<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 June 30, 1996
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 No. 0-22598
INTERPORE INTERNATIONAL
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3043318
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
181 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (714) 453-3200
not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the proceeding 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 [ ]
As of August 6, 1996, there were 7,086,599 shares of the registrant's
common stock issued and outstanding.
<PAGE> 2
Interpore International
Index
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page(s)
-------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1996 (unaudited) and December 31, 1995 . . . . . . . . . . . 3
Condensed Consolidated Statements of Income (unaudited)
for the three month and six month periods ended June 30, 1996 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six month periods ended June 30, 1996 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
2
<PAGE> 3
Interpore International
Condensed Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,857 $ 3,694
Short-term investments 7,965 7,935
Accounts receivable, less allowance for
doubtful accounts of $525 and $523 in
1996 and 1995, respectively 3,608 3,175
Inventories 3,868 3,757
Prepaid expenses 568 480
Deferred income taxes 596 596
Other current assets 90 438
-------- --------
Total current assets 19,552 20,075
Property, plant and equipment, net 765 699
Deferred income taxes 904 904
Other assets 29 27
-------- --------
Total assets $ 21,250 $21,705
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 338 $ 860
Accrued compensation and related expenses 464 374
Accrued sales taxes 350 374
Accrued distributor returns 20 411
Other accrued liabilities 495 438
Current portion of long-term debt 120 113
-------- --------
Total current liabilities 1,787 2,570
-------- --------
Long-term debt 16 78
Contingencies
Shareholders' equity:
Series E preferred stock, voting, no par value:
Authorized, issued and outstanding shares --
225,487 at June 30, 1996 and 240,505 at
December 31, 1995; liquidation value of
$1,691 and June 30, 1996 and $1,804 at
December 31, 1995 1,425 1,520
Preferred stock: Authorized shares --
296,358; issued and outstanding shares --
none -- --
Common stock, no par value: Authorized shares --
20,000,000; issued and outstanding shares --
7,029,280 at June 30, 1996 and 6,958,642 at
December 31, 1995 35,774 35,581
Accumulated deficit (17,752) (18,044)
-------- --------
Total shareholders' equity 19,447 19,057
-------- --------
Total liabilities and shareholders' equity $ 21,250 $ 21,705
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
Interpore International
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 4,892 $ 4,301 $ 9,888 $ 8,549
Cost of goods sold 1,197 995 2,528 2,094
Royalty expense 75 43 150 150
------- ------- ------- -------
Gross profit 3,620 3,263 7,210 6,305
------- ------- ------- -------
Operating expenses:
Research and development 550 503 1,050 995
Selling and marketing 2,569 1,865 4,956 3,539
General and administrative 552 580 1,251 1,171
------- ------- ------- -------
Total operating expenses 3,671 2,948 7,257 5,705
------- ------- ------- -------
Income (loss) from operations (51) 315 (47) 600
------- ------- ------- -------
Interest income 134 168 274 341
Interest expense (13) (13) (22) (28)
Other income 47 27 87 41
------- ------- ------- -------
Total interest and other income, net 168 182 339 354
------- ------- ------- -------
Income before taxes 117 497 292 954
Provision for income taxes - 49 - 68
------- ------- ------- -------
Net income $ 117 $ 448 $ 292 $ 886
======= ======= ======= =======
Net income per share $ .02 $ .06 $ .04 $ .12
======= ======= ======= =======
Shares used in computing net income
per share 7,632 7,537 7,565 7,563
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
Interpore International
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 292 $ 886
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 183 164
Changes in operating assets and liabilities:
Accounts receivable (433) 504
Inventories (111) (687)
Prepaid expenses (88) (434)
Other assets 346 (46)
Accounts payable (522) (393)
Accrued liabilities (268) (331)
--------- ---------
Net cash used in operating activities (601) (337)
--------- ---------
INVESTING ACTIVITIES
Sales (purchases) of short-term investments, net (30) 1,982
Capital expenditures (249) (128)
--------- ---------
Net cash provided by (used in) investing activities (279) 1,854
--------- ---------
FINANCING ACTIVITIES
Repurchase of common stock - (228)
Proceeds from exercise of stock options 75 69
Proceeds from employee stock purchase plan 23 21
Repayments of notes payable - (79)
Repayment of lease financing (55) (48)
--------- ---------
Net cash provided by (used in) financing activities 43 (265)
--------- ---------
Net increase (decrease) in cash and cash equivalents (837) 1,252
Cash and cash equivalents at beginning of period 3,694 6,410
--------- ---------
Cash and cash equivalents at end of period $ 2,857 $ 7,662
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
Interpore International
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Interpore International (the "Company") without audit,
pursuant to Securities and Exchange Commission regulations. In the opinion of
management, the unaudited financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the consolidated financial position at June 30, 1996 and the consolidated
statements of income for the three month and six month periods ended June 30,
1996 and 1995, and the consolidated statements of cash flows for the six month
periods ended June 30, 1996 and 1995.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, Interpore Orthopaedics, Inc. and Interpore
Dental, Inc., after elimination of all significant intercompany transactions.
The statements of income and cash flows for the 1996 interim periods are not
necessarily indicative of results to be expected for the full year.
These consolidated financial statements should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, as filed with the Securities and Exchange
Commission.
2. INVENTORIES
Inventories are stated at the lower of average cost or market and consist of
the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials $ 776 $ 854
Work-in-process 570 523
Finished goods 2,522 2,380
------ ------
$3,868 $3,757
====== ======
</TABLE>
3. SHAREHOLDERS' EQUITY
During the six month period ended June 30, 1996, 15,018 shares of Series E
preferred stock were converted into 15,106 shares of the Company's common
stock.
6
<PAGE> 7
4. CONTINGENCIES
In the ordinary course of its business, the Company is subject to legal
proceedings, claims and liabilities, including product liability matters. In
the opinion of management, the amount of ultimate liability with respect to any
known proceedings or claims will not materially affect the financial position
or results of operations of the Company.
5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 1996, the Company adopted the Statement of Financial Accounting
Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. The adoption of SFAS 121
had no impact on the Company's financial condition or results of operations.
In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation was issued and is effective for
1996. The Company intends to continue to account for employee stock options
in accordance with APB Opinion No. 25 and will make the pro forma disclosure
required by SFAS 123 in its 1996 annual financial statements. Accordingly, the
adoption of the standard will have no effect on the Company's financial
position or results of operations.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as
percentages:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------- ------------------------------
1996 vs. 1996 vs.
1996 1995 1995 1996 1995 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 13.7% 100.0% 100.0% 15.7%
Cost of goods sold 24.5% 23.1% 20.3% 25.6% 24.5% 20.1%
Royalty expense 1.5% 1.0% 74.4% 1.5% 1.8% 0.0%
------ ------ ------ ------ ------ ------
Gross profit 74.0% 75.9% 10.9% 72.9% 73.7% 14.4%
------ ------ ------ ------ ------ ------
Operating expense:
Research and development 11.2% 11.7% 9.3% 10.6% 11.6% 5.5%
Selling and marketing 52.5% 43.4% 37.8% 50.1% 41.4% 40.0%
General and administrative 11.3% 13.5% (4.8%) 12.7% 13.7% 6.8%
------ ------ ------ ------ ------ ------
Total operating expenses 75.0% 68.6% 24.5% 73.4% 66.7% 27.2%
------ ------ ------ ------ ------ ------
Income from operations (1.0%) 7.3% n/a (0.5%) 7.0% n/a
====== ====== ====== ====== ====== ======
</TABLE>
For the quarter ended June 30, 1996, net sales of $4.9 million were $591,000 or
13.7% higher than sales of $4.3 million for the same period of 1995. Sales of
orthopaedic products, primarily Pro Osteon(R) bone graft substitute material
for orthopaedic applications, increased by $720,000 or 35.4% to $2.8 million
compared to $2.0 million for the second quarter of 1995. Sales of the
Company's oral/maxillofacial products (titanium dental implant systems and
Interpore 200(R) Porous Hydroxyapatite for dental use) declined by $72,000 or
3.7% from $2.0 million to $1.9 million. Sales of the Company's hydroxyapatite
orbital implants, which are entirely dependent on the requirements of a single
customer, decreased by 18.5% to $251,000 versus $308,000 for the second quarter
of 1995.
For the first six months of 1996, net sales of $9.9 million were $1.3 million
or 15.7% higher than sales of $8.5 million for the same period of 1995. Sales
of orthopaedic products increased by $1.7 million or 44.3% to $5.6 million
compared to $3.9 million for the six month period of 1995. Sales of the
Company's oral/maxillofacial products declined by $385,000 or 9.2% from $4.2
million to $3.8 million. Sales of the Company's hydroxyapatite orbital
implants increased by 2.7% to $503,000 versus $490,000 for the same period of
1995.
During 1995, the Company restructured its distribution channels for the sale of
Pro Osteon. Distribution agreements with certain domestic distributors that
were not achieving satisfactory market penetration were terminated, and direct
sales representatives were recruited and hired for the respective territories.
Additionally, in the first quarter of 1996, the Company established an
international sales management group and hired three experienced managers with
the responsibility for building an organization of independent dealers
internationally. Pro Osteon sales through direct sales representatives for the
first six months of 1996 increased by 238% over the same period of 1995, and
international sales of Pro Osteon grew by 79%. This growth was partially
offset by a 7% decrease in Pro Osteon sales to domestic distributors.
8
<PAGE> 9
The Company's sales of oral/maxillofacial products have declined since the
first quarter of 1995 due to continued strong competition in this slow growth
market along with the lack of major new dental product introductions. In late
1995, the Company introduced the Smooth Staple Implant(R) System, and during
the first quarter of 1996 introduced the IMZ(R) Bone Tack System. Sales of
these products in 1996 helped to partially offset the sales decline in the
other dental products.
The gross margins as percentages of sales for the quarters ended June 30, 1996
and 1995 were 74.0% and 75.9%, respectively. For the six month periods ended
June 30, 1996 and 1995, the gross margin percentages were 72.9% and 73.7%.
Total operating expenses for the quarter ended June 30, 1996 increased by 24.5%
or $723,000 as compared to the same quarter of 1995. Research and development
expenses increased 9.3% or $47,000 but continue to reflect approximately 11% of
sales. Selling and marketing expenses increased 37.8% or $704,000 mostly
related to costs and travel expenses associated with the direct sales
organization for the orthopaedic division and costs of the international sales
management group. General and administrative expenses decreased 4.8% or
$28,000.
For the six months ended June 30, 1996, total operating expenses increased by
27.2% or $1.6 million as compared to the same period of 1995. Research and
development expenses increased 5.5% or $55,000, selling and marketing expenses
increased 40.0% or $1,417,000, and general and administrative expenses
increased 6.8% or $80,000. Most of the increase in selling and marketing
expenses was related to the direct and international sales organizations. The
general and administrative expense increase reflects an accrual for the
Company's annual incentive plan.
No income tax provision was recorded during the first six months of 1996 due to
the anticipated realization and recognition of the Company's net operating loss
carryforwards during 1996. The Company's effective tax rate for the first six
months of 1995 was 10%, representing federal alternative minimum tax and state
income tax for that period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 and December 31, 1995, cash, cash equivalents and short-term
investments totaled $10.8 million and $11.6 million, respectively. Total
working capital increased from $17.5 million to $17.8 million and the current
ratio improved to 10.9 as of June 30, 1996 versus 7.8 as of December 31, 1995.
The $10.8 million total of cash and cash equivalents and short-term investments
remains available to support the Company's continued investment in the
development of its business, including the pursuit of FDA approvals for
additional indications for the use of Pro Osteon, development or acquisition of
new bone graft products or complementary products, possible acquisitions of
businesses, and continued development of the direct sales organization in the
orthopaedic division. Additionally, in July 1996, the Company's revolving line
of credit was extended in the increased amount of $5 million, maturing in July
1997. There was no amount outstanding at June 30, 1996 under the line of
credit.
The Company believes it currently possesses sufficient resources to meet the
cash requirements of its operations for at least the next year.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 29, 1996, the Company held its 1996 Annual Meeting of
Shareholders to elect the Company's board of directors. The number
of shares entitled to vote was 7,247,301, and the number of shares
represented in person or by proxy was 5,669,522.
Each of the current directors was re-elected. Messrs. Eisenecher,
Nohra and Smyth each received 5,641,966 affirmative votes with
27,556 votes withheld. Mr. Jones received 5,626,966 affirmative
votes with 42,656 votes withheld. Mr. Mercer received 5,641,502
affirmative votes with 28,020 votes withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
a. Exhibits.
Reference is made to the Exhibit Index on Page 12 hereof.
b. Reports on Form 8-K.
No reports on Form 8-K were filed during the fiscal quarter ended
June 30, 1996.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATE: August 9, 1996 INTERPORE INTERNATIONAL
(Registrant)
By: /s/ David C. Mercer
-------------------------------------
David C. Mercer,
President and Chief Executive Officer
By: /s/ Richard L. Harrison
------------------------------------
Richard L. Harrison
Vice President and
Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
<S> <C> <C>
3.01 Third Amended and Restated Articles of Incorporation of Registrant,
executed on December 9, 1991 1
3.02 First Amendment to the Third Amended and Restated Articles of
Incorporation of Registrant, executed on April 22, 1992 1
3.03 Second Amendment to Third Amended and Restated Articles of Incorporation
of Registrant, executed on November 30, 1993 5
3.04 Bylaws of Registrant dated October 24, 1983 1
3.05 Third Amendment to Third Amended and Restated Articles of Incorporation
of Registrant, executed on November 30, 1993 5
4.01 Rights Agreement dated August 29, 1995 6
4.02 First Amendment to the Rights Agreement, executed on November 1, 1995 8
10.01 Revised License Agreement dated March 12, 1984, between Registrant and
Research Corporation Technologies, Inc., as amended by a First Amendment
dated December 7, 1984, and as further amended by a Fourth Amendment
dated July 22, 1988 1
10.02 Single Tenant Lease dated July 25, 1991 between Registrant and The Irvine
Company 1
10.03 Koll Business Center Lease between Registrant and Airport Industrial
Park 1
10.04 Master Lease Agreement dated March 10, 1993 between Registrant and
Comdisco, Inc. 1
10.05 Asset Purchase Agreement dated March 1, 1993 regarding sale of assets of
Interpore Orthopaedics, Inc. to Applied Epigenetics, Inc. 1
10.06 Cancellation and Release Agreement dated March 1, 1993 among Registrant,
Interpore Orthopaedics, Inc., Pfizer, Inc. and Howmedica, Inc. 1
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
<S> <C> <C>
10.07 Series E Preferred Stock and Common Stock Warrant Purchase Agreement
dated December 19, 1991 1
10.08 Series E Preferred Stock Purchase Agreement dated October 30, 1992 1
10.09 Amended Schedule to Loan and Security Agreement dated July 25, 1996 among
Registrant, Interpore Orthopaedics, Inc. and Silicon Valley Bank
10.10 Amendment to the Loan Agreement dated July 25, 1996 among Registrant,
Interpore Orthopaedics, Inc. and Silicon Valley Bank
10.11 Amended and Restated Stock Option Plan dated March 19, 1991 2, First
Amendment to the Amended and Restated Stock Option Plan, effective
October 15, 1991 1; Amendment to the Amended and Restated Stock Option
Plan dated September 17, 1994 4
10.12 Employee Qualified Stock Purchase Plan 3
10.13 1995 Stock Option Plan 3
10.14 Stock Option Plan for Non-Employee Directors of Interpore International 7
10.15 Form of Indemnification Agreement 1
11.01 Computations of Net Income per Share
27.01 Financial Data Schedule
</TABLE>
- -----------------------------
1 Incorporated by reference from the Company's Registration Statement on
Form S-1, Registration No. 33-69872.
2 Incorporated by reference from the Company's Registration Statement on
Form S-8, Registration No. 33-77426.
3 Incorporated by reference from the Company's Proxy Statement for the
Company's 1994 Annual Meeting of Shareholders.
4 Incorporated by reference from the Company's Registration Statement on
Form S-8, Registration No. 33-86290.
13
<PAGE> 14
5 Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
6 Incorporated by reference from the Company's Current Report on Form
8-K dated August 29, 1995.
7 Incorporated by reference from the Company's Proxy Statement for the
Company's 1995 Annual Meeting of Shareholders.
8 Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
14
<PAGE> 1
EXHIBIT 10.9
SILICON VALLEY BANK LOGO
AMENDED SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: INTERPORE INTERNATIONAL
ADDRESS: 181 TECHNOLOGY DR.
IRVINE, CALIFORNIA 92718
BORROWER: INTERPORE ORTHOPAEDICS, INC.
ADDRESS: 181 TECHNOLOGY DR.
IRVINE, CALIFORNIA 92718
DATE: JULY 25, 1996
CREDIT LIMIT (Section 1.1): An amount not to exceed $5,000,000 at any
one time outstanding.
LETTER OF CREDIT SUBLIMIT Silicon, in its reasonable discretion,
will from time to time during the term of
this Agreement issue letters of credit
for the account of the Borrower ("Letters
of Credit"), in an aggregate amount at
any one time outstanding not to exceed
$250,000, upon the request of the
Borrower, provided that, on the date the
Letters of Credit are to be issued,
Borrower has available to it Loans in an
amount equal to or greater than the face
amount of the Letters of Credit to be
issued. Prior to the issuance of any
Letters of Credit, Borrower shall execute
and deliver to Silicon Applications for
Letters of Credit and such other
documentation as Silicon shall specify
(the "Letter of Credit Documentation").
Fees for the Letters of Credit shall be
as provided in the Letter of Credit
Documentation.
The Credit Limit set forth above and the
Loans available under this Agreement at
any time shall be reduced by the face
amount of Letters of Credit from time to
time outstanding.
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in
effect from time to time, calculated on
the basis of a 360-day year for the
actual number of days elapsed. "Prime
Rate" means the rate announced from time
to time by Silicon as its "prime rate;"
it is a base rate upon which other rates
charged by Silicon are based, and it is
not necessarily the best rate available
at Silicon. The interest rate applicable
to the Obligations shall change on each
date there is a change in the Prime Rate.
MATURITY DATE
(Section 5.1): JULY 5, 1997.
PRIOR NAMES OF BORROWER,
(Section 3.2): REPLAM CORPORATION
------------------
-1-
<PAGE> 2
SILICON VALLEY BANK AMENDED SCHEDULE TO LOAN AND SECURITY AGREEMENT
- -----------------------------------------------------------------------------
TRADE NAMES OF BORROWER,
(Section 3.2): NONE
----
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): 12651 S. Dixie Hwy, Suite 317, Miami, FL
33156;
3059 Forrest Hill Irene, Germantown,
TN 38138;
1700 Alma, Suite 260, Plano, TX 75075;
18005 Sky Park Circle; Irvine, CA 92714.
NEGATIVE COVENANTS-
EXCEPTIONS (Section 4.6): Without Silicon's prior written consent,
Interpore International may: (i) merge
with another corporation, provided
Interpore International is the surviving
corporation in such merger and the
aggregate value of the assets acquired in
the merger do not exceed 25% of Interpore
International's Tangible Net Worth (as
defined below) as of the end of the month
prior to the effective date of the merger,
and the assets of the corporation acquired
in the merger are not subject to any liens
or encumbrances, except Permitted Liens;
(ii) acquire the assets of another
corporation or entity, provided the
aggregate purchase price paid does not
exceed 25% of Interpore International's
Tangible Net Worth (as defined below) as
of the end of the month prior to the
effective date of the acquisition, and the
assets acquired are not subject to any
liens or encumbrances, except Permitted
Liens; (iii) enter into an agreement to
borrow money in an amount less than 25% of
Interpore International's Tangible Net
Worth (as defined below) as of the end of
the month prior to the effective date of
the loan agreement and the date of any
borrowing thereunder; and (iv) make loans
to, or guaranty indebtedness of, employees
and officers of the Borrower provided that
the aggregate amount of such indebtedness
and guaranties shall not exceed $50,000
outstanding at any time.
FINANCIAL COVENANTS Interpore International shall at all times
(Section 4.1): comply with all of the following 4.1):
covenants, on a consolidated basis.
Compliance shall be determined quarterly,
except where otherwise specifically
provided below.
QUICK ASSET RATIO: Interpore International
shall at all times maintain a
ratio of "Quick Assets" to
current liabilities of not
less than 1.75 to 1 .
TANGIBLE NET WORTH Interpore International
shall maintain a tangible net
worth of not less than
$17,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Interpore International
shall at all times maintain a ratio of
total liabilities
to tangible net worth of not more than
1.0 to 1.
PROFITABILITY Interpore International
shall not incur a loss (after
taxes) in any fiscal quarter
or in any fiscal year, except
that Interpore International
may incur a loss (after
taxes) in a maximum of one
fiscal quarter, provided that
such loss does not exceed
$500,000.
DEFINITIONS: "Tangible net worth" means the excess of
total assets over total liabilities,
determined in accordance with generally
accepted accounting principles, excluding
however all assets which would be
classified as intangible assets under
generally accepted accounting
-2-
<PAGE> 3
SILICON VALLEY BANK AMENDED SCHEDULE TO LOAN AND SECURITY AGREEMENT
- -----------------------------------------------------------------------------
principles, including without limitation
goodwill, licenses, patents, trademarks,
trade names, copyrights, capitalized
software and organizational costs,
licences and franchises.
"Quick Assets" means cash on hand or on
deposit in banks, readily marketable
securities issued by the United States,
readily marketable commercial paper rated
"A-1" by Standard & Poor's Corporation
(or a similar rating by a similar rating
organization), certificates of deposit
and banker's acceptances, and accounts
receivable (net of allowance for doubtful
accounts).
DEFERRED REVENUES: For purposes of the above quick asset
ratio, deferred revenues shall not be
counted as current liabilities. For
purposes of the above debt to tangible
net worth ratio, deferred revenues shall
not be counted in determining total
liabilities but shall be counted in
determining tangible net worth for
purposes of such ratio. For all other
purposes deferred revenues shall be
counted as liabilities in accordance with
generally accepted accounting principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the
foregoing covenants do not include
indebtedness which is subordinated to the
indebtedness to Silicon under a
subordination agreement in form specified
by Silicon or by language in the
instrument evidencing the indebtedness
which is acceptable to Silicon.
OTHER COVENANTS (Section 4.1):
Borrower shall at all times comply with
all of the following additional covenants:
1. BANKING RELATIONSHIP. Interpore
International shall at all times maintain
its bank accounts and its primary banking
relationship with Silicon.
2. INDEBTEDNESS. Without limiting any
of the foregoing terms or provisions of
this Agreement, Borrower shall not in the
future incur indebtedness for borrowed
money, except for (i) indebtedness to
Silicon, and (ii) indebtedness incurred
in the future for the purchase price of
or lease of equipment in an aggregate
amount not exceeding $1,500,000 (in the
aggregate for both Borrowers) at any time
outstanding.
3. ACCOUNTS RECEIVABLE AGINGS. If there
are any Loans outstanding as of the end
of any calendar month, within 30 days
after the end of such calendar month
Borrower shall provide Silicon with an
aged
-3-
<PAGE> 4
SILICON VALLEY BANK AMENDED SCHEDULE TO LOAN AND SECURITY AGREEMENT
- -----------------------------------------------------------------------------
listing of Borrower's accounts receivable
in form satisfactory to Silicon.
Borrower: Borrower:
INTERPORE INTERNATIONAL INTERPORE ORTHOPAEDICS, INC.
By /s/ DAVID C. MERCER By /s/ DAVID C. MERCER
--------------------------- ------------------------
[Vice] President [Vice] President
By /s/ RICHARD HARRISON By /s/ RICHARD HARRISON
--------------------------- ------------------------
[Ass't] Secretary [Ass't] Secretary
Silicon:
SILICON VALLEY BANK
By /s/ KITTRIDGE CHAMBERLAIN
---------------------------
Title Vice President
------------------------
-4-
<PAGE> 1
EXHIBIT 10.10
SILICON VALLEY BANK LOGO
AMENDMENT TO LOAN AGREEMENT
BORROWER: INTERPORE INTERNATIONAL
ADDRESS: 181 TECHNOLOGY DR.
IRVINE, CALIFORNIA 92718
BORROWER: INTERPORE ORTHOPAEDICS, INC.
ADDRESS: 181 TECHNOLOGY DR.
Irvine, California 92718
Date: July 25, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON
VALLEY BANK ("Silicon") and the borrowers named above (jointly and severally,
the "Borrower").
The Parties agree to amend the Loan and Security Agreement between
them, dated October 24, 1990 (as heretofore amended, the "Loan Agreement"), as
follows. (Capitalized terms used but not defined in this Amendment, shall have
the meanings set forth in the Loan Agreement.)
1. AMENDED SCHEDULE. The Schedule to the Loan Agreement is
amended effective on the date hereof, to read as set forth on the Schedule
hereto.
2. MODIFIED SECTION 3.7. Section 3.7 of the Loan Agreement is
hereby amended in its entirety to read as follows:
"3.7 Financial Condition and Statements. All financial
statements now or in the future delivered to Silicon have
been, and will be, prepared in conformity with generally
accepted accounting principles and now and in the future will
completely and accurately reflect the financial condition of
the Borrower, at the times and for the periods therein stated.
Since the last date covered by any such statement, there has
been no material adverse change in the financial condition or
business of the Borrower. The Borrower is now and will
continue to be solvent. The Borrower will provide Silicon:
(i) within 5 days after the earlier of the date the report
10-Q is filed or is required to be filed with the Securities
and Exchange Commission, such 10-Q report, a quarterly
financial statement prepared by the Borrower, and, for each
quarter in which any Loans have been outstanding, a Compliance
Certificate signed by the Chief Financial Officer of the
Borrower, certifying that throughout such period the Borrower
was in full compliance with all of the terms and conditions of
this Agreement, and setting forth calculations showing
compliance with the financial covenants set forth on the
Schedule and such other information as Silicon shall
reasonably request; (ii) within 5 days after the earlier of
the date the report 10-K is filed or is required to be filed
with the Securities and Exchange Commission, such 10-K report,
and, if any Loans have been outstanding during the quarter
period then ending, a Compliance Certificate for such period,
signed by the Chief Financial Officer of the Borrower,
certifying that throughout such period the Borrower was in
full compliance with all of the terms and conditions of this
-1-
<PAGE> 2
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
- -----------------------------------------------------------------------------
Agreement, and setting forth calculations showing compliance
with the financial covenants set forth on the Schedule and
such other information as Silicon shall reasonably request;
and (iii) within 90 days following the end of the Borrower's
fiscal year, complete annual financial statements, certified
by independent certified public accountants acceptable to
Silicon."
3. NOTICE; LEGAL ACTION. The last sentence of Section 3.10 of
the Loan Agreement is amended to read as follows: "The Borrower will promptly
inform Silicon in writing of any claim, proceeding, litigation or investigation
in the future threatened or instituted by or against the Borrower involving
amounts in excess of $250,000."
4. FEE. Borrower shall pay to Silicon a facility fee in the
amount of 0.5% of the amount of each Loan made under the Loan Agreement on or
after the date of this Amendment, until Borrower has paid Silicon an aggregate
of $25,000 pursuant to the terms of this paragraph prior to July 5, 1997. Such
fee shall be due and payable at the time that Silicon makes any such Loan, with
the understanding that payment of such fee shall be a condition to the making
of any such Loan. Further, such fee shall be in addition to all interest and
all other fees payable to Silicon and shall be non-refundable.
5. REPRESENTATIONS TRUE. Borrower represents and warrants to
Silicon that all representations and warranties set forth in the Loan
Agreement, as amended hereby, are true and correct.
6. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and the
Borrower, and the other written documents and agreements between Silicon and
the Borrower set forth in full all of the representations and agreements of the
parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Silicon and the Borrower shall continue in full force and
effect and the same are hereby ratified and confirmed.
BORROWER: SILICON:
INTERPORE INTERNATIONAL SILICON VALLEY BANK
BY /s/ DAVID C. MERCER
------------------------------
PRESIDENT OR VICE PRESIDENT BY /s/ KITTRIDGE CHAMBERLAIN
-----------------------------
TITLE VICE PRESIDENT
---------------------------
BY /s/ RICHARD HARRISON
------------------------------
SECRETARY OR ASS'T SECRETARY
INTERPORE ORTHOPAEDICS, INC.
BY /s/ DAVID C. MERCER
------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ RICHARD HARRISON
------------------------------
SECRETARY OR ASS'T SECRETARY
-2-
<PAGE> 1
Exhibit 11.01
Interpore International
Computations of Net Income Per Share
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $ 117 $ 448 $ 292 $ 886
====== ====== ====== ======
Calculation of shares used in computing net
income per share:
Weighted average common shares outstanding 7,009 6,754 6,987 6,737
Weighted average convertible preferred stock 236 459 237 480
Common share equivalents outstanding 387 324 341 346
------ ------ ------ ------
Shares used in computing net income per share 7,632 7,537 7,565 7,563
====== ====== ====== ======
Net income per share $ .02 $ .06 $ .04 $ .12
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX
MONTH PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,857,000
<SECURITIES> 7,965,000
<RECEIVABLES> 4,133,000
<ALLOWANCES> 525,000
<INVENTORY> 3,868,000
<CURRENT-ASSETS> 19,552,000
<PP&E> 2,731,000
<DEPRECIATION> 1,966,000
<TOTAL-ASSETS> 21,250,000
<CURRENT-LIABILITIES> 1,787,000
<BONDS> 136,000
0
1,425,000
<COMMON> 35,774,000
<OTHER-SE> (17,752,000)
<TOTAL-LIABILITY-AND-EQUITY> 21,250,000
<SALES> 9,888,000
<TOTAL-REVENUES> 9,888,000
<CGS> 2,528,000
<TOTAL-COSTS> 2,678,000
<OTHER-EXPENSES> 7,170,000
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> (252,000)
<INCOME-PRETAX> 292,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 292,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 292,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
