form annexed hereto as Schedule 8 shall have been filed
with the Secretary of State of Delaware and shall be in full force and effect.
6.5 Shareholders' Agreement. An agreement in the form annexed hereto
as Schedule 9 between and among Craig Edwards, Mark Gausman, and David Smith,
principal
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<PAGE> 12
stockholders of the Company, and the Purchasers, shall have been executed and
delivered by all the parties thereto.
6.6 No Event of Default. No Event of Default, as defined in Section
9 hereof, shall exist on the Closing Date, and the Company shall have delivered
to the Purchasers a certificate, dated the Closing Date and signed by its
president and chief financial officer to that effect.
6.7 Reservation of Common Stock. The Company shall have duly
authorized and reserved for issuance the Underlying Shares.
6.8 Proceedings. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents incident
thereto shall be satisfactory in form and substance to the Purchasers and their
special counsel and they shall have received all such originals or certified or
other copies of such documents as they may reasonably request.
6.9 Purchase of Notes, Sale Stock and Warrants. Each of the
Purchasers shall have purchased the Notes, Sale Stock and Warrants in the amount
set forth in Sections 1, 2 and 3 hereof in the manner provided in this
Agreement.
6.10 SBA Forms. The Company shall have executed and delivered to the
Purchasers a Size Status Declaration, Assurance of Compliance
(non-discrimination certification) and other standard forms required by the
Small Business Administration in connection with the transactions contemplated
by this Agreement.
7. Closing. The closing shall take place at the offices of counsel to the
Company, Jones, Grey & Bayley, 14th floor, Norton Building, Seattle, Washington,
98104 at 10:00 A.M. on January ____, 1978, or at such time and date thereafter
as the Company and the Purchasers may agree upon (Closing Date). At the closing,
the Company will deliver to the Purchasers the Notes, the Sale Stock and the
Warrants, each duly executed against payment of the purchase prices set forth in
Sections 1 and 2 above; provided, however, the Purchasers shall have the right
to withhold from the purchase price the sum of $5,000 to cover the cost and
expenses of the Purchasers, including the fees and disbursements of the special
counsel, incurred in connection with this Agreement.
8. Affirmative and Negative Covenants. The Company further covenants and
agrees as follows:
8.1 Independent Accountants and Accounting Principles. The Company
will retain the services of a firm of independent public accountants acceptable
to the Purchasers to audit the Company's books of account and certify the
Company's financial statements at the end of each fiscal year. In the event the
services of the independent public accountants, so selected, or any firm of
independent public accountants hereafter employed by the Company are terminated,
the Company will immediately notify the Purchasers and will use its best efforts
to cause the firm
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<PAGE> 13
of independent public accountants whose services are terminated to deliver to
them a letter of such firm setting forth the reasons for the termination of
their services. In the event of such termination the Company will promptly
thereafter engage another firm of independent public accountants acceptable to
the Purchasers. The Company will not make any change in accounting methods or
the generally accepted accounting principles presently employed by the Company
without the written consent of the holders of at least 51% of the aggregate
principal amount of Notes then outstanding.
8.2 Financial Statements. The Company shall furnish to each holder
of record of the Notes and each Purchaser (i) a balance sheet as of the end of
each fiscal year and a statement of income or loss for the fiscal year then
ended, audited and accompanied by the report of independent certified public
accountants, to be furnished not later than 90 days after the fiscal year in
question, (ii) a balance sheet as of the end of each quarterly period and
statements of income or loss for such quarterly period and for the period from
the beginning of the fiscal year through the end of such quarterly period, to be
furnished not later than 45 days after the end of such quarterly period, and
(iii) a balance sheet as of the end of each interim month between quarterly
periods and statements of income or loss for each said month until the Company's
first public offering, to be furnished not later than 15 days after the end of
each such month. The quarterly and monthly balance sheets and statements need
not be audited, but shall be certified as complete and correct, subject to
changes resulting from year-end adjustments, by the chief financial officer of
the Company.
8.3 Certificates of Compliance. At each time of transmittal of the
statements referred to in Subsection 8.2, other than the interim monthly
statements referred to therein, the Company will deliver to the Purchasers a
certificate of the president and chief financial officer of the Company stating
that there exists no condition or event which constitutes, or with the passage
of time or notice or both would constitute, an Event of Default (as hereinafter
defined) or, if such condition or event exists, specifying the nature and period
of its existence and what action the Company is taking or proposes to take with
respect thereto.
8.4 Other Information. Upon the reasonable request of either of the
Purchasers the Company will deliver other information and data pertaining to its
business, financial and corporate affairs. The Company will permit any person
designated by either Purchaser in writing, at the requesting Purchaser's
expense, to visit and inspect any of the properties of the Company, including
its books of account, and to discuss its affairs, finances and accounts with the
Company's officers and its independent public accountants, all at such
reasonable times and as often as the Purchasers may reasonably request;
provided, that no person not an employee of the Purchaser shall be so permitted
if the Company reasonably believes such visit, inspection or discussion would
violate the federal securities laws or make information which is proprietary or
otherwise confidential available to competitors of the Company.
8.5 Punctual Payment. The Company will duly and punctually pay
the principal and interest on the Notes in accordance with the terms of this
Agreement and of the Notes.
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<PAGE> 14
8.6 Prompt Payment of Taxes, Etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, or in
conformance with customary trade terms, all other indebtedness incident to
operations of the Company.
8.7 Conduct of Business. The Company will continue to engage in
business of the same general type as now conducted by it, and do all things
necessary to preserve, renew and keep in full force and effect its corporate
existence and its rights and franchises necessary to continue its business;
provided, however, that nothing in this Section 8.7 shall prevent the Company
from engaging in other businesses of a different type in addition to those
presently conducted.
8.8 Maintenance of Property and Leases. The Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with the provisions of all leases to which it is a party or under
which it occupies property so as to prevent any loss or forfeiture thereof or
thereunder.
8.9 Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, extended coverage and explosion in amounts sufficient to
prevent the Company or any subsidiary from becoming a co-insurer and not in any
event less than 100% of the insurable value of the property insured; and
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated. In
addition, the Company will obtain and maintain key man life insurance policies
in the face amount of $100,000, each, on the lives of Craig Edwards, Mark
Gausman and David Smith.
8.10 Accounts and Reports. The Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
8.11 Restrictions on Debt of the Company and Subsidiaries. Unless
the holders of at least 51% of the aggregate principal amount of the Notes
outstanding shall otherwise consent in writing, the ratio of the Company's debt
to equity shall not exceed 4:1.
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<PAGE> 15
8.12 Restrictions on Liens. Unless the holders of at least 51% of
the aggregate principal amount of the Notes then outstanding shall otherwise
consent in writing, the Company will not create or incur or suffer to be created
or incurred or to exist any mortgage, pledge, encumbrance, lien, charge or other
security interest of any kind upon any of its property or assets of any
character, whether now owned or hereafter acquired; provided, however, that the
foregoing shall not apply to (i) purchase money mortgages on new equipment of up
to 80% of the original cost thereof or (ii) mortgages on real property of the
Company, not to exceed in the aggregate the total amount of such mortgages
existing on the date of this Agreement.
8.13 Restrictions on Dividends and Distributions. Until the entire
principal amount of the Notes shall have been paid in full, the Company will not
declare or pay any dividend on any shares of any class of its capital stock, or
directly or indirectly, through a subsidiary or otherwise, purchase, redeem or
otherwise retire or make any other distribution in respect of, any shares of any
class of its capital stock.
8.14 Sale of Assets. Unless the holders of at least 51% of the
aggregate principal amount of the Notes then outstanding shall otherwise consent
in writing, the Company will not sell, lease or otherwise dispose of
substantially all of its assets.
8.15 Sale of Subsidiaries. Unless the holders of at least 51% of the
aggregate principal amount of the Notes then outstanding shall otherwise consent
in writing, the Company will not sell or otherwise dispose of any stock of any
subsidiary.
8.16 Merger or Consolidation. Unless the holders of at least 51% of
the aggregate principal amount of the Notes then outstanding shall otherwise
consent in writing the Company will not, and will not permit any subsidiary to,
become a party to any merger or consolidation; provided, however, that a
subsidiary may be merged into or consolidated with another subsidiary or the
Company.
8.17 Restrictions on Compensation. Unless the holders of at least
51% of the aggregate principal amount of Notes then outstanding shall otherwise
consent in writing, the Company shall not increase the compensation (including
salary, bonus and fringe benefits) of any of its present officers from the
amounts presently payable for the current fiscal year of the Company to such
officers, increase the aggregate compensation to all such officers by over 10%
annually for succeeding fiscal years, or increase the compensation of any person
who shall hereafter become an officer of the Company by over 10% annually.
8.18 Meetings of the Board of Directors. The Company shall convene
________ four meetings, including an annual meeting of the Board of Directors,
each year. At least one representative of each Purchaser will be allowed to
attend all Board meetings and the expenses, including air travel costs, for one
representative of each Purchaser to attend such meetings will be paid by the
Company. The travel costs of other attending representatives of each Purchaser
shall be borne by that Purchaser.
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<PAGE> 16
8.19 Compliance with Requirements of Governmental Authorities. The
Company shall duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of their businesses or to their property of
assets.
8.20 Application of Proceeds. The Company will not use any part of
the proceeds of the sale of the Notes and Sale Stock under this Agreement for
any prohibited purpose under any statute, rule or regulation of any government
authority or agency applicable to the Company. The Company will apply the said
proceeds for the following purposes:
<TABLE>
<CAPTION>
Approximate
Amount Percentage Purpose
----------- ---------- ----------------------------------------
<S> <C> <C>
$ 26,000 10.4% Expenses of the Agreement.
21,000 8.0% Equipment and furnishings, including
such items as a milling machine,
lathe, drill, oscilloscope, small
tools, tables, benches, and office
equipment.
204,000 81.6% Working capital, including inventory,
research and development costs, and
marketing expenses.
-------- ---
TOTAL $250,000 100%
</TABLE>
8.21 Compliance by Subsidiaries. The Company will cause any
subsidiary it may organize in the future to comply fully with the provisions of
Section 8 to the same extent as if such subsidiary or subsidiaries were the
Company.
8.22 Amendments To The Company's Certificate of Incorporation.
Unless the holders of at least 51% of the aggregate principal amount of Notes
then outstanding otherwise consent in writing, the Company shall not amend the
Company's Certificate of Incorporation in any manner which would eliminate the
cumulative voting or preemptive rights set forth in the amendment in the form
annexed as Schedule 8 hereto.
8.23 Term of Covenants and Agreements. The covenants and agreements
provided in Subsections 8.1 (except the last sentence thereof), 8.2, 8.3, 8.4,
8.6, 8.7, 8.8, 8.9, 8.10, And 8.22 shall remain in effect and be binding on the
Company so long as any amount of the indebtedness evidenced by the Notes remains
unpaid or the Purchasers are stockholders of Company. The covenants and
agreements provided in the last sentence of Subsection 8.1 and Subsections 8.5,
8.11, 8.12, 8.13, 8.14, 8.15, 8.16, 8.17, 8.18 and 8.20 shall remain in effect
and binding on the Company only so long as any amount of the indebtedness
evidenced by the Notes remains unpaid.
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<PAGE> 17
9. Default.
9.1 If one or more of the following events (herein called "Events of
Default") shall have occurred and be continuing, that is to say:
(a) If the Company shall default in the payment of the
principal of the Notes after the same shall become due and payable; or
(b) If the Company shall default in the payment of any
installment of the interest on the Notes, unless such payment shall have been
deferred pursuant to the terms of the Notes, after the same shall have become
due and payable and such default shall not have been remedied within fifteen
(15) days after the occurrence thereof; or
(c) If the Company or any of its subsidiaries shall fail to
make payment when due whether on the stated or accelerated maturity thereof
(including any applicable period of grace) of principal of or any premium or
installment of interest on any indebtedness for borrowed money other than the
Notes unless such failure shall be waived by the person or persons entitled to
such payment; or
(d) If the Company or any of its subsidiaries shall default in
the performance of any of its obligations under Section 8 hereof and such
default shall have continued unremedied for a period of thirty (30) days after
written notice thereof shall have been given to the Company by any holder of the
Notes; or
(e) If the Company shall default in the performance of or
compliance with any other provision hereof and such default shall have continued
unremedied for a period of sixty (60) days after written notice thereof shall
have been given to the Company by any holder of the Notes;
(f) If any representation or warranty made by the Company in
the Agreement (including any Exhibit or Schedule thereto) or in any certificate,
document or instrument furnished to the Purchaser by the Company or its
directors or officers in connection with the transactions contemplated by the
Agreement shall prove to have been false in any material respect as of the date
made and such default shall have continued unremedied for a period of sixty (60)
days after written notice thereof shall have been given to the Company by any
holder of the Notes; or
(g) If the Company or any of its subsidiaries shall default in
any material respect under any material agreement to which it is a party or by
which it is bound, including agreements described in the Schedules attached or
furnished pursuant to this Agreement, and such default shall have continued
unremedied for a period of sixty (60) days after written notice thereof shall
have been given to the Company by any holder of the Notes; or
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<PAGE> 18
(h) If the Company or any of its subsidiaries shall make a
general assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or shall file a voluntary
petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent or shall
file any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer admitting the
material allegations of a petition filed against the Company or any such
subsidiary in such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of the Company or any such
subsidiary, or if the Company or its directors or majority stockholders or any
such subsidiary or its directors shall take any action looking to the
dissolution or liquidation or suspension of the business of the Company or such
subsidiary; or
(i) If, within sixty (60) days after the commencement of any
proceeding against the Company or any of its subsidiaries seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, such
proceeding shall not have been dismissed, or if, within sixty (60) days after
the appointment without the consent of or acquiescence of the Company or any of
its subsidiaries of any trustee, receiver, or liquidator of the Company or any
such subsidiary or of all or any substantial part of the properties of the
Company or any such subsidiary, such appointment shall not have been vacated,
then if any one or more Events of Default shall occur, any holder of the Notes
may at any time at its option by written notice to the Company declare the
principal of and the accrued interest on the Notes to be immediately due and
payable, and thereupon the same shall become so due and payable, without
presentment, demand, protest or notice, all of which are hereby waived by the
Company.
9.2 Non-Waiver and Other Remedies. No course of dealing or delay on
the part of any holder of the Notes in exercising any right shall operate as a
waiver thereof or otherwise prejudice the rights of any holder of the Notes. No
remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereafter available at law, in equity, by statute or otherwise.
10. Transfers; Registration of Shares.
10.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Shares" shall mean the Sale Stock, the Underlying Shares, and any
securities issued with respect to the Sale Stock or the Underlying Shares by
reason of stock dividends, stock splits or combinations, recapitalizations,
reorganizations or other corporate action.
"Holders" shall mean the Purchasers (in their capacity as holder of the
Notes, the Warrants or any Shares), and such of their respective successors and
assigns who agree in writing with the Company to acquire and hold the Notes, the
Warrants or Shares, as the case may be, subject to all the restrictions hereof.
-18-
<PAGE> 19
"Commission" shall mean the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Registration Expenses" and "Selling Expenses" shall mean the expenses so
described in Subsection 10.8 hereof.
"Act" shall mean the Securities Act of 1933, or any successor Federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
"Transfer" shall mean any pledge, sale, assignment or other transfer of
the Notes, Warrants or any Shares or any interest therein whether or not such
transfer would constitute a "sale" as that term is defined in Section 2(3) of
the Act.
"Underwriter" shall mean each person who is or may be deemed an
"underwriter", as that term is defined in Section 2(11) of the Act, in respect
of Shares which shall have been registered by the Company under the Act pursuant
to any of the provisions of this Section 10.
10.2 Transfer Legends. The Transfer of the Notes, Shares and
Warrants will be restricted in accordance with the terms hereof. The Notes, each
Warrant Certificate and each certificate evidencing the Shares, including any
certificate issued to any transferee thereof, shall be stamped or otherwise
imprinted with legends, in the case of the Note, in the form set forth in
Exhibit A hereto, in the case of the Warrant Certificates in the form set forth
in Exhibit B hereto, and in the case of such share certificates, in
substantially the following form (unless otherwise permitted or unless such
Shares shall have been effectively registered and sold under the Act):
"The Shares represented by this Certificate have not been registered under
the Securities Act of 1933 nor under any state securities law and may not be
pledged, sold, assigned or transferred unless (i) a registration statement with
respect thereto is effective under the Securities Act of 1933 and any applicable
State securities laws, or (ii) in the opinion of counsel to the Company or
Messrs. Reavis & McGrath such shares may be pledged, sold, assigned or
transferred without an effective registration statement under the Securities Act
of 1933 or applicable State securities laws."
Upon request of a Holder of the Notes, the Warrants or any of the Shares,
the Company shall remove the foregoing legends from the Notes, Warrant
Certificate or the certificates evidencing such Shares, as the case may be, or
issue to such Holder a new Note, Warrant Certificate or certificates therefor
free of any transfer legend, if with such request, the Company shall have
received an opinion of Messrs. Reavis & McGrath or other counsel selected by the
Holder and reasonably satisfactory to the Company, to the effect that any
Transfer by said Holder of such Note, Warrant Certificate or the Shares, as the
case may be, will not violate the Act and applicable State securities laws, and
if counsel to the Company shall have approved the removal of such legend in
reliance on such opinion.
10.3 Incidental Registration. If the Company shall at any time or
times hereafter determine to register under the Act any shares of its common
stock (other than a registration
-19-
<PAGE> 20
statement on Form S-8 or other form which does not include substantially the
same information as would be required in a form for the general registration of
securities), it will promptly notify each Holder in writing in each case of such
determination and upon any Holder's written request given within thirty (30)
days after receipt by such Holder from the Company of such notification, the
Company will use its best efforts as soon as practicable thereafter to cause any
of the Shares specified by such Holder to be included in such registration
statement. Notwithstanding the foregoing, the Company shall not be required to
include Shares of such Holder therein if and to the extent the underwriter
managing the offering reasonably believes that such inclusion would adversely
affect the offering of the Shares to be covered by the proposed registration
statement, provided that any such exclusion shall be pro rata to all holders of
the Company's capital stock in proportion to the respective number of shares
that they shall have requested to be registered.
10.4 Required Registration. If any time after one year after the
effective date of the first registration statement filed by the Company under
the Act, the Holders of at least 51% of the Shares shall notify the Company in
writing that such Holders intend to offer or cause to be offered for sale at
least 20% of the Shares and shall request the Company to cause such Shares to be
registered under the Act, the Company will use its best efforts as soon as
practicable thereafter to prepare and file a registration statement covering
such Shares (together with any other unregistered Shares requested by the
Holders thereof to be included in such registration within thirty (30) days
after receipt of a notice from the Company pursuant to Subsection 10.6 hereof).
Such right to require registration shall be in addition to the rights of the
Holders under Subsection 10.3 of this Agreement and shall be available to
Holders on not more than two occasions (exclusive of registration statements on
From S-16, as provided below); provided that each such registration statement
becomes and remains effective in accordance with the provisions hereof;
provided, further, that such Holders of at least 51% of the Shares shall have
the right to require the Company to file an unlimited number of registration
statements on Form S-16, if available, or its successors under the Act (in which
case the minimum percentage of Shares to be covered by any such registration
statement shall be 5%).
10.5 Conditions of Obligations to Register Shares. Any distribution
of Shares registered pursuant to this Agreement shall, unless the Company shall
have given its prior written consent to other arrangements, be effected by means
of a firm or best efforts commitment underwriting managed by an investment
banking firm reasonably satisfactory to the Company. As a condition to the
Company's obligation hereunder to cause a registration statement to be filed or
Shares to be included in a registration statement, the Holder shall provide such
information and execute such documents as may reasonably be required in
connection with such registration. In addition, the Company shall not be
obligated to file a registration statement or to include Shares in a
registration statement hereunder if the Company shall have received opinions of
its counsel and of Messrs. Reavis & McGrath or other counsel to any Holder to
the effect that the proposed disposition of such Shares may be effected without
registration under the Act. No provision of this Section 10 shall be construed
as requiring the Company to register either the Notes or the Warrants under the
Act.
10.6 Notification of Requests. If the Company shall at any time or
times determine, upon receipt of a request of any security holder or otherwise,
to register any of the
-20-
<PAGE> 21
Shares or any other securities under the Act, the Company will, within fifteen
(15) days after such determination, give notice thereof to the Holders. The
Holders shall then be entitled to the right to registration to the extent
provided in Subsection 10.3 or 10.4 hereof, as the case may be.
10.7 Registration Procedures. If and whenever the Company is
required by the provisions of this Section 10 to use its best efforts to include
any of the Shares in a registration statement filed under the Act, the Company
shall, as expeditiously as possible:
10.7.1 Prepare and file with the Commission a registration
statement with respect to such Shares and use its best efforts to cause such
registration statement to become and remain effective.
10.7.2 Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for at least 90 days from the date of its effectiveness or (unless
otherwise required by the Act) until the Shares covered thereunder have been
sold, whichever is earlier.
10.7.3 Furnish to each Holder such number of copies of the
prospectus contained in such registration statement (including each preliminary
prospectus), in conformity with the requirements of the Act, and such other
documents as such Holder shall reasonably request in order to facilitate the
disposition of the Shares owned by such Holder.
10.7.4 Use its best efforts to register or qualify the Shares
covered by such registration statement under the blue sky laws of such
jurisdictions as each Holder shall reasonably request, and do any and all other
acts and things which may be necessary or advisable to enable such Holder to
consummate the disposition of the Shares owned by such Holder in such
jurisdictions during the period covered in Subsection 10.7.2; provided, however,
that in no event shall the Company be obligated (i) to qualify to do business in
any jurisdiction where it is not at the time so qualified; (ii) to take any
action which would subject it to the service of process of suits other than
those arising out of the offer or sale of the Shares covered by such
registration statement in any jurisdiction where it is not at the time so
subject; or (iii) to register or qualify under the securities laws of any such
jurisdiction if and to the extent the underwriter managing the offering
reasonably believes that such registration or qualification would adversely
affect the offering.
10.7.5 Notify each Holder of any shares covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated herein or necessary to make the statements
therein not misleading in the light of the circumstances then existing. Each
Holder agrees, upon receipt of such notice, forthwith to cease making offers and
sales of the Shares pursuant to such registration statement or deliveries of the
prospectus contained therein for any purpose and to return to the Company the
copies of such prospectus not theretofore delivered by such Holder.
-21-
<PAGE> 22
10.7.6 At the request of any Holder, prepare and furnish to
such Holder a reasonable number of copies of any supplement to or amendment of
such prospectus that may be necessary so that, as thereafter delivered to the
Purchasers of such Shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing.
10.7.7 Provide an institutional transfer agent for the Shares
at least by the effective date of the first registration of any such Shares.
10.7.8 Promptly notify all selling Holders of any stop order
or similar proceeding initiated by state or federal regulatory bodies and use
its best efforts to take all necessary steps expeditiously to remove such stop
order or similar proceeding.
10.8 Description of Expenses. All expenses incurred by the Company
in complying with any of the foregoing provisions of this Section 10, including
without limitation all filing fees, printing expenses, fees and disbursements of
counsel for the Company and accountants' fees and expenses, but excluding
underwriting discounts and selling commissions, incident to or required by any
such registration are herein called "Registration Expenses." All underwriting
discounts and selling commissions applicable to the sale of Shares hereunder and
all fees and disbursements of counsel to any Holder selling Shares hereunder are
herein called "Selling Expenses." If the Company is required by the provisions
of this Section 10 to use its best efforts to effect the registration of any of
the Shares under the Act, the Registration Expenses and Selling Expenses in
connection with such registration shall be borne by the Company, except that
each Holder shall pay the fees and disbursements of his own counsel and the
underwriting discounts and selling commissions applicable to his shares.
10.9 Indemnification; Underwriting Agreements. In the event that the
Company registers under the Act any Shares held by a Holder:
10.9.1 The Company agrees to indemnify and hold harmless such
Holder, and each person, if any, who controls such Holder within the meaning of
the Act, against any losses, claims, damages or liabilities to which any such
Holder, controlling person or underwriter may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) shall arise out of or be based upon any untrue or allegedly
untrue statement of any material fact contained in the registration statement,
the related prospectus or any amendment or supplement thereto, or upon 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, and
shall reimburse any legal or other expenses reasonably incurred by any such
Holder, controlling person or underwriter in connection with investigating or
defending against any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable to any Holder, controlling person
or underwriter for any losses, claims, damages, liabilities or actions arising
out of or based upon any such untrue statement or omission
-22-
<PAGE> 23
made in reliance upon and in conformity with written information furnished to
the Company by such Holder, controlling person or underwriter seeking
indemnification hereunder.
10.9.2 The obligations of the Company under Subsections 10.3
and 10.4 are subject to the conditions that each Holder whose shares are to be
included in any registration or qualification referred to in this Section 10 (i)
agrees, in writing, to indemnify and hold harmless the Company, each person, if
any, who controls the Company within the meaning of the Act and the officers and
directors of the Company, against any and all liability or expense arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact in any related registration statement, prospectus, offering circular,
notification or other document or alleged omission of any material fact required
to be stated therein or necessary to make the statements therein not misleading,
but only with reference to statements or omissions made in reliance upon a
statement in writing furnished by or on behalf of such Holder for inclusion
therein and with reference to statements or omissions made in reliance upon an
omission or failure by such Holder to furnish any statement with respect to such
Holder required to be included therein, and (ii) if such registration or
qualification relates to an offering which is to be underwritten, enters into an
underwriting agreement in usual and standard form respecting such offering.
10.10 Rule 144. The Purchasers recognize that the provisions of Rule
144 under the Securities Act are not presently applicable to securities of the
Company. After the effective date of the first registration statement filed by
the Company under the Act, in order that the Purchasers may make routine sales
of securities of the Company in reliance upon Rule 144 under the Act, the
Company agrees that it will:
(a) file with the Commission and any national securities
exchange on which any of its securities may be listed, on a timely basis, all
reports required by Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), or successor provision of law, and the rules and
regulations promulgated by the Commission thereunder, as the same are or may
hereafter be amended from time to time; include in each such report filed a
statement to the effect that it has been subject to the reporting requirements
of Section 13 or Section 15(d) of the Exchange Act for a period of at least 90
days prior to the date of such report, and has filed all annual, quarterly and
other reports in compliance with such requirement; and deliver to any Holder,
within five days after written request by such Holder, a written statement to
the effect that the Company is subject to the foregoing requirements and every
report of the Company required to be filed by Section 13 or Section 15(d) of the
Exchange Act within a period of at least 90 days prior to the date of such
written statement has been filed by the Company in compliance with the
provisions of such sections of the Exchange Act and the rules and regulations of
the Commission thereunder;
(b) deliver to the Holder, within five days after request by
such Holder, a written statement setting forth as of the close of business on
the day next preceding the date of the statement (i) the number of shares of the
Common Stock issued and outstanding and the aggregate number of shares of Common
Stock issuable upon conversion of any outstanding securities convertible into
Common Stock or upon exercise of any outstanding options, rights or warrants to
subscribe for or purchase Common Stock, (ii) the exact name, address and
telephone
-23-
<PAGE> 24
number (including area code) of the Company, (iii) the I.R.S. employer
identification number of the Company, (iv) the Commission's reporting file
number for the Company, and (v) all other information which may be required by
the Commission in connection with any sale made by a Purchaser pursuant to Rule
144; and
(c) upon such Holder's complying with Rule 144 under the Act
and selling any shares of Common Stock purchased hereunder in accordance with
such rule, authorize and direct its transfer agent to transfer registration of,
and issue new certificates for, any shares of Common Stock so sold, in
accordance with the instructions furnished by such Holder.
10.11 Mergers. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Section 10 and for that purpose
references hereunder to "Shares" shall be deemed to be references to the
securities which such Holders would be entitled to receive in exchange for
Shares under any such merger, consolidation or reorganization.
10.12 Further Agreements of the Company. If the Company hereafter
becomes subject to the reporting requirements of the Exchange Act, or successor
provision of law, the Company further agrees as follows:
10.12.1 Reports to be Furnished. The Company will furnish
copies of the following documents to all Holders:
(a) on the earlier of the date actually filed or the
date due, all reports which the Company shall be required under the Exchange Act
to file with the Commission, including but not limited to Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K; each
thereof shall be accompanied by a certificate of the chief financial officer of
the Company to the effect that such Report and the financial statements included
therein have been properly prepared and are correct and that he has caused the
provisions of this Agreement to be reviewed and has no knowledge of any default
by the Company in the performance or observance of any of the provisions of this
Agreement or the Notes, or if he has such knowledge, specifying such default and
the nature thereof; and the Annual Report shall also be accompanied by reports
or certificates of the Company's independent certified public accountants and
the statement of such public accountants that they have caused the provisions of
this Agreement to be reviewed and have no knowledge of any default by the
Company in the performance or observance of any of the provisions of this
Agreement or the Notes or, if they have such knowledge, specifying such default
and the nature thereof.
(b) promptly after receipt, a copy of all detailed
audits or reports submitted to the Company by independent public accountants in
connection with any annual or interim audits of the books of the Company or any
subsidiary; and
-24-
<PAGE> 25
(c) promptly upon the sending or making available of the
same, a copy of all reports and financial statements as the Company makes
available to its stockholders.
11. Values of Notes and Warrants. For the purpose of fixing the relative
values of the Notes and Warrants received under this Agreement and the amount of
the original issue discount as that term is defined in Section 1232(b) of the
Internal Revenue Code of 1954, as amended, and the regulations thereunder (with
particular reference to Treasury Regulation Section 1.1232-2), the Company
hereby confirms its agreement with each Purchaser that the interest the Notes
would bear if issued apart from the Warrants would be 10 1/4% per annum.
12. Survival of Covenants. All covenants, agreements, representations and
warranties made by the Company hereunder shall survive the execution and
delivery of this Agreement, the Notes, Sale Stock and Warrants. All statements
contained in certificates or other instruments delivered by the Company and its
officers and directors pursuant to this Agreement shall constitute
representations and warranties made by the Company hereunder.
13. Successors and Assigns. All of the terms and provisions of this
Agreement shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns, and to all subsequent holders of the Notes,
Sale Stock, Warrants and Underlying Shares.
14. Amendments and Waivers. This Agreement may not be changed, modified or
discharged orally, nor may any waivers or consents be given orally hereunder,
and every such change, modification, discharge, waiver or consent shall be in
writing signed by the person against which enforcement thereof is sought.
15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, first class postage prepaid:
(a) if to the Company: Cynergy, Inc.
13240 Northrup Way
Suite 20
Bellevue, WA 98005
(b) if to the Purchasers: Pioneer Investors Corp.
One Battery Park Plaza
New York, NY 10004
and
Doan Resources Corporation
110 East Grove
Midland, Michigan 48640
-25-
<PAGE> 26
or to such other address as either of said parties shall have furnished to the
other party in writing. Delivery of documents by the Company to Messrs. Reavis &
McGrath, Special Counsel for the Purchasers, shall be deemed to constitute for
all purposes the furnishing of such documents to the Purchasers under this
Agreement.
16. Expenses. Except as provided in Section 7, each of the Company
and each Purchaser agrees to bear its own expenses in connection with this
Agreement, the expenses of the Company to include any applicable stock or
note issue or transfer fees or taxes.
17. General. This Agreement may be executed in two or more counterparts
each of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument. This Agreement shall be construed and
enforced in accordance with and the rights of the parties shall be governed by
the laws of the State of Washington.
If the foregoing corresponds with the Company's understanding of its
agreement with the Purchaser, kindly sign and return to the Purchaser the
enclosed counterparts of this letter.
Very truly yours,
DOAN RESOURCES CORPORATION PIONEER INVESTORS CORP.
By /s/ [unreadable] By
------------------------------- --------------------------------------
Vice President President
Agreed to as of the Date First Above
Written:
CYNERGY, INC.
By /s/ D. Craig Edwards
-------------------------------
President
-26-
<PAGE> 1
EXHIBIT 10.23
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (the "Amendment") is
made as of this 28th day of October, 1994, by and between PIONEER ASSOCIATES
("Pioneer Associates"), and SEAMED CORPORATION, a Delaware corporation (the
"Company"). Unless otherwise defined herein, all capitalized terms shall have
the meanings that are ascribed to them in the Agreement, as defined below.
RECITALS
A. On January 20, 1978, Pioneer Investment Corp. ("Pioneer Investment")
and Doan Resources Corporation ("Doan") (collectively, the "Purchasers") and
Cynergy, Inc. ("Cynergy") entered into that certain Purchase and Sale Agreement
(the "Agreement"), whereby the Purchasers each purchased a subordinated note in
the principal amount of $62,500 (individually, the "Note") and 142 shares of
Cynergy's common stock (individually, the "Stock"), and were each granted a
warrant for the right to purchase 141 of Cynergy's common stock (individually,
the "Warrant"). Cynergy has since changed its name to SeaMED Corporation and has
declared a 500 for 1 stock split.
B. Doan assigned all of its right title and interest in and to its Note,
Stock and Warrant to Pioneer Investment, which subsequently assigned all of its
right title and interest in and to the Doan Note, the Doan Stock and the Doan
Warrant and its Note, Stock and Warrant to Pioneer Associates.
C. The Company has since satisfied in full its obligations under the Doan
Note and the Pioneer Investment Note and Pioneer Associates has exercised the
Doan Warrant and the Pioneer Investment Warrant.
D. The Company has engaged an investment banking firm, Allen & Company, to
raise an additional $2,000,000 of equity financing through the sale of Class D
Convertible Preferred Stock. The Company shall use the proceeds from such sale
to reduce its outstanding borrowings under its various credit lines, to purchase
equipment and as general working capital.
E. As a shareholder of the Company, Pioneer Associates expects to benefit,
directly and indirectly, from the sale of the preferred stock.
F. In order to facilitate the sale of the preferred stock, the parties
desire to amend the Agreement pursuant to the terms and conditions of this
Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
<PAGE> 2
1. The text of Section 8.14 is deleted in its entirety.
2. The text of Section 8.22 is deleted in its entirety.
3. Section 8.23 is amended and restated as follows:
8.23 Term and Covenants of Agreements. The covenants and agreements
provided in Subsections 8.1 (except the last sentence thereof), 8.2, 8.3,
8.4, 8.6, 8.7, 8.8, 8.9, 8.10, and 8.21 shall remain in effect and be
binding on the Company so long as any amount of the indebtedness evidenced
by the Notes remains unpaid or the Purchasers are stockholders of the
Company. The covenants and agreements provided in the last sentence of
Subsection 8.1 and Subsections 8.5, 8.11, 8.12, 8.13, 8.15, 8.16, 8.17,
8.18, and 8.20 shall remain in effect and binding on the Company only so
long as any amount of the indebtedness evidenced by the Notes remains
unpaid.
4. Except as modified by this Amendment, all provisions of the Agreement
are unchanged and remain in full force and effect and are ratified and confirmed
by the parties hereto.
5. This Amendment may be signed in several counterparts, each of which
shall be deemed an original and all such counterparts together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year first written above.
PIONEER ASSOCIATES
By /s/ R. Scott Asen
------------------------------------
Its General Partner
------------------------------
SEAMED CORPORATION
By /s/ W. Robert Berg
------------------------------------
Its President and CEO
------------------------------
<PAGE> 1
EXHIBIT 11.1
SEAMED CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- -----------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Primary:
Weighted average common shares
outstanding.......................... 454,324 530,681 606,353 551,289 671,797
Class B and C convertible redeemable
preferred stock classified as common
stock equivalents.................... 1,376,559 1,376,559 1,376,559 1,376,559 1,376,559
Net effect of dilutive stock options
based on the treasury stock method
using average market price........... 280,650 288,786 253,996 267,975 320,575
Net effect of dilutive stock warrant
based on the treasury stock method
using average market price........... -- -- -- -- 9,704
Net incremental effect of stock options
granted or exercised at less than the
offering price during the 12 months
prior to the Company's filing of its
initial public offering, calculated
using the treasury stock method at an
offering price of $11 per share, and
treated as outstanding for all
periods presented.................... 112,257 106,333 93,831 106,286 99,051
--------- --------- --------- --------- ---------
Total weighted average shares
outstanding.......................... 2,223,790 2,302,359 2,330,739 2,302,109 2,477,686
========= ========= ========= ========= =========
Net income............................. $1,007,278 $ 774,763 $1,240,454 $ 167,072 $ 486,584
Less accretion of cumulative preferred
stock dividends...................... (145,850) (203,005) (263,050) (65,763) (65,763)
--------- --------- --------- --------- ---------
Adjusted income for computation of
primary net income per share......... $ 861,428 $ 571,758 $ 977,404 $ 101,309 $ 420,821
========= ========= ========= ========= =========
Primary net income per share........... $ 0.39 $ 0.25 $ 0.42 $ 0.04 $ 0.17
========= ========= ========= ========= =========
Fully diluted:
Weighted average common shares
outstanding.......................... 454,324 530,681 606,353 551,289 671,797
Weighted average of all convertible
redeemable preferred stock
outstanding.......................... 2,543,363 2,734,403 2,934,029 2,934,029 2,934,029
Net effect of dilutive stock options
based on the treasury stock method
using the greater of average or
ending market price.................. 298,916 289,178 261,165 267,975 356,385
Net effect of dilutive stock warrants
based on the treasury stock method
using the greater of average or
ending market price.................. -- -- 586 -- 16,803
Net incremental effect of stock options
granted or exercised at less than the
offering price during the 12 months
prior to the Company's filing of its
initial public offering, calculated
using the treasury stock method at an
offering price of $11 per share, and
treated as outstanding for all
periods presented.................... 112,257 106,287 91,110 106,286 97,388
--------- --------- --------- --------- ---------
Total weighted average shares
outstanding.......................... 3,408,860 3,660,549 3,893,243 3,859,579 4,076,402
========= ========= ========= ========= =========
Net income............................. $1,007,278 $ 774,763 $1,240,454 $ 167,072 $ 486,584
========= ========= ========= ========= =========
Fully diluted net income per share..... $ 0.30 $ 0.21 $ 0.32 $ 0.04 $ 0.12
========= ========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,512
<SECURITIES> 0
<RECEIVABLES> 5,824,437
<ALLOWANCES> 277,563
<INVENTORY> 7,224,443
<CURRENT-ASSETS> 13,480,123
<PP&E> 5,562,854
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5,279,514
0
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</TABLE>
