SEC Company Response from Ivivi Technologies, Inc. (CIK 0001316925) — Sep 13, 2005
Ivivi Technologies, Inc. (CIK 0001316925)
Date: Sept. 13, 2005 · CIK: 0001316925 · Accession: 0001316925-05-000002
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File numbers found in text: 333-122768
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Steven M. Skolnick Tel 973-597-2476
Member of the Firm Fax 973-597-2477
sskolnick@lowenstein.com
September 13, 2005
VIA EDGAR AND FACSIMILE (202-772-9218)
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Russell Mancuso, Esq.
Adelaja Heyliger, Esq.
Re: Ivivi Technologies, Inc. (the "Company")
Registration Statement on Form SB-2
File No. 333-122768
Dear Messrs. Mancuso and Heyliger:
Thank you for taking the time to speak with my colleague, Anita Chapdelaine,
and me on various occasions in connection with the initial public offering
(the "IPO") of shares of common stock, no par value, of the Company (the
"Common Stock") contemplated by the above-referenced registration statement
(the "Registration Statement"). As you know, the most recent telephone
conversations related primarily to a proposed private offer and sale by the
Company of its securities (the "Proposed Financing"), as described in our
letter to Mr. Heyliger, dated August 22, 2005 (the "Initial Letter"). This
letter supplements the information contained in the Initial Letter.
This letter is intended to respond to the inquiries with respect to the
Proposed Financing raised by you during our recent telephone conversations.
Specifically, this letter is intended to:
o provide you with additional facts and circumstances surrounding the
discussions regarding the Proposed Financing with two prospective
investors, each of whom has agreed to become a director of the Company
upon effectiveness of the Registration Statement (collectively, the
"Director Candidates"), and explain why we believe that such discussions
do not constitute an offer of securities of the Company;
o provide you with additional information with respect to the investment
funds through which the Director Candidates desire to invest in the
Company and explain why we believe that such funds are "institutional
accredited investors" within the meaning of Black Box, Incorporated (See
SEC No-Action Letter to Black Box Incorporated, Publicly Available June
26, 1990) and Squadron, Ellenoff, Pleasant & Lehrer (See SEC No-Action
Letter to Squadron, Ellenoff, Pleasant & Lehrer, Publicly Available
February 28, 1992)(collectively, the "No-Action Letters");
o provide you with the general terms of the Proposed Financing; and
o provide you with our analysis as to why the Proposed Financing should not
be deemed to be a part of, or integrated with, the IPO, and, therefore,
should be exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act").
Discussions with Director Candidates
Facts Surrounding Discussions with Director Candidates
As described in the Initial Letter, in July 2005, the Company determined that
it may need additional funds in order to continue operating its business
through the consummation of the IPO. At such time, the Company and Maxim
Group, LLC ("Maxim"), the lead managing underwriter in connection with the
IPO, discussed the possibility of a proposed private offering by the Company
of unsecured convertible notes and warrants to purchase shares of Common
Stock for an aggregate purchase price of up to $2,000,000 on terms discussed
between the Company and Maxim. Mindful of and sensitive to the concerns
about "integration," the Company has advised us that as of the date of this
letter, the Company has not made any offers to any persons in connection with
any such financing.
The Company has had discussions with the Director Candidates (including
discussions with one Director Candidate regarding proposed preliminary terms
of such financing), who have indicated an interest in investing in the Company
assuming that any such investments would not cause any issues with respect to
"integration." Notwithstanding the foregoing, the Company has assured us that
during each of its discussions with respect to such financing (including the
discussions with one Director Candidate regarding proposed preliminary terms
of such financing) it was made clear that in no event would the Company make
an offer to sell its securities to the Director Candidates unless, among
other things, the Company concluded, in its sole discretion (with the advice
of counsel), that any such offer would not cause any issues with respect to
"integration." We understand from the Company that neither of the Director
Candidates considers any of their respective discussions regarding the
Proposed Financing with the Company as an offer to purchase the Company's
securities.
Discussions do not Constitute Offers of Securities
We do not believe that any of the discussions between the Company and the
Director Candidates constituted an offer. As described in the Initial Letter,
the Company and the Director Candidates were initially introduced by Dr.
Makowka for the purpose of determining whether the Director Candidates would
be potential candidates for serving as directors of the Company upon
effectiveness of the Registration Statement. The Company at no time offered
to sell to the Director Candidates securities of the Company and at no time
invited the Director Candidates to submit indications of interest in investing
in the Company. In contrast, the Director Candidates, after having conducted
their respective due diligence reviews for purposes of determining whether to
become directors of the Company, noted the Company's financial position and
indicated an interest in investing in the Company, assuming that any such
investment would not cause any issues for the Company with respect to
"integration."
The discussions regarding the Proposed Financing with the Director Candidates
were held in connection with the Director Candidates' respective due diligence
reviews of the Company. As potential directors of the Company with an
interest in the Company's financial position, the Director Candidates sought
reassurance that the Company was taking appropriate steps, including a bridge
financing, to ensure it would have sufficient funds to continue operating its
business through the consummation of the IPO. Moreover, all discussions
regarding the Proposed Financing were prefaced with the caveat that the
Company would only offer its securities to investors that were qualified
institutional buyers and institutional accredited investors. The Director
Candidates were at all times, and currently are, aware that the Company will
not be offering its securities to the Director Candidates and that the
Director Candidates will not be permitted to participate in any such
financing unless the Company becomes satisfied, in its sole discretion (with
the advice of counsel), that such participation will not cause "integration"
issues. As a result, no "offer" has been made to the Director Candidates.
Director Funds as Institutional Accredited Investors
Director A Funds
The Company understands that one of the Director Candidates ("Director A")
wholly-owns two investment funds, which own and invest on a discretionary
basis an aggregate of approximately $21 million (each fund, with assets in
excess of $5 million) in securities of issuers unaffiliated with such funds.
The fund through which Director A desires to invest in the Company (the
"Director A Fund") is a limited liability company that was formed in March
1999 for the purpose of making investments and is a successor entity to an
S corporation that was formed in January 1988 for the purpose of making
investments. Since 1999, the Director A Fund has made an aggregate of 22
investments, four of which investments were in health-related companies.
During the past 18 months, the Director A Fund has expanded its due diligence
efforts in the health field and the Director A Fund is currently in the
process of making another investment in a health-related entity.
All of the funds used by the Director A Funds for investments are personal
funds of Director A, the sole owner of the Director Funds. We have been
advised by the Company that Director A is a natural person who has individual
net worth, or joint net worth with his spouse, that exceeds $1 million
and who had an individual income in excess of $200,000 in each of the
two most recent years or joint income with his spouse in excess of $300,000
in each of those years and has a reasonable expectation of reaching the same
income level in the current year. We also understand that other than in
connection with Director A's commitment to serve on the Company's Board of
Directors upon effectiveness of the Registration Statement, Director A is not
an "affiliate" of the Company (within the meaning of Rule 144 under the
Securities Act).
As described in the Initial Letter, Director A is an active investor in the
areas of alternative healthcare and non-traditional healing modalities. From
March 2002 until February 2005, Director A served as the chief executive
officer of a specialized asset management firm, which he co-founded, offering
asset allocation, portfolio construction, manager selection and comprehensive
risk management to both private and public sector investors within "financial
alternative" investments, including hedge funds and private equity funds.
From 1988 to 1998 and then from 2001 to 2002, Director A held a range of
entrepreneurial, executive and financial positions within an insurance-based
financial services provider. In 1998, Director A co-founded an alternative
asset management firm that currently manages over $4 billion in two global
funds. In 1988, Director A and a partner co-founded the first specialty
financial reinsurer, which was subsequently acquired in 1993. Prior thereto,
Director A served as the chief financial officer of the then largest
distributor of dental products in the world. Following his graduation from
graduate school, Director A was an investment banker at a top tier investment
bank. An Arjay Miller Scholar and an M.B.A. graduate of the Stanford Graduate
School of Business, Director A holds both Ed.D. and LH.D. (honorary) degrees
from the University of Massachusetts at Amherst and both B.A. and LH.D.
(honorary) degrees from Amherst College, where he currently serves as a
member of its Board of Trustees.
Director B Fund
The Company understands that the other Director Candidate ("Director B")
desires to invest in the Company through an investment fund, which is wholly-
owned by Director B and owns and invests on a discretionary basis
approximately $20 million in securities of issuers unaffiliated with such
fund (the "Director B Fund" and together with the Director A Funds, the
"Director Funds"). The Director B Fund was formed in 2000 and makes
approximately five investments per year. Approximately 90% of the Director
B Fund's assets are investments in healthcare-related companies.
All of the funds used by the Director B Fund for investments are personal
funds of Director B, the sole owner of the Director Funds. We have been
advised by the Company that Director B is a natural person who has individual
net worth, or joint net worth with his spouse, that exceeds $1 million
and who had an individual income in excess of $200,000 in each of the
two most recent years or joint income with his spouse in excess of $300,000
in each of those years and has a reasonable expectation of reaching the same
income level in the current year. We also understand that other than in
connection with Director B's commitment to serve on the Company's Board of
Directors upon effectiveness of the Registration Statement, Director B is not
an "affiliate" of the Company (within the meaning of Rule 144 under the
Securities Act).
As described in the Initial Letter, Director B serves as a managing general
partner of an entity that manages a venture capital fund, which holds
investments in the healthcare and biotechnology segments in an aggregate
amount in excess of $200 million. Director B also served as a managing
director of a top tier private investment bank from 2001 to 2003, focusing
on U.S. buyout opportunities in the healthcare industry. Prior to joining
such private investment bank, Director B worked as an analyst at an investment
management company, where he covered the medical-supply, hospital-management
and HMO industries for 23 years. Director B has published several studies
on healthcare service companies, major medical mergers and cardiovascular
device innovation, among others. Director B earned a B.A. from Columbia
University and an M.B.A. from Harvard Business School. Director B currently
sits on the Board of Directors of two public companies.
Definition of Institutional Accredited Investor
While no definition of an "institutional accredited investor" is expressly
set forth in Securities Act or the rules and regulations promulgated
thereunder, an "institutional accredited investor" is generally defined as
any person who falls within the definition of an "accredited investor" that
is not an individual. See, Herbert P. Fockler, et al., Venture Capital 2004:
Venture Creation, Management & Financing in the New 'Post-Bubble' Market,
Practising Law Institute, Corporate Law and Practice Course Handbook Series,
1457 PLI/Corp. 111 (2004) (the "PLI Article"). Pursuant to the PLI Article,
an "institutional accredited investor" is generally any person who comes
within, or who the issuer reasonably believes comes within, any of the
categories set forth in paragraphs (a)(1), (a)(2), (a)(3), (a)(7) and (a)(8)
of Rule 501 of Regulation D of the Securities Act ("Rule 501") at the time of
the sale of securities to that person. Paragraph (a)(8) of Rule 501 refers
to an entity in which all of the equity owners are "accredited investors,"
within the meaning of Rule 501.
An "accredited investor" is defined under Rule 501 as any person who
comes within, or who the issuer reasonably believes comes within, any of the
categories set forth in paragraphs (a)(1) through (a)(8) of Rule 501 at the
time of the sale of securities to that person. Paragraph (a)(4) of Rule 501
refers to any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
and Paragraph (a)(5) of Rule 501 refers to any natural person who had an
individual income in excess of $200,000 in each of the two most recent years
or joint income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same income
level in the current year.
Each of the Director Candidates satisfies the definition of an "accredited
investor" because he is a natural person whose individual net worth, or
joint net worth with his spouse, exceeds $1,000,000; and who had an
individual income in excess of $200,000 in each of the two most recent years
or joint income with his spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income level in the
current year. Moreover, as demonstrated by their respective biographies set
forth above, the Director Candidates are financially sophisticated and are not
in need of the protection of the registration requirements when they are
offered or sold securities. Each Director Candidate has experience in
investing in companies in the healthcare industry, such as the Company, and is
able to fend for himself and to assess the economic risk of his purchase,
recognizes that this investment involves a high degree of risk and may result
in a loss of the entire investment, and has such knowledge and experience in
financial and business matters that it can be assumed to be capable of
evaluating the merits and risks of his investment in the Company and/or
protecting his interests in such an investment. Since the Director