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U.S. Securities And Exchange Commission
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
COMMISSION FILE NUMBER 0-15963
INVIVO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0115161
(State or other jurisdiction (IRS Employer Identification No.)
Of incorporation)
4900 HOPYARD RD. SUITE 210, PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices) (Zip Code)
TELEPHONE: (925) 468-7600
(Registrant's telephone number)
---------------
Indicate by check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's Common Stock, par value $.01
per share, at September 30, 2001 was 4,423,249 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
2001 JUNE 30,
(UNAUDITED) 2001
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,076,100 280,000
Short term investments 7,873,800 9,091,300
Trade receivables, net 14,937,400 15,656,600
Inventories 11,920,100 11,249,100
Deferred income taxes 1,013,300 1,013,300
Prepaid expenses and other current assets 507,100 465,500
----------- -----------
Total current assets 37,327,800 37,755,800
Property and equipment, net 6,466,400 6,398,000
Goodwill 7,633,900 7,633,900
Other assets 223,400 223,400
----------- -----------
$51,651,500 52,011,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,921,800 2,267,200
Accrued expenses 2,832,400 3,662,900
Current portion of long-term debt and capital leases 154,700 154,700
Income taxes payable 399,100 147,000
Other current liabilities -- 143,900
----------- -----------
Total current liabilities 5,308,000 6,375,700
Long-term debt and capital leases, excluding current portion 1,620,100 1,647,100
Deferred income taxes 279,700 279,700
----------- -----------
Total liabilities 7,207,800 8,302,500
----------- -----------
Stockholders' equity:
Common stock 44,200 44,200
Additional paid-in capital 26,581,500 26,581,500
Retained earnings 17,798,400 17,095,900
Accumulated other comprehensive income (loss) 19,600 (13,000)
----------- -----------
Total stockholders' equity 44,443,700 43,708,600
----------- -----------
Commitments and contingencies
$51,651,500 52,011,100
=========== ===========
See accompanying notes to consolidated financial statements.
2
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2001 2000
------------ ------------
Sales $ 13,363,300 12,673,300
Cost of goods sold 6,982,600 6,421,400
------------ ------------
Gross profit 6,380,700 6,251,900
------------ ------------
Operating expenses:
Selling, general
and administrative 4,463,500 4,271,800
Research and experimental 869,300 772,700
------------ ------------
Total operating expenses 5,332,800 5,044,500
------------ ------------
Income from operations 1,047,900 1,207,400
Other income (expense):
Interest income 71,300 115,400
Interest expense (38,400) (33,000)
------------ ------------
Income before income taxes 1,080,800 1,289,800
Income tax expense 378,300 445,000
------------ ------------
Net income $ 702,500 $ 844,800
============ ============
Basic net income per common share $ .16 $ .19
============ ============
Weighted average common
shares outstanding (basic) 4,423,249 4,381,209
============ ============
Diluted net income per common
Share $ .16 $ .19
============ ============
Weighted average common
shares outstanding (diluted) 4,511,655 4,490,685
============ ============
See accompanying notes to consolidated financial statements.
3
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 702,500 $ 844,800
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 355,800 399,200
Change in operating assets and liabilities:
Trade receivables 751,800 529,600
Inventories (671,000) (451,600)
Prepaid expenses and other current assets (41,600) (77,500)
Accrued expenses (830,500) (799,500)
Accounts payable (345,400) (400,900)
Income taxes payable 252,100 (127,400)
------------ ------------
Net cash provided by (used in) operating activities 173,700 (83,300)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) sale of short term investments 1,217,500 (180,700)
Capital expenditures (424,200) (215,400)
Purchase of assets (143,900) --
Other assets -- 7,900
------------ ------------
Net cash provided by (used in) investing activities 649,400 (388,200)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- 72,800
Principal payments under long-term debt and other liabilities (27,000) (38,600)
------------ ------------
Net cash provided by financing activities 27,000 34,200
------------ ------------
Net increase (decrease) in cash and cash equivalents 796,100 (437,300)
Cash and cash equivalents at beginning of period 280,000 969,800
------------ ------------
Cash and cash equivalents at end of period $ 1,076,100 $ 532,500
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 126,600 $ 572,400
============ ============
Interest $ 38,300 $ 33,000
============ ============
See accompanying notes to consolidated financial statements.
4
INVIVO CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated balance sheet as of September 30, 2001 and the related
consolidated statements of income for the three-month periods ended September
30, 2001 and 2000; and the consolidated statements of cash flows for the
three month periods ended September 30, 2001 and 2000 are unaudited. The
consolidated financial statements reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position and results of
operations as of the end of and for the periods indicated. Interim results
are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q,
and do not contain certain information included in the Company's annual
consolidated financial statements and notes.
2. SEGMENT INFORMATION
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosure About Segments of an Enterprise and
Related Information. SFAS 131 establishes standards for the reporting by
public business enterprises of information about operating segments, products
and services, geographic areas, and major customers. The method for
determining what information to report is based on the way that management
organizes the operating segments within the Company for making operating
decisions and assessing financial performance.
Summarized financial information concerning the Company's business segments
is shown in the following table. The "Corporate" column includes general and
administrative and corporate-related expenses not allocated to reportable
segments (in thousands).
SAFETY AND
MEDICAL INDUSTRIAL
DEVICE INSTRUMENTATION CORPORATE TOTAL
-------------- --------------- -------------- --------------
For the three months ended September 30, 2001
Net sales .................................... $ 9,078 4,285 -- 13,363
Income from operations ....................... 1,139 324 (415) 1,048
Depreciation and amortization ................ 203 140 13 356
Total assets ................................. 29,101 12,872 9,679 51,652
SAFETY AND
MEDICAL INDUSTRIAL
DEVICE INSTRUMENTATION CORPORATE TOTAL
-------------- --------------- -------------- --------------
For the three months ended September 30, 2000
Net sales .................................... $ 8,018 4,655 -- 12,673
Income from operations ....................... 923 613 (329) 1,207
Depreciation and amortization ................ 252 134 13 399
Total assets ................................. 29,056 10,645 9,342 49,043
A reconciliation of income from operations to income before income taxes
for the quarters ended September 30 follows:
2001 2000
---------- ----------
Income from operations $ 1,048 1,207
Other income (expense) 33 83
---------- ----------
Income before income taxes $ 1,081 1,290
========== ==========
5
3. DEBT AND BANK BORROWINGS
The Company's bank line of credit of $1,000,000 expires on December 1, 2001.
The Company expects to renew the line of credit. The Company's revolving bank
line of credit is collateralized by the Company's accounts receivable,
inventory, and equipment. At September 30, 2001, $1,000,000 was available
under the line of credit.
4. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, are as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2001 2000
---------- ----------
Net income $ 702,500 $ 844,800
Change in unrealized gain (loss)
on short-term investments -- 15,900
Change in foreign currency 32,600 --
translation ---------- ----------
Comprehensive Income $ 735,100 $ 860,700
========== ==========
5. NET INCOME PER COMMON SHARE
The following table presents the calculation for basic and diluted net income
per common share:
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2001 2000
----------- -----------
BASIC:
Weighted average common
Shares outstanding 4,423,249 4,381,209
=========== ===========
Net Income $ 702,500 $ 844,800
=========== ===========
Basic net income per common share $ 0.16 $ 0.19
=========== ===========
DILUTED:
Weighted average common
Shares outstanding (basic) 4,423,249 4,381,209
Dilutive stock options 88,406 109,476
----------- -----------
Weighted average common
Shares outstanding (diluted) 4,511,655 4,490,685
=========== ===========
Net Income $ 702,500 $ 844,800
=========== ===========
Diluted net income per common share $ 0.16 $ 0.19
=========== ===========
6
5. GOODWILL
In the quarter ended September 30, 2001 the Company adopted SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 also requires that intangible assets with
estimable useful lives be amortized over their respective estimated useful
lives up to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long--Lived Assets to Be Disposed Of. Accordingly, the Company
did not record any goodwill amortization during the first quarter of fiscal
2002. Furthermore, the Company will test its goodwill for any transitional
impairment during the second quarter of fiscal 2002 and, if necessary, adjust
the carrying value of goodwill
The following table reconciles the prior period's reported net income to its
respective pro forma balance adjusted to exclude goodwill amortization, which
is no longer recorded under SFAS No. 142.
For the three-month period ended
September 30, 2000
--------------------------------------------
Earnings per Share
Amount Basic Diluted
------------ ------------ ------------
Net income $ 844,800 $ 0.19 $ 0.19
Add back goodwill amortization 66,500 0.02 0.02
------------ ------------ ------------
Adjusted net income $ 910,400 $ 0.21 $ 0.21
============ ============ ============
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
Sales
Sales for the first quarter ended September 30, 2001 were $13,363,300, an
increase of 5.4% over sales of $12,673,300 for the same period in fiscal 2001.
Sales at the Company's medical device business increased 13.2% in the first
quarter of fiscal 2002 as compared to the same period in fiscal 2001. The
increase was due to continued growth in sales of the Company's MRI vital signs
monitor. The sales increase at the medical device business for the first quarter
of fiscal 2002 was offset by a sales decline at the Company's safety and
industrial instrumentation segment as the Company's gas detection product sales
were negatively affected by the general economic slowdown. The Company's
pressure sensing devices and non-contact infrared thermometer products also
experienced sales declines.
Gross Profit
The gross profit margin decreased for the three-month period ended
September 30, 2001 to 47.8% from 49.3% in the same period of fiscal 2001. The
decrease was attributable to the impact of decreased sales at the safety and
industrial instrumentation product lines relative to fixed cost of sale
components. In addition, the gross profit margin for the medical device business
declined primarily due to higher manufacturing overhead costs and price
discounting on the "Millennia" vital signs monitor.
Operating Expenses
Selling, general and administrative expenses for the first quarter of
fiscal 2002 increased 4.5% or $191,700 as compared to the same period in fiscal
2001. Selling, general and administrative expenses were 33.4% of sales for the
three months ended September 30, 2000 compared with 33.7% for the same period in
fiscal 2001. The increase in these expenditures for the three months ended
September 30, 2001 was primarily due to increased selling expenses at the
Company's medical device business as sales commissions increased on the higher
sales. These increases more than offset the affect of the Company's adoption of
SFAS No. 142, Goodwill and Other Intangible Assets, effective July 1, 2001 as a
result of which the Company stopped amortizing its goodwill. (See New Accounting
Pronouncements below)
Research and experimental expenses were $869,300 or 6.5% of sales for the
first quarter of fiscal 2002 compared to $772,700 or 6.1% for the same period in
fiscal 2001. The increase in these expenses in aggregate and as a percentage of
sales in the first quarter of fiscal 2002 was due to increased expenditures on
behalf of the medical device business which offset a decline in research and
experimental expenditures at the safety and industrial instrumentation product
lines. The Company plans to continue its efforts in developing new products and
enhancing its existing ones and expects future research and experimental
expenditures as a percentage of sales to be in the range of the first quarter
fiscal 2002 levels
Other Income and Expense
Interest income was $71,300 for the first quarter of fiscal 2002 as
compared to $115,400 for the prior year period. The decrease was largely due to
the lower interest rates earned on the Company's short-term investments.
Interest expense remained stable at $38,400 in the first quarter of fiscal 2002.
Provision for Income Taxes
The effective tax rate for the first quarter of fiscal 2002 was 35.0% as
compared to 34.5% for the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
8
Working capital at September 30, 2001 increased to $32,019,800 from
$31,380,100 at June 30, 2001. Net cash provided by operating activities was
$173,700 for the three months ended September 30, 2001 compared with $83,300
used in operating activities for the three months ended September 30, 2000. This
increase was largely the result of changes in operating assets and liabilities,
particularly accounts receivable and income taxes payable.
Capital expenditures were $424,200 for the first three months of fiscal
2002 compared to $215,400 for the prior year period. Capital expenditures were
primarily related to the expansion of the Company's medical device facility and
investments in manufacturing equipment and sales demonstration equipment for the
medical device business.
The Company believes that its cash resources and cash flow from operations
are adequate to meet its anticipated cash needs for working capital and capital
expenditures throughout fiscal 2002. The Company's line of credit expires on
December 1, 2001. The Company expects to renew the line of credit. The Company's
revolving bank line of credit is collateralized by the Company's accounts
receivable, inventory, and equipment. At September 30, 2001, $1,000,000 was
available under the line of credit.
The Company will continue to explore opportunities for the possible
acquisitions of technologies or businesses, which may require the Company to
seek additional financing.
RECENT ACCOUNTING PRONOUNCEMENTS
In the quarter ended September 30, 2001 the Company adopted SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 also requires that intangible assets with
estimable useful lives be amortized over their respective estimated useful lives
up to their estimated residual values, and reviewed for impairment in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long--Lived Assets to Be Disposed Of. Accordingly, the Company did not record
any goodwill amortization during the first quarter of fiscal 2002. Furthermore,
the Company will test its goodwill for any transitional impairment during the
second quarter of fiscal 2002 and, if necessary, adjust the carrying value of
goodwill.
In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No.
141 requires that all business combinations be accounted for under the purchase
method. Use of the pooling-of-interests method is no longer permitted. SFAS No.
141 requires that the purchase method be used for business combinations
initiated after June 30, 2001. Invivo adopted the provisions of SFAS No. 141 on
July 1, 2001. To date, Invivo has accounted for all of its business combinations
as purchases and the adoption of SFAS No. 141 is not expected to have a
significant impact on Invivo's financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to legal obligations
associated with retirement of long-lived assets that result from the
acquisition, construction, development or normal use of the asset. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002. Invivo is currently
evaluating the impact of SFAS No. 143 on its financial statements and related
disclosures.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many
of the fundamental provisions of that Statement. Invivo will adopt the
provisions of SFAS No. 144 commencing January 1, 2002. The effects of adopting
SFAS No. 144 are currently being determined.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
regarding the Company's plans, expectations, estimates and beliefs. Actual
results could differ materially from those discussed in, or implied by, these
forward-looking statements. Forward-
9
looking statements are identified by words such as "believe," "anticipate,"
"expect," "intend," "plan," "will," "may" and other similar expressions. In
addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements. The Company is not obligated to update or revise these
forward-looking statements to reflect new events or circumstances. Factors that
could cause actual results, events or circumstances to differ from
forward-looking statements made in this report include those set forth in the
following "Risk Factors" section.
RISK FACTORS
THE COMPANY IS DEPENDENT ON A CONCENTRATED LINE OF PRODUCTS
The Company's future financial performance will be largely dependent on its
patient monitor product line, which includes a limited number of products. The
Company expects its MRI patient monitors and its Millennia portable patient
monitor to have a substantial impact on revenue growth. In the MRI monitoring
market, the success of its MRI monitors is heavily dependent on the continued
acceptance of MRI technology as a diagnostic tool. In the general patient
monitoring market, the Company's Millennia monitor is heavily dependent on its
ability to further penetrate an already competitive market.
In addition, the recent consolidation in the medical care provider market
has resulted in a number of very large purchasers of medical devices. These
large purchasers typically prefer to establish relationships with medical device
manufacturers that have broad and diverse product lines.
The failure of the Company's products to continue to gain market acceptance
or a continued consolidation of the medical care provider market could have a
material adverse effect on its business and results of operations.
THE COMPANY FACES INCREASED LEVELS OF COMPETITION
The Company has encountered and will continue to encounter significant
competition in the sale of its products. The Company's general patient
monitoring competitors include a number of large multinational corporations.
Some of these competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company can. In the MRI patient monitoring market, the Company has enjoyed a
significant first-to-market advantage over its competitors. However, competitors
have introduced products designed to compete with its MRI vital signs monitoring
products. In addition, as the market for MRI vital signs monitoring products
expands it may attract competitors with greater resources.
Additionally, competition may increase if new companies enter the Company's
markets or if existing competitors expand their product lines or intensify
efforts within existing product lines. The introduction of competitive products
may result in a decrease in the Company's market share and in a decrease in the
prices at which the Company is able to sell its products. The Company's market
share could also be adversely affected by increasing concentration in the
medical care provider market. Any decrease in the Company's market share or
decrease in the prices at which the Company is able to sell its products could
have a material adverse effect on its business and results of operations.
THE COMPANY'S FINANCIAL RESULTS MAY FLUCTUATE
The Company's financial results may fluctuate significantly from period to
period because of a variety of factors, many of which is beyond its control.
These factors include:
- increased competition
- changes in the Company's pricing policies and those of its competitors
- changes in the Company's operating expenses or capital expenditures
- timing and market acceptance of new and upgraded product introductions by
the Company and its competitors
10
- seasonal fluctuations in the demand for the Company's products
- introduction of alternative technologies by the Company and its competitors
- effect of potential acquisitions
- other general economic factors
Fluctuations caused by these and other factors could have a material adverse
effect on the Company's business and results of operations.
THE COMPANY IS SUBJECT TO A SIGNIFICANT RISK OF NEW LAWS RELATED TO HEALTH CARE
Changes in the law or new interpretations of existing laws may have a
significant effect on the Company's costs of doing business and the amount of
reimbursement the Company receives from both government and third-party payors.
In addition, economic forces, regulatory influences and political initiatives
are subjecting the health care industry to fundamental changes. Federal, state
and local government representatives are likely to continue to review and assess
alternative health care delivery systems and payment methods. The Company
expects ongoing public debate on these issues. Any of these efforts or reforms
could have a material adverse affect on the Company's business and results of
operations.
THE COMPANY'S BUSINESS IS SUBJECT TO TECHNOLOGICAL CHANGE AND INTRODUCTION OF
NEW PRODUCTS
Technological change, evolving industry standards and new product
introductions and enhancements characterize the markets for the Company's
products. Many of the Company's products and products under development are
technologically innovative, and therefore require significant planning, design,
development and testing. These activities require the Company to make
significant capital commitments and investments. In addition, industry standards
may change on short notice and new products and technologies may render existing
products and technologies uncompetitive. Additionally, the products that the
Company is currently developing, and those that the Company develops in the
future, may not be technologically feasible or accepted by the marketplace or
they may not be completed in an acceptable time frame. Any increased capital
investments or loss in sales due to technological change could have a material
adverse effect on the Company's business and results of operations.
THE COMPANY CURRENTLY IS INVOLVED IN A LEGAL PROCEEDING
The Company's medical device subsidiary, Invivo Research, was one of two
third-party defendants named in a lawsuit in June of 1994 by Southern Nevada
Surgical Center and Surgex Southern Nevada, Inc. in Nevada State District Court.
The underlying action in this matter stemmed from an incident involving a
surgical patient undergoing a procedure at the Southern Nevada Surgical Center.
The patient suffered a serious permanent brain injury. A lawsuit was filed on
behalf of the patient against the surgical center and the anesthesiologist who
monitored the patient. The defendants in that action made a substantial
settlement to the patient. Southern Nevada Surgical Center ("SNSC") and Surgex
were seeking indemnity and contribution of approximately $14 million from the
manufacturer of the anesthetic gas machine and Invivo Research, which
manufactured the vital signs monitor used in this procedure. SNSC and Surgex
alleged that both the anesthetic gas machine and the vital signs monitor were
defective. The Company believes that the vital signs monitor operated properly
and was properly designed for its intended function.
On August 18, 1999, the Nevada District Court granted the Company's Motion
to Dismiss for Failure to Prosecute. The Order granted dismissal of the SNSC and
Surgex contribution claims, without prejudice, based upon Nevada law that
provides that an action must be brought to trial within five years of the date
of the filing of the original action. The dismissal is being appealed.
In April of 1997, the plaintiff's insurer, CNA, filed an action with
identical causes in the same Nevada State Court. This second action was removed
by the Company to U.S. District Court. The action by CNA was dismissed by the
District Court on January 19, 2000 as the District Court found CNA did not have
standing as the real party of interest. CNA appealed the decision to the Ninth
11
Circuit Court of Appeals. A three-member panel of the Ninth Circuit reversed the
dismissal and remanded the case back to Federal District Court on July 30, 2001.
The Company appealed this decision and requested a decision from the full panel
of the Ninth Circuit. The Ninth Circuit, without issuing an opinion, unanimously
voted to deny the Petition for Rehearing in this matter. The action will now be
remanded to the U.S. District Court for further proceedings.
Any judgment against the Company that exceeds the amount that its insurer
is required to pay could have a material adverse effect on its business and
results of operations.
THE COMPANY FACES PRODUCT LIABILITY AND PRODUCT RECALL RISKS
With respect to all of its products, and particularly its medical devices,
the Company faces the risk of potentially large product liability claims. The
malfunction or misuse of its products could potentially result in serious harm
to a patient. In addition, the Company may be required to indemnify its
distributors and customers for similar claims made against them.
Claims could be made against the Company even if its products did not
contribute to the injury that was sustained. Frequently, the Company's products
are used with products developed by other manufacturers. Even if its products
are not the cause of the injury, the Company may not be able to prove that some
other product malfunction or human error caused a claimant's injury.
The Company has had product liability claims made against it in the past
and may have further claims made against it in the future. While the Company is
insured for certain product liability claims, not all claims will be covered and
the level of its insurance may not be sufficient to protect it from the full
amount of a successful claim. In addition, the Company may not be able to obtain
adequate amounts of insurance at an acceptable cost. Claims made against the
Company that are not insured, or that exceed the amount of the Company's
coverage, could have a material adverse effect on its business and results of
operations.
Similarly, the Company's products are subject to the potential of being
recalled by government agencies for actual or potential deficiencies or
problems. Any such recall would likely be expensive and would have a material
adverse effect on the Company's business and results of operations.
THE COMPANY FACES INCREASED RISKS OF INTERNATIONAL OPERATIONS
International sales have accounted for over 20% of the Company's sales for
each of the past three years and may increase over time. International sales are
subject to a number of risks, including the following:
- fluctuations in exchange rates may affect the demand for products and
services the Company provides in foreign markets
- adverse changes in local economic conditions could depress the demand for
the Company's products
- agreements may be difficult to enforce and receivables difficult to collect
through a foreign country's legal system
- foreign customers may have longer payment cycles
- foreign countries may impose additional withholding taxes or otherwise tax
the Company's foreign income, impose tariffs, or adopt other restrictions
on foreign trade
- U.S. export licenses may be difficult to obtain
- the protection of intellectual property in foreign countries may be more
difficult to enforce
Any of these factors could have a material adverse impact on the Company's
business and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's sales are primarily denominated in U.S. dollars and as a
result, the Company has relatively little exposure to foreign currency exchange
risk with respect to its sales. The Company does not currently hedge against
exchange foreign currency rate
12
fluctuations. The effect of an immediate 10% change in exchange rates would not
have a material impact on the Company's future operating results or cash flows.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
The Company's medical device subsidiary, Invivo Research, was one of two
third-party defendants named in a lawsuit in June of 1994 by Southern Nevada
Surgical Center and Surgex Southern Nevada, Inc. in Nevada State District Court.
The underlying action in this matter stemmed from an incident involving a
surgical patient undergoing a procedure at the Southern Nevada Surgical Center.
The patient suffered a serious permanent brain injury. A lawsuit was filed on
behalf of the patient against the surgical center and the anesthesiologist who
monitored the patient. The defendants in that action made a substantial
settlement to the patient. Southern Nevada Surgical Center ("SNSC") and Surgex
were seeking indemnity and contribution of approximately $14 million from the
manufacturer of the anesthetic gas machine and Invivo Research, which
manufactured the vital signs monitor used in this procedure. SNSC and Surgex
alleged that both the anesthetic gas machine and the vital signs monitor were
defective. The Company believes that the vital signs monitor operated properly
and was properly designed for its intended function.
On August 18, 1999, the Nevada District Court granted the Company's Motion
to Dismiss for Failure to Prosecute. The Order granted dismissal of the SNSC and
Surgex contribution claims, without prejudice, based upon Nevada law that
provides that an action must be brought to trial within five years of the date
of the filing of the original action. The dismissal is being appealed.
In April of 1997, the plaintiff's insurer, CNA, filed an action with
identical causes in the same Nevada State Court. This second action was removed
by the Company to U.S. District Court. The action by CNA was dismissed by the
District Court on January 19, 2000 as the District Court found CNA did not have
standing as the real party of interest. CNA appealed the decision to the Ninth
Circuit Court of Appeals. A three-member panel of the Ninth Circuit reversed the
dismissal and remanded the case back to Federal District Court on July 30, 2001.
The Company appealed this decision and requested a decision from the full panel
of the Ninth Circuit. The Ninth Circuit, without issuing an opinion, unanimously
voted to deny the Petition for Rehearing in this matter. The action will now be
remanded to the U.S. District Court for further proceedings.
Any judgment against the Company that exceeds the amount that its insurer
is required to pay could have a material adverse effect on its business and
results of operations.
ITEM 2: CHANGES IN SECURITIES:
Not Applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES:
Not Applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
Not Applicable.
ITEM 5: OTHER INFORMATION:
Not Applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibit No. Description of Exhibit
----------- ----------------------
13
Exhibit 10.16 Amended and Restated Employment Agreement for James
Hawkins
Exhibit 10.17 Amended and Restated Employment Agreement for John
Glenn
Exhibit 10.18 Amended and Restated Employment Agreement for F. Larry
Young
Exhibit 10.19 Amended and Restated Employment Agreement for Stuart
Baumgarten
(b) Reports on Form 8-K:
None.
14
SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INVIVO CORPORATION
Date: November 14, 2001 By: /s/ JOHN F. GLENN
---------------------------
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
EXHIBIT 10.16
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), made
this 16th day of October, 2001, by and between James B. Hawkins (the
"Executive") and INVIVO CORPORATION, a Delaware corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation considers it essential to the best interests of
the Corporation and its stockholders to take steps to retain key personnel such
as the Executive; and
WHEREAS, the Corporation recognizes particularly that uncertainty might
arise among personnel in the context of any possible or actual Change in
Control, as hereinafter defined, which could result in the departure or
distraction of key personnel to the detriment of the Corporation and its
stockholders;
WHEREAS, the Corporation has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of key
personnel of the Corporation including the Executive to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from any possible or actual Change in Control;
WHEREAS, the Executive and the Corporation entered into an Employment
Agreement dated October 16, 2000 ("2000 Agreement") and wish to amend and
replace that agreement hereby.
NOW, THEREFORE, in consideration of the covenants, terms, and conditions
contained herein, the Corporation and the Executive agree:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings set forth in this Section 1.
a. "Administrative Committee" shall mean the Board or a
committee appointed by the Board to administer this Agreement.
b. "Affiliate" shall mean, with respect to a first Person, a
second Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the first Person.
c. "Associate" shall mean, with respect to a Person, (a) any
corporation or organization of which such Person is an officer or
partner or, directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity securities, (b) any trust or other
estate in which such Person has a substantial beneficial interest or as
to which such Person serves as trustee or in a similar fiduciary
capacity, and (c) any relative or spouse of such Person, or any relative
of such spouse, who has the same home as such Person.
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d. "Benefit Continuation Period" shall mean the period beginning
on the date of the Severance of Employment or Non-Change in Control
Termination, as the case may be, and ending on the earlier to occur of
(a) the one year anniversary of the Severance of Employment, where
termination was a Severance of Employment, and the date six months from
the date of such Non-Change in Control Termination where termination was
a Non-Change in Control Termination, or (b) the date that the Executive
and the Executive's dependents are eligible and elect coverage under the
plans of a subsequent employer that provide substantially equivalent or
greater benefits to the Executive and the Executive's dependents.
e. "Board" shall mean the Board of Directors of the Corporation.
f. "Business Combination" shall mean a merger or consolidation
of the Corporation and one or more other entities in which the
Corporation or a subsidiary of the Corporation is a merging or
consolidating party.
g. "Change in Control" shall mean (a) the sale of all or
substantially all of the assets of the Corporation; (b) any change in
ownership or control of the outstanding voting securities of the
Corporation following which any Person beneficially owns, together with
its Affiliates and Associates, fifty percent (50%) or more of the
outstanding voting securities of the Corporation; (c) any change in the
membership of the Corporation's Board following which Continuing
Directors do not constitute a majority of the Board; or (d) a Business
Combination immediately following which the stockholders of the
Corporation immediately prior to such Business Combination do not hold
more than fifty percent (50%) of the outstanding voting securities of
the surviving entity, or the parent company of the surviving entity, of
such Business Combination in the same proportion as such stockholders
held Common Stock of the Corporation immediately prior to such Business
Combination. Notwithstanding the foregoing, the occurrence of any of the
events set forth in the prior sentence shall not constitute a Change in
Control unless such event occurs on or prior to June 30, 2002, or such
event occurs on or prior to August 31, 2002 pursuant to the terms of
definitive agreement providing for such Change in Control that is
entered into on or before June 30, 2002.
h. "Code" shall mean the Internal Revenue Code of 1986, as
amended to date.
i. "Constructive Discharge" shall mean (a) without the
Executive's express written consent, the assignment to the Executive of
any duties, or the removal from or reduction or limitation of the
Executive's duties or responsibilities, which is inconsistent with the
Executive's position, organization level, duties, responsibilities or
compensation status with the Corporation immediately prior to such
assignment, removal, reduction or limitation; (b) without the
Executive's express written consent, a substantial reduction of the
facilities and perquisites (including office space and location)
available to the Executive; (c) a reduction by the Corporation in the
base cash salary of the Executive; (d) a material reduction by the
Corporation in the kind and level of employee benefits to which the
Executive is entitled, with the result that the Executive's overall
benefit package is materially reduced; or (e) without the Executive's
express written consent, the relocation of the Executive to a facility
or location more than thirty five (35) miles from the Executive's then
present location.
j. "Continuing Director" shall mean, at any given time, a member
of the Board who was (a) a member of the Board on August 31, 2000, (b)
elected to the Board by the Board after August 31, 2000, provided that a
majority of the Continuing Directors voted in favor of such election, or
(c) nominated to the Board by the Board after August 31, 2000, provided
that a majority of the Continuing Directors voted in favor of such
nomination, and subsequently elected to the Board by the stockholders of
the Corporation.
k. "Just Cause Termination" shall mean a termination by the
Corporation of the Executive's employment in connection with the good
faith determination of the Corporation's Board of Directors that the
Executive has engaged in:
17
(i) any material breach of any written agreement between
Executive and the Corporation, if such breach causes material
harm to the Corporation;
(ii) any gross negligence or willful misconduct by
Executive in performance of duties to the Corporation that
causes material harm to the Corporation;
(iii) the substantial and repeated failure of Executive
to follow the lawful written directions of the Board or to the
person whom Executive reports;
(iv) commission of a felony under the laws of the United
States or any state thereof;
(v) commission of any material act of fraud,
embezzlement or dishonesty; or
(vi) the abuse of alcohol or controlled substances that
has a materially detrimental effect upon Executive's performance
of his duties.
l. "Non-Change in Control Termination" shall mean that either
(i) the Executive's employment is terminated by the Corporation and the
termination is not a Just Cause Termination and is not by reason of the
Executive's death or disability, or (ii) the Executive terminates his or
her employment with the Corporation by resignation following a
Constructive Discharge, and, in either event, no Change in Control has
occurred prior to such termination or resignation.
m. "Person" shall mean any individual, corporation, partnership,
limited liability company, sole proprietorship, joint venture or other
organization.
n. "Severance of Employment" shall mean (a) the termination of
the Executive's employment with the Corporation within two (2) years
after the date of a Change in Control by (i) discharge by the
Corporation or (ii) resignation of the Executive following a
Constructive Discharge, or (b) the termination of the Executive's
employment with the Corporation by resignation of the Executive within
the thirty (30) day period immediately following the first anniversary
of a Change in Control. Despite the foregoing, neither of the following
will constitute a Severance of Employment:
i. The termination of the Executive's employment by reason of death
or disability.
ii. A Just Cause Termination of the Executive's employment.
2. 2000 AGREEMENT; POSITION.
The 2000 Agreement is hereby superceded by this Agreement and shall be
of no further force and effect. During the term of this Agreement, Corporation
will employ the Executive, and the Executive will serve the Corporation, in the
capacity of Chief Executive Officer and President.
3. TERM OF EMPLOYMENT.
The Corporation agrees to continue the Executive's employment, and the
Executive agrees to remain in the employ of the Corporation, for a period of one
(1) year from the date hereof unless the Executive's employment is earlier
terminated pursuant to the provisions of this Agreement.
4. COMPENSATION AND BENEFITS.
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a. The Corporation agrees to pay the Executive a minimum annual
salary of $278,250, or in the event of any portion of a year, a pro rata amount
of such annual salary. The Executive's salary will be payable as earned in
accordance with Corporation's customary payroll practice.
b. The Executive will be eligible to receive an annual cash bonus in
the discretion of the Corporation's Board of Directors.
c. The Executive will be eligible to participate in Corporation's
employee benefit plans of general application, including without limitation
pension and profit-sharing plans, deferred compensation, supplemental retirement
or excess-benefit plans, stock option, incentive or other bonus plans, life,
health and dental insurance programs, 401(k) plan, paid vacations and sabbatical
leave plans, and similar plans or programs, in accordance with the rules
established for individual participation in any such plan. The Executive shall
be entitled each year to three (3) weeks leave for vacation at full pay. The
Executive shall also be entitled to reasonable holidays and illness days with
full pay in accordance with the Corporation's policy from time to time in
effect.
d. The Corporation will reimburse the Executive for all reasonable
and necessary expenses incurred by the Executive in connection with the
Corporation's business.
5. ADMINISTRATION.
The Administrative Committee shall administer this Agreement and shall
have the power and the duty to make all determinations necessary for the
implementation of this Agreement, including by way of example and not as a
limitation, the occurrence of a Change in Control and the date of such change.
Any such determination (a) shall be made on the basis of all information known
to the persons making the determination, after reasonable inquiry, (b) may be
made prospectively and subject to one or more contingent events, and (c) will be
binding on the Corporation but not the Executive. Any disagreement between the
Corporation and the Executive concerning any such determination or the
administration, implementation or interpretation of this Agreement shall be
subject to the claims and arbitration procedures set forth in Section 16
hereunder.
6. OBLIGATIONS OF THE CORPORATION UPON CHANGE IN CONTROL.
a. Within fifteen (15) days after a Change in Control or at such earlier
time as may be required by law, the Corporation shall pay to the Executive:
i. The full amount of any earned but unpaid base salary through
the date of the Change in Control, plus a cash payment for all
reasonable travel, entertainment and other expenses properly incurred by
the Executive in connection with his or her employment by the
Corporation to the extent the Executive has not already been reimbursed
for such expenses.
ii. The full amount of any unpaid annual cash bonus for any
fiscal year of the Corporation prior to the year in which the Change in
Control occurs, and a pro rata amount of any unpaid annual cash bonus
for the fiscal year in which the Change in Control occurs calculated by
multiplying (A) the number of full calendar months that the Executive
was employed by the Corporation in such fiscal year divided by 12 and
(B) the amount of $100,000, representing the target annual cash bonus
amount.
b. In the event that the Executive is employed by the Corporation on the
date of a Change in Control, then on the earlier to occur of (i) ninety (90)
days after the date of the Change in Control or (ii) three (3) business days
after the date that the Executive ceases to be employed by the Corporation, then
the Corporation shall pay to the Executive the amount of $814,500, representing
an amount equal to the aggregate of the Executive's annual base salary and
target bonus plus other benefits and expenses, unless the Executive ceases to be
employed by the Corporation for either of the following reasons prior to the
date which is ninety (90) days after
19
the date that the Change in Control occurs, in which event no amount shall be
due under this Section 6.b.: (1) a Just Cause Termination of the Executive prior
to ninety (90) days after the date of a Change in Control or (2) the voluntary
resignation of the Executive prior to ninety (90) days after the date of a
Change in Control, other than a resignation following a Constructive Discharge.
The Executive shall be eligible to make contributions to the Corporation's
Section 401(k) plan, to the extent allowed under the plan, from amounts payable
to the Executive under this Section 6.
c. If and to the extent that the Executive continues to be employed by
the Corporation following a Change in Control, the Executive shall continue to
receive his salary and be eligible for bonus notwithstanding the payment of the
amounts provided herein.
d. Immediately prior to a Change in Control, any unvested stock options
to purchase shares of Common Stock from the Corporation then held by the
Executive shall become fully vested and exercisable at the time of the Change in
Control.
7. OBLIGATIONS OF THE CORPORATION UPON NON-CHANGE IN CONTROL TERMINATION.
a. Within fifteen (15) days after a Non-Change in Control Termination
that occurs during the term of this Agreement, or at such earlier time as may be
required by law, the Corporation shall pay to the Executive:
i. The full amount of any earned but unpaid base salary through
the date of the Non-Change in Control Termination, plus a cash payment
for (a) all unused vacation time which the Executive has accrued as of
the Non-Change in Control Termination, and (b) all reasonable travel,
entertainment and other expenses properly incurred by the Executive in
connection with his or her employment by the Corporation to the extent
the Executive has not already been reimbursed for such expenses.
ii. The full amount of any unpaid annual cash bonus for any
fiscal year of the Corporation prior to the year in which the Non-Change
in Control Termination occurs, and a pro rata amount of any unpaid
annual cash bonus for the fiscal year in which the Non-Change in Control
Termination occurs calculated by multiplying (A) the number of full
calendar months that the Executive was employed by the Corporation in
such fiscal year divided by 12 and (B) the amount of $100,000,
representing the target annual cash bonus amount.
b. In addition to any payment required by subsection a above, within 30
days after a Non-Change in Control Termination, the Corporation shall pay to the
Executive the amount of $407,250 and no further payments (other than as provided
in this Agreement) shall be due in respect of the Executive's salary or bonus
for such year.
8. TERMINATION DUE TO DEATH OR DISABILITY.
If Executive is terminated during the term of this Agreement due to
death or disability, within 15 days of such termination, or at such earlier time
as may be required by law, the Corporation shall pay (a) to the Executive, if
the Executive has been terminated due to disability, or (b) if the Executive has
died, to the Executive's surviving spouse, issue by right of representation or
estate, in that order:
a. The full amount of any earned but unpaid base salary through the date
of termination, plus a cash payment for (a) all unused vacation time which the
Executive has accrued as of the date of termination, and (b) all reasonable
travel, entertainment and other expenses properly incurred by the Executive in
connection with his or her employment by the Corporation to the extent the
Executive has not already been reimbursed for such expenses.
b. The full amount of any unpaid annual cash bonus for any fiscal year
of the Corporation prior to the year in which the termination due to death or
disability occurs, and a pro rata amount of any unpaid annual cash bonus for the
fiscal year in which the
20
termination due to death or disability occurs calculated by multiplying (A) the
number of full calendar months that the Executive was employed by the
Corporation in such fiscal year divided by 12 and (B) the amount of $100,000,
representing the target annual cash bonus amount.
c. If the termination due to death or disability occurs after the date
of a Change in Control and prior to ninety (90) days after the date of a Change
in Control, the full amount otherwise payable to the Executive under Section
6.b. hereof.
9. OTHER TERMINATION.
Within fifteen (15) days after (a) a Just Cause Termination of the
Executive or (b) the voluntary resignation of the Executive, other than a
resignation following a Constructive Discharge or at such earlier time as may be
required by law, the Corporation shall pay to the Executive the full amount of
any earned but unpaid base salary through the date of such termination or
resignation, plus a cash payment for (i) all unused vacation time which the
Executive has accrued as of date of such termination or resignation, and (ii)
all reasonable travel, entertainment and other expenses properly incurred by the
Executive in connection with his or her employment by the Corporation to the
extent the Executive has not already been reimbursed for such expenses.
10. CONTINUATION OF BENEFITS AFTER TERMINATION.
a. After a Severance of Employment or a Non-Change in Control
Termination, the Executive and the Executive's eligible dependents shall
continue to be eligible to participate during the Benefit Continuation Period in
the medical, dental, vision, health, disability, life and other similar plans
and arrangements applicable to the Executive immediately prior to the Severance
of Employment or Non-Change in Control Termination. The Executive shall
participate on the same terms and conditions in effect throughout the Benefit
Continuation Period for active employees of the Corporation.
b. If, at the conclusion of the Benefit Continuation Period, the
Executive is not eligible to receive coverage under the plans of a subsequent
employer that provide substantially equivalent or greater benefits to the
Executive and the Executive's dependents, the Executive may exercise his or her
right under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"), to continue to participate in the Corporation's medical,
dental, vision, health, disability, life and other similar plans and
arrangements applicable to the Executive, subject to the terms and conditions
set forth in COBRA and any rules and regulations promulgated thereunder.
11. FEDERAL EXCISE TAX.
a. If any amounts payable to the Executive under this Agreement are
characterized as excess parachute payments pursuant to Section 4999 of the Code
and Executive thereby would be subject to any United States federal excise tax
due to that characterization, then Executive may elect, in Executive's sole
discretion, to reduce the amounts payable under this Agreement or to have any
portion of applicable options not vest in order to avoid any "excess parachute
payment" under Section 280G(b)(1) of the Code.
b. Unless the Corporation and Executive otherwise agree in writing, any
determination required under this Section 11 shall be made in writing by
independent public accountants for the Corporation (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Corporation
for all purposes. For purposes of making the calculations required by this
Section 11, the Accountants may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The
Corporation and Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make the
required determinations. The Corporation shall bear all fees and expenses the
Accountants may reasonably charge in connection with the services contemplated
by this Section 11. The Corporation shall pay all reasonable legal
21
fees and expenses incurred in defending against any claim by the Internal
Revenue Service that would require payment of any tax under Section 4999 of the
Code and shall promptly reimburse them for the reasonable expenses incurred by
Executive in connection with defending such claim provided that Executive: (i)
give the Corporation any information reasonably requested by the Corporation
relating to the claim; (ii) accept legal representation with respect to such
claim by an attorney reasonably selected by the Corporation and reasonably
acceptable to Executive; (iii) cooperate with the Corporation in good faith in
contesting the claim; and (iv) permit the Corporation to participate in and
control any proceedings relating to the claim.
12. TAXES.
The Corporation shall deduct from any payments to the Executive under
this Agreement amounts that the Corporation is required to withhold and pay
either to government agencies on behalf of the Executive or under court order to
any Person.
13. DEATH PRIOR TO PAYMENT OF AMOUNTS DUE.
In the event of the Executive's death after a Change in Control,
Severance of Employment or Non-Change in Control Termination but prior to
payment to the Executive of amounts due under this Agreement, such payment shall
be made to the Executive's surviving spouse, issue by right of representation or
estate, in that order.
14. ASSIGNMENT.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and the successors and assigns of the Corporation, including
any successor or assign pursuant to a Change in Control.
15. NON-ASSIGNMENT BY THE EXECUTIVE.
The Executive shall not assign, hypothecate, or transfer any of the
rights herein to any Person other than pursuant to the laws of descent and
distribution. Any attempt to assign, hypothecate or transfer the rights
hereunder shall immediately terminate all of the Executive's rights under this
Agreement.
16. CLAIMS PROCEDURE AND ARBITRATION.
a. In the event of a disagreement between the Corporation and the
Executive on any matter arising under this Agreement, the Executive, in claiming
a benefit or requesting an interpretation or ruling under this Agreement, shall
submit the claim or request in writing to the Administrative Committee, which
shall respond in writing as soon as practicable.
b. If a claim or request is denied, the Administrative Committee shall
prepare and deliver to the Executive a written notice of denial which shall
state (a) the reason for denial, with specific reference to the provisions of
this Agreement on which denial is based; (b) a description of any additional
material or information required to prevail with the claim or request and an
explanation of why it is necessary; and (c) an explanation of the Agreement's
claim review procedure.
c. If the Administrative Committee fails to respond in writing to any
claim or request within thirty (30) days of the date such claim or request is
submitted, such failure to respond shall constitute a denial of the claim or
request.
22
d. If a claim or request is denied, the Executive may submit the claim
or request to mandatory and binding arbitration (an "Arbitration"). The
Executive may initiate an Arbitration by sending the Corporation an Arbitration
demand in writing. The Arbitration shall be presided over by a single arbitrator
(the "Arbitrator") selected in accordance with the Commercial Arbitration Rules
(the "Arbitration Rules") of the American Arbitration Association. Any
Arbitration shall be conducted in San Francisco, California in accordance with
the Arbitration Rules and the substantive law of the State of California;
provided, however, that the Arbitrator will have no power or authority, under
the Arbitration Rules or otherwise, to relieve the parties from their obligation
hereunder to arbitrate, or otherwise to amend or disregard any provision of this
Agreement. Judgment upon any award rendered in an Arbitration may be entered in
any court of competent jurisdiction.
17. ATTORNEYS' FEES.
In the event that any Arbitration, suit, action or proceeding (including
any appeal therefrom, but excluding any and all proceedings before the
Administrative Committee) is brought by the Executive to review any decision of
the Administrative Committee pertaining to this Agreement or to enforce any
right hereunder, and the Executive is the prevailing party in such Arbitration,
suit, action or proceeding, the Executive shall be entitled to recover from the
Corporation his or her attorneys' fees and other reasonable costs incurred in
connection therewith. During the pendency of any such Arbitration, suit, action
or proceeding, the Corporation shall promptly pay all of the Executive's
attorneys' fees and reasonable costs incurred by the Executive with respect to
such Arbitration, suit, action or proceeding, subject to the Executive's
obligation hereunder to repay all such sums if the Corporation is the prevailing
party in such Arbitration, suit, action or proceeding.
18. PARTIAL INVALIDITY.
Invalidity of any part or provision of this Agreement shall not affect
the enforceability of any other part or provision of this Agreement.
19. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing herein shall confer, nor shall it be construed to confer, on the
Executive any right to, guarantee of, or contract for a continued employment by
the Corporation, or in any way limit the right of the Corporation to terminate
the employment of the Executive.
20. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, as applied to contracts executed and performed
entirely in California.
21. NOTICES.
Any notices given hereunder must be in writing and may be delivered in
person or by certified or registered mail, return receipt requested, postage
prepaid. Notices to the Corporation should be delivered to Invivo Corporation,
4900 Hopyard Road, Suite 210, Pleasanton, CA 94588, Attn: President, or to such
other address as Corporation from time to time furnishes to the Executive in a
notice. Notices to Executive should be delivered to the address shown beneath
Executive's signature below, or to such other address as the Executive from time
to time furnishes to the Corporation in a notice.
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22. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement between the parties
hereto. This Agreement fully supersedes any and all prior agreements or
understandings pertaining to similar benefits.
23. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original but all of which, taken together,
constitute one and the same agreement.
24. AMENDMENTS.
This Agreement may not be modified except by a writing signed by both
parties.
[The remainder of this page is intentionally left blank.]
24
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto on the day and year first above written.
EXECUTIVE INVIVO CORPORATION
_______________________________ By: _______________________________
(signature)
Street Address (One of Two Required and
City, State and Zip Code Authorized Signatures)
And By: _______________________
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