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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
INTERPORE INTERNATIONAL
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
CROSS MEDICAL PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
[INTERPORE LOGO] [CROSS LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Interpore International and Cross Medical
Products, Inc. have agreed on a merger designed to create a medical device
product company with a unique combination of spinal and bone graft technologies
and with an expanded product portfolio and combined distribution channels
specifically addressing the spine/orthopaedic market. The merger agreement calls
for a wholly-owned subsidiary of Interpore to be merged with and into Cross,
with Cross becoming a wholly-owned subsidiary of Interpore. The combined company
will be headquartered in Irvine, California.
If the merger is completed, Cross stockholders will receive 1.275 shares of
Interpore common stock for each share of Cross common stock that they own. We
estimate that the shares of Interpore common stock to be issued to Cross
stockholders will represent approximately 49% of the outstanding common stock of
Interpore after the merger. The merger will not affect the shares held by the
Interpore shareholders.
The merger cannot be completed unless it is approved by the stockholders of
both companies. The stockholders of Interpore and Cross are being asked to
consider this proposal, among others, at their annual meetings. YOUR VOTE IS
VERY IMPORTANT.
THE BOARDS OF DIRECTORS OF INTERPORE AND CROSS HAVE UNANIMOUSLY DETERMINED
THAT THE MERGER IS IN THE BEST INTERESTS OF THEIR STOCKHOLDERS AND RECOMMEND
THAT THEIR STOCKHOLDERS VOTE IN FAVOR OF THE MERGER.
The shareholders of Interpore are also being asked to approve the
reincorporation of Interpore from California to Delaware which, if approved,
will be consummated prior to the merger. However, neither the merger nor the
reincorporation are conditioned on the other. In addition, the shareholders of
Interpore and the stockholders of Cross are being asked to elect nominees to
their respective companies' Boards of Directors.
Whether or not you plan to attend a meeting, please take the time to vote by
completing and mailing the enclosed proxy card. If you sign, date and mail your
proxy card without indicating how you want to vote, your proxy will be counted
as a vote in favor of the merger and the reincorporation.
If you fail to return your card, the effect in most cases will be a vote
against the merger and the reincorporation.
The dates, times and places of the meetings are as follows:
For Interpore Shareholders
Wednesday, May 6, 1998 10:00 a.m.
Interpore's executive offices
181 Technology Drive
Irvine, California 92618-2402
For Cross Stockholders
Wednesday, May 6, 1998 10:00 a.m.
Cross' executive offices
5160-A Blazer Memorial Parkway
Dublin, Ohio 43017-1339
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed merger and reincorporation and the election of directors. We
encourage you to read this entire document carefully before you vote. In
addition, you may obtain information about our companies from documents that we
have filed with the Securities and Exchange Commission ("SEC").
/s/ DAVID C. MERCER /S/ JOSEPH A. MUSSEY
- ------------------------------- -------------------------------
David C. Mercer Joseph A. Mussey
President and Chief Executive Officer President and Chief Executive Officer
Interpore International Cross Medical Products, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE INTERPORE COMMON STOCK TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated April 6, 1998 and first mailed to
stockholders on or about April 8, 1998.
<PAGE> 3
INTERPORE INTERNATIONAL
181 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1998
To the Shareholders of Interpore International:
The Annual Meeting of Shareholders of Interpore International, a California
corporation ("Interpore"), will be held on May 6, 1998, at 10:00 a.m., at
Interpore's executive offices at 181 Technology Drive, Irvine, California 92618
(the "Interpore Annual Meeting"), for the following purposes:
(a) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of February 11, 1998 (the "Merger
Agreement"), by and among Interpore and Cross Medical Products, Inc.
("Cross"), pursuant to which, among other things: (i) a wholly-owned
subsidiary of Interpore will be merged with and into Cross; (ii) Cross will
become a wholly-owned subsidiary of Interpore; and (iii) each outstanding
share of common stock of Cross will be converted into the right to receive
1.275 shares of common stock of Interpore (the "Merger");
(b) To consider and vote upon a proposal to change Interpore's state of
incorporation from California to Delaware (the "Reincorporation");
(c) To elect a board of five directors for the ensuing year or until the
election and qualification of their respective successors; and
(d) To transact such other business as may properly come before the
Interpore Annual Meeting and any or all adjournments thereof.
THE BOARD OF DIRECTORS OF INTERPORE HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE REINCORPORATION AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF (I)
THE MERGER AGREEMENT; (II) THE REINCORPORATION; AND (III) THE ELECTION OF THE
FIVE NOMINEES TO INTERPORE'S BOARD OF DIRECTORS.
The Merger Agreement, the Reincorporation and other important matters are
explained in the accompanying Joint Proxy Statement/Prospectus, which you are
urged to read carefully. A copy of the Merger Agreement is attached as Annex I
to the Joint Proxy Statement/Prospectus. Neither the Merger nor the other
proposals are conditioned on each other.
The Board of Directors of Interpore has fixed the close of business on April
3, 1998 as the record date for determining the shareholders entitled to receive
notice of and to vote at the Interpore Annual Meeting and at any and all
adjournments or postponements thereof.
Management welcomes your attendance at the Interpore Annual Meeting. Whether
or not you expect to attend the Interpore Annual Meeting in person, however,
please complete, sign, date and promptly return the enclosed proxy in the
accompanying postage-paid envelope. The prompt return of your proxy will save
expenses involved in further communication. Your proxy will not affect your
right to vote in person in the event you attend the Interpore Annual Meeting.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN PERSON AT THE
INTERPORE ANNUAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER
AND AGAINST THE REINCORPORATION.
By Order of the Board of Directors
/S/ RICHARD L. HARRISON
-------------------------------
Richard L. Harrison
Secretary
Irvine, California
April 6, 1998
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE> 4
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE INTERPORE/CROSS
MERGER AND THE INTERPORE REINCORPORATION ................................................. 1
SUMMARY .................................................................................. 3
RISK FACTORS ............................................................................. 11
Risks Relating to the Merger and Reincorporation........................................ 11
Risks Relating to the Companies ........................................................ 12
THE INTERPORE ANNUAL MEETING ............................................................. 16
General ................................................................................ 16
Record Date and Voting ................................................................. 16
Proxies ................................................................................ 17
THE CROSS ANNUAL MEETING ................................................................. 18
General ................................................................................ 18
Record Date and Voting ................................................................. 18
Proxies ................................................................................ 19
THE MERGER ............................................................................... 20
Background of the Merger ............................................................... 20
Recommendations of the Boards of Directors
of Interpore and Cross; Reasons for the
Merger ............................................................................... 23
Opinion of Financial Advisor to Interpore............................................... 27
Opinion of Cross' Financial Advisor .................................................... 30
Interests of Certain Persons in the Merger ............................................. 33
Accounting Treatment of the Merger ..................................................... 35
Certain Federal Regulatory Matters ..................................................... 35
Certain Federal Income Tax Consequences ................................................ 35
Delisting and Deregistration of Cross Common Stock; Listing of Interpore Common Stock... 36
Resales of Interpore Common Stock Issued in Connection with the Merger; Affiliate
Agreements ........................................................................... 37
Dissenters' and Appraisal Rights ....................................................... 37
Cautionary Statement Concerning Forward-Looking Statements ............................. 15
THE COMBINED COMPANY ..................................................................... 41
THE MERGER AGREEMENT ..................................................................... 42
The Merger ............................................................................. 42
Conversion of Shares ................................................................... 42
Exchange of Stock Certificates ......................................................... 42
Representations and Warranties ......................................................... 44
Certain Covenants ...................................................................... 44
Conditions to Obligations to Effect the Merger ......................................... 47
Termination; Termination Fees and Expenses ............................................. 48
Amendment and Waiver ................................................................... 50
OTHER AGREEMENTS ......................................................................... 51
Interpore Stock Option Agreement ....................................................... 51
Cross Stock Option Agreement ........................................................... 52
Interpore Shareholder Agreement ........................................................ 52
Cross Stockholder Agreement ............................................................ 53
DEBENTURES ............................................................................... 54
COMPARATIVE MARKET PRICES AND DIVIDENDS .................................................. 55
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS ............................. 56
Unaudited Pro Forma Condensed Combining
Balance Sheet as of December 31, 1997 .................................................. 57
Unaudited Pro Forma Condensed Combining
Statement of Operations for the Year Ended
December 31, 1997 .................................................................... 58
Unaudited Pro Forma Condensed Combining
Statement of Operations for the Year ended
December 31, 1996 .................................................................... 58
Unaudited Pro Forma Condensed Combining
Statement of Operations for the Year Ended
December 31, 1995 .................................................................... 59
Notes to Unaudited Pro Forma Condensed Combining Financial Statements .................. 59
PRO FORMA SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF COMBINED
COMPANY ................................................................................ 60
THE BUSINESS OF INTERPORE ................................................................ 61
General ................................................................................ 61
Business Strategy ...................................................................... 61
Market Overview ........................................................................ 61
Products ............................................................................... 61
Research and Development ............................................................... 63
Customers, Sales and Marketing ......................................................... 64
Raw Materials and Manufacturing ........................................................ 65
Competition ............................................................................ 65
Government Regulation .................................................................. 66
Proprietary Rights ..................................................................... 67
Employees .............................................................................. 68
Properties ............................................................................. 68
Legal Proceedings ...................................................................... 68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF INTERPORE .............................. 69
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF INTERPORE ............................. 70
INTERPORE MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................................................. 71
Significant Events ..................................................................... 71
Results of Operations .................................................................. 71
Liquidity and Capital Resources ........................................................ 73
OWNERSHIP OF INTERPORE STOCK ............................................................. 75
THE BUSINESS OF CROSS .................................................................... 77
Spinal Implant Products ................................................................ 77
Competition ............................................................................ 78
Research and Development ............................................................... 79
Intellectual Property .................................................................. 79
Governmental Regulation ................................................................ 79
Discontinued Operations ................................................................ 80
Legal Proceedings ...................................................................... 81
Employees .............................................................................. 82
Property ............................................................................... 82
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CROSS .................................. 82
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF CROSS ................................. 83
CROSS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................................................. 84
Overview ............................................................................... 84
Comparison of the Results of Operations
for the Years Ended December 31, 1997 and 1996 ......................................... 84
Comparison of the Results of Operations
for the Years Ended December 31, 1996 and 1995 ......................................... 85
Liquidity and Capital Resources ........................................................ 85
OWNERSHIP OF CROSS STOCK ................................................................. 86
DESCRIPTION OF INTERPORE CAPITAL STOCK ................................................... 88
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Interpore Common Stock .............................................................. 88
Interpore Preferred Stock ........................................................... 88
Preferred Stock Purchase Rights ..................................................... 88
Registration Rights ................................................................. 90
Limitation of Liability of Directors and
Indemnification of Directors and Officers ........................................... 91
Stock Transfer Agent and Registrar .................................................. 91
COMPARATIVE RIGHTS OF CROSS STOCKHOLDERS
AND INTERPORE SHAREHOLDERS ............................................................ 92
General ............................................................................. 92
Authorized Capital .................................................................. 92
Amendment of Charter or Bylaws ...................................................... 92
Vote Required for Extraordinary Transactions ........................................ 93
Derivative Actions .................................................................. 93
Dissenters' and Appraisal Rights .................................................... 93
Director Liability .................................................................. 94
Indemnification ..................................................................... 95
PROPOSAL FOR INTERPORE TO REINCORPORATE IN DELAWARE ................................... 96
General ............................................................................. 96
Reincorporation of Interpore International
into Newly Formed Delaware Subsidiary ............................................... 96
Certain Consequences of the Reincorporation ......................................... 96
Dissenters' Rights .................................................................. 97
Comparison of Rights of Shareholders of
Interpore and Stockholders of the Delaware
Company ........................................................................... 98
PROPOSAL TO ELECT INTERPORE'S DIRECTORS................................................ 102
Board Compensation and Benefits ..................................................... 103
Interpore Executive Officers ........................................................ 104
Executive Compensation .............................................................. 105
Compensation Committee Interlocks and
Insider Participation ............................................................... 109
Company Performance ................................................................. 109
Section 16(a) Beneficial Ownership Reporting Compliance.............................. 109
PROPOSAL TO ELECT CROSS' DIRECTORS .................................................... 110
Meetings and Committees of the Board of Directors ................................... 111
Medical Advisor ..................................................................... 112
Officers and Significant Employees .................................................. 111
Compensation of Officers ............................................................ 112
Stock Options ....................................................................... 113
Compensation of Directors ........................................................... 113
Employment Contracts ................................................................ 114
Retirement Express Master Savings Plan and Trust..................................... 114
Related Party Transactions .......................................................... 115
Section 16(a) Beneficial Ownership Reporting Compliance.............................. 115
APPOINTMENT OF INTERPORE'S INDEPENDENT AUDITORS ....................................... 116
APPOINTMENT OF CROSS' INDEPENDENT ACCOUNTANTS ......................................... 116
ANNUAL REPORTS ON FORM 10-K ........................................................... 116
STOCKHOLDER PROPOSALS ................................................................. 116
LEGAL MATTERS ......................................................................... 117
EXPERTS ............................................................................... 117
OTHER MATTERS ......................................................................... 117
ADDITIONAL INFORMATION ................................................................ 117
INDEX TO FINANCIAL STATEMENTS ......................................................... F-1
FINANCIAL INFORMATION OF INTERPORE .................................................... F-2
FINANCIAL INFORMATION OF CROSS AND SUBSIDIARIES ........................................ F-15
ANNEXES
I. MERGER AGREEMENT .................................................................. I-1
II. FAIRNESS OPINION OF GENESIS ....................................................... II-1
III. FAIRNESS OPINION OF PIPER JAFFRAYI................................................. III-1
IV. CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW............................... IV-1
V. SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW ............................... V-1
VI. REINCORPORATION AGREEMENT ......................................................... VI-1
VII. DELAWARE CERTIFICATE OF
INCORPORATION ..................................................................... VII-1
VIII. DELAWARE BYLAWS ................................................................... VIII-1
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QUESTIONS AND ANSWERS ABOUT THE
INTERPORE/CROSS MERGER AND THE INTERPORE REINCORPORATION
Q: WHY ARE INTERPORE AND CROSS PROPOSING TO MERGE?
A: Our companies are proposing to merge because we believe the resulting
combination will provide our stockholders with substantial benefits and
enable us to better serve our customers. The merger will create a medical
device product company with a unique combination of spinal and bone graft
technologies and with an expanded product portfolio and combined
distribution channels specifically addressing the spine/orthopaedic
market. The merger will combine Interpore's strength as a leading
manufacturer and marketer of synthetic bone graft materials with Cross'
strength as a worldwide supplier of spinal implant systems used to treat
degenerative conditions and deformities of the spine.
Q: WHY IS INTERPORE PROPOSING TO REINCORPORATE?
A: Interpore is proposing to reincorporate because it believes that the
reincorporation will allow Interpore and its shareholders to benefit from
the comprehensive and predictable nature of Delaware corporate law.
Because of the perceived advantages offered by Delaware law, Delaware has
become a preferred state of incorporation for many major U.S.
corporations. To review the differences between California and Delaware
law, see page 98.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares may be represented at the annual
meetings. The Interpore and Cross Annual Meetings will both take place on
May 6, 1998. The Boards of Directors of both Interpore and Cross
unanimously recommend voting in favor of the proposed merger. The Board of
Directors of Interpore recommends voting in favor of the proposed
reincorporation.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Cross stockholders will receive 1.275 shares of Interpore common stock in
exchange for each share of Cross common stock. We will not issue
fractional shares. Cross stockholders who would otherwise be entitled to
receive a fractional share instead will receive cash based on the market
value of the fractional share of Interpore stock.
Example:
If you currently own 100 shares of Cross common stock, then after the
merger you will be entitled to receive 127 shares of Interpore common
stock and a check for the market value of the 0.5 fractional share.
The merger will not affect the shares held by the Interpore shareholders.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger within a few days following the annual
meetings.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The exchange of shares by Cross stockholders is expected to be tax-free to
Cross stockholders for federal income tax purposes, except for taxes on
cash received for a fractional share. The merger is expected to be
tax-free to Interpore shareholders for federal income tax purposes. To
review the tax consequences to stockholders in greater detail, see page
35.
Q: WHAT WILL BE THE EFFECT OF THE REINCORPORATION ON THE MERGER?
A: If both the merger and the reincorporation are approved, Cross
stockholders will receive stock in Interpore after it reincorporates to
Delaware; that is, Cross stockholders will receive stock in a Delaware
corporation rather than a California corporation. Accordingly, Cross
stockholders should carefully review the terms of the proposed
reincorporation.
Q: WHO DETERMINES WHETHER INTERPORE WILL BE REINCORPORATED?
A: The reincorporation requires the approval of a majority of the outstanding
common stock of Interpore and a majority of the outstanding Series E
Preferred Stock of Interpore. Cross stockholders will not be asked to vote
on the reincorporation.
Q: WHAT IF THE REINCORPORATION IS NOT APPROVED?
A: The reincorporation and the merger are separate proposals. If the merger,
but not the reincorporation, is approved, the merger will still occur. If
the reincorporation, but not the merger, is approved, the reincorporation
will still occur, subject to final approval by the Interpore Board of
Directors.
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Q: WHY AM I BEING ASKED TO ELECT DIRECTORS THAT WILL NOT BE MEMBERS OF THE
INTERPORE BOARD IF INTERPORE AND CROSS MERGE?
A. If the merger is not approved by the holders of a majority of the
outstanding shares of stock of Interpore and by the holders of a majority
of the outstanding shares of stock of Cross, each company will continue
its separate existence. Electing directors at this meeting will save each
company the expense of holding another meeting if the merger is not
consummated. A vote in favor of the merger is also a vote for the proposed
composition of the Interpore Board following the merger, which is
described at "The Combined Company" on page 41.
Q: SHOULD CROSS STOCKHOLDERS OR INTERPORE SHAREHOLDERS SEND IN THEIR STOCK
CERTIFICATES NOW?
A: No. After the merger is completed, Cross stockholders will receive written
instructions for exchanging their share certificates. It will not be
necessary for Interpore shareholders to exchange stock certificates in
connection with the merger or the reincorporation.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the voting directions provided by your broker.
Without instructions, your shares will not be voted.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at
the stockholder meeting. You can do this in one of three ways. First, you
can send a written notice stating that you would like to revoke your
proxy. Second, you can complete and submit a new proxy card. If you choose
either of these two methods, you must submit your notice of revocation or
your new proxy card to the appropriate Corporate Secretary (to Interpore
at the address on page 3 if you are an Interpore shareholder, or to Cross
at the address on page 3 if you are a Cross stockholder). Third, you can
attend the annual meeting and vote in person. Simply attending the
meeting, however, will not revoke your proxy. If you have instructed a
broker to vote your shares, you must follow directions received from your
broker to change those instructions.
Q: WHERE CAN I OBTAIN MORE INFORMATION?
A: If you are a stockholder, you can obtain any additional documents filed by
Interpore or Cross through us or the SEC. Stockholders may obtain certain
additional documents by requesting them in writing or by telephone from
the appropriate party at the following addresses:
Interpore International
Attention: Richard L. Harrison, Vice President and Chief Financial Officer
181 Technology Drive
Irvine, California 92618
Telephone: (714) 453-3200
Cross Medical Products, Inc.
Attention: Paul A. Miller, Vice President and Chief Financial Officer
5160-A Blazer Memorial Parkway
Dublin, Ohio 43017-1339
Telephone: (614) 718-0530
Interpore and Cross file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at "http://www.sec.gov."
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<PAGE> 8
SUMMARY
This summary highlights selected information from this document and the
documents referenced herein and may not contain all of the information that is
important to you. To understand the merger and the reincorporation fully, and
for a more complete description of the legal terms of the merger and the
reincorporation, you should read carefully this entire document and the
documents referenced herein. See "Additional Information." (Page 119.)
THE COMPANIES
INTERPORE INTERNATIONAL
181 Technology Drive
Irvine, California 92618-2402
(714) 453-3200
Interpore(R) International ("Interpore") is a biomaterials company that
develops, manufactures and markets synthetic bone graft material for the
orthopaedic, oral and maxillofacial markets. Using Interpore's proprietary
manufacturing processes, the unique skeletal structures of certain species of
coral are converted into biocompatible bone graft materials. These materials
have interconnected porosity, architecture and chemical composition similar to
that of human cancellous bone, and facilitate bone and tissue ingrowth. For the
orthopaedic marketplace, Interpore's primary market focus, Interpore's synthetic
bone graft products are marketed under the Pro Osteon(R) label. Interpore's Pro
Osteon 500 Porous Bone Graft Substitute was the first synthetic bone graft
material to be approved and marketed as a medical device for certain orthopaedic
applications in the United States. Interpore also manufactures Pro Osteon 200
Porous Bone Graft Substitute, Pro Osteon 500R Resorbable Bone Graft Substitute,
Interpore 200(R) Porous Hydroxyapatite Bone Void Filler and orbital implants for
artificial eyes.
CROSS MEDICAL PRODUCTS, INC.
5160-A Blazer Memorial Parkway
Dublin, Ohio 43017-1339
(614) 718-0530
Cross Medical Products, Inc. ("Cross"), formerly known as Danninger Medical
Technology, Inc., is a worldwide supplier of spinal implant systems used to
treat degenerative conditions and deformities of the spine. Cross' implants are
used by surgeons to obtain fusion in areas of the spine affected by degenerative
diseases, deformities, trauma and tumors. The spinal implant stabilizes the
spine while fusion occurs, and assists in preventing the bone graft material
(which is used in the areas of the spine where the disc has been removed) from
collapsing or migrating. Cross' principal product is the SYNERGYTM Spinal
Implant System -- a "universal" implant system that allows surgeons to treat
both the thoracic (middle) and lumbar (lower) portions of the spine, which
constitute approximately 70% of all instrumented spinal fusion surgeries in the
United States. The SYNERGYTM Spinal Implant System has been engineered to be
easy for surgeons to use, reducing surgical time. Cross has received FDA
clearance for the marketing of both a stainless steel and titanium version of
the product for both anterior and posterior applications.
THE COMBINATION (SEE PAGE 41)
As a result of the Merger, Cross will become a wholly-owned subsidiary of
Interpore. The corporate headquarters of the combined company will be in Irvine,
California. The combined company intends to continue the separate existence of
Cross as one of Interpore's two operating subsidiaries. Interpore Orthopaedics,
Inc., the existing wholly-owned primary operating subsidiary of Interpore, will
continue the business of developing, manufacturing and marketing synthetic bone
graft material for the orthopaedic, oral and maxillofacial markets. Cross will
continue the business of developing and distributing spinal implant products.
OUR REASONS FOR THE MERGER (SEE PAGE 23)
To review the reasons for the merger in greater detail, as well as related
uncertainties, see pages 23 through 26.
THE ANNUAL MEETINGS (SEE PAGES 16-19)
The Interpore Annual Meeting will be held at Interpore's executive offices
at 181 Technology Drive, Irvine, California 92618, at 10:00 a.m. on May 6, 1998.
The Cross Annual Meeting will be held at Cross' executive offices located at
5160-A Blazer Memorial Parkway, Dublin, Ohio 43017-1339, at 10:00 a.m. on May 6,
1998.
OUR RECOMMENDATIONS TO STOCKHOLDERS
TO INTERPORE SHAREHOLDERS:
The Interpore Board believes that the merger and the reincorporation are in
your best interest and recommends that you vote FOR the proposals to:
(a) approve the merger agreement and the merger;
(b) approve the reincorporation; and
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<PAGE> 9
(c) elect the five nominees to Interpore's Board of Directors.
Holders of 642,759 shares of Interpore common stock, representing over 9% of
the outstanding shares of Interpore common stock, have agreed to vote their
shares of Interpore common stock in favor of the merger.
TO CROSS STOCKHOLDERS:
The Cross Board believes that the merger is in your best interest and
recommends that you vote FOR the proposals to:
(a) approve and adopt the merger agreement and the merger; and
(b) elect the three nominees to three-year terms as Class II members of
Cross' Board of Directors.
Holders of 1,426,931 shares of Cross common stock, representing over 27% of
the outstanding shares of Cross common stock, have agreed to vote their shares
of Cross common stock in favor of the merger.
THE MERGER
As a result of the Merger, Cross will become a wholly-owned subsidiary of
Interpore and the Cross stockholders will receive shares of Interpore common
stock. The merger agreement is attached as Annex I to this Joint Proxy
Statement/Prospectus. We encourage you to read the merger agreement as it is the
legal document that governs the merger.
WHAT CROSS STOCKHOLDERS WILL RECEIVE (SEE PAGE 42)
As a result of the merger, Cross stockholders will receive 1.275 shares of
Interpore common stock for each share of Cross common stock that they own. No
fractional shares will be issued. Instead, Cross stockholders will receive a
check in payment for any fractional shares based on the market value of the
Interpore common stock.
OWNERSHIP OF INTERPORE FOLLOWING THE MERGER
The shares of Interpore common stock issued to Cross stockholders in the
merger will constitute approximately 49% of the outstanding common stock of
Interpore after the merger. The shares of Interpore common stock currently held
by Interpore shareholders in the merger will represent approximately 51% of the
outstanding common stock of Interpore after the merger.
BOARD OF DIRECTORS AND MANAGEMENT OF INTERPORE FOLLOWING THE MERGER (SEE PAGE
41)
The Board of Directors of Interpore after the merger initially will consist
of 6 members, three of which will be chosen by Interpore and three of which will
be chosen by Cross.
If the merger is completed, David C. Mercer, the current President and Chief
Executive Officer of Interpore, will become Chief Executive Officer and Chairman
of the Board of Interpore, and Joseph A. Mussey, the current President and Chief
Executive Officer of Cross, will become the President and Chief Operating
Officer of Interpore. The other management of the combined company will consist
of representatives from both Interpore and Cross.
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGES 33-34)
In considering the Boards' recommendations that you vote in favor of the
merger, you should be aware that certain officers of Cross, including some
officers who are also directors, have employment agreements, retention
incentives or benefit plans that provide them with interests in the merger that
are different from, or in addition to, yours.
CONDITIONS TO THE MERGER (SEE PAGES 47-48)
The completion of the merger depends upon the satisfaction of a number of
conditions, including the following:
(a) the approval of the holders of a majority of the stock of each of
Interpore and Cross;
(b) the receipt of letters from each of our independent auditors concurring
with the conclusion of management of Cross and Interpore as to the
appropriateness of pooling of interests accounting;
(c) the receipt of an opinion from counsel that the transaction will be
tax-free to Cross' stockholders for federal income tax purposes.
(d) written demands for appraisal or dissenters' rights by fewer than five
percent (5%) of the outstanding shares of common stock of each of
Interpore and Cross; and
(e) there shall have been no law enacted or injunction entered which
effectively prohibits the merger or which causes a material adverse
effect on either of our companies.
4
<PAGE> 10
Certain of the conditions to the merger may be waived by either Interpore or
Cross.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGES 48-50)
Interpore and Cross can agree to terminate the merger agreement without
completing the merger, and either Interpore or Cross can terminate the merger
agreement under certain circumstances, including the following:
(a) the merger is not completed by June 30, 1998, but this deadline may be
extended to August 31, 1998 at the election of either of Interpore or
Cross;
(b) the approvals of the holders of a majority of the stock of either
Interpore or Cross are not received;
(c) a court or other governmental authority permanently prohibits the
merger;
(d) the other party breaches or materially fails to comply with any of its
representations, warranties or obligations under the merger agreement;
(e) the Board of Directors of the other party: (A) withdraws or modifies in
any adverse manner its approval or recommendation in favor of the
merger, or (B) approves or recommends a significant transaction with a
third party; or
(f) either company's Board of Directors determines, under certain
circumstances, and before the approval of the merger agreement by its
stockholders, that the Board's fiduciary obligations require acceptance
of an offer from a third party to enter into a significant transaction.
TERMINATION FEES (SEE PAGES 48-50)
Under certain circumstances, the merger agreement requires the payment of a
termination fee of $2.0 million. Such circumstances include the receipt by the
party terminating the agreement of an offer to enter into a significant
transaction with a third party.
RECIPROCAL STOCK OPTION AGREEMENTS (SEE PAGES 51-52)
We have each granted an option to the other party to purchase approximately
19.9% of our outstanding common stock if certain events occur that entitle the
party exercising the option to receive a termination fee under the merger
agreement. The combined value of the termination fee and the stock option is
limited to $2.0 million.
ACCOUNTING TREATMENT (SEE PAGE 35)
We expect the merger to be accounted for as a pooling of interests, which
means that we will treat our companies as if they had always been combined for
accounting and financial reporting purposes. We have conditioned the merger on
the receipt of letters from each of the companies' auditors concurring with
management's conclusion as to appropriateness of pooling of interests
accounting.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 23-26)
In deciding to approve the merger, our Boards considered opinions from our
respective financial advisors as to the fairness of the consideration to be
received in the merger from a financial point of view. Interpore received an
opinion from its financial advisor, Genesis Merchant Group Securities LLC, and
Cross received an opinion from its financial advisor, Piper Jaffray Inc. The
financial advisors performed a variety of analyses in connection with delivering
their opinions. These analyses included comparing Interpore and Cross historical
stock prices, comparing Interpore and Cross to other publicly traded companies,
and estimating the relative values and contributions of Interpore and Cross
based on past and estimated future performance. These opinions are attached as
Annexes II and III to this Joint Proxy Statement/Prospectus. We encourage you to
read these opinions.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGES 35-36)
We have structured the merger so that neither Interpore, Cross nor our
stockholders should recognize any gain or loss for federal income tax purposes
in the merger (except for tax payable because of cash received instead of
fractional shares by Cross stockholders). We have conditioned the merger on
Cross' receipt of a legal opinion that such is the case.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisors for a full understanding of the tax consequences of the merger to you.
DISSENTERS' AND APPRAISAL RIGHTS (SEE PAGES 37-40)
Interpore. In connection with the merger, the Interpore shareholders may be
entitled to dissenters' rights under Chapter 13 of the California General
Corporation Law (the "CGCL"). A person having a beneficial interest in shares of
Interpore common stock held of record in the name of another person,
5
<PAGE> 11
such as a broker or nominee, must act promptly to cause the record holder to
follow the steps in Chapter 13 of the CGCL to perfect, properly and in a timely
manner, dissenters' rights. No more than five percent of the outstanding shares
of Interpore common stock may request dissenters' rights or the merger may not
be consummated.
Holders of Interpore common stock are not entitled to dissenters' rights
under the CGCL in connection with the Reincorporation.
Cross. Holders of record of Cross common stock who do not vote in favor of
the merger agreement and who otherwise comply with the applicable statutory
procedures summarized herein will be entitled to appraisal rights under Section
262 of the Delaware General Corporation Law (the "DGCL"). A person having a
beneficial interest in shares of Cross common stock held of record in the name
of another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps in Section 262 of the DGCL to properly, and in
a timely manner, perfect appraisal rights. No more than five percent of the
outstanding shares of Cross common stock may request dissenters' rights or the
merger may not be consummated.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (SEE PAGE 15)
We have each made forward-looking statements in this document that are
subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of
Interpore or Cross. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
Stockholders should note that many factors could affect the future financial
results of Interpore and Cross, and could cause these results to differ
materially from those expressed in our forward-looking statements. These factors
include those set forth in the "RISK FACTORS" section.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 55)
Shares of Interpore are listed on the Nasdaq National Market. Shares of
Cross are listed on the Nasdaq SmallCap Market. On February 11, 1998, the last
full trading day prior to the public announcement of the proposed merger,
Interpore common stock closed at $8.25 per share and Cross common stock closed
at $9.75 per share. The average closing price of Interpore common stock for the
30 trading days ending February 11, 1998 was $7.26. The average closing price of
Cross common stock for the 30 trading days ending February 11, 1998 was $8.88.
On April 3, 1998, Interpore common stock closed at $5.50 per share and Cross
common stock closed at $6.63 per share. We urge you to obtain current market
quotations.
THE REINCORPORATION
The proposed Delaware Certificate of Incorporation and Bylaws of Interpore
to be in effect following the reincorporation are attached as Annexes VII and
VIII to this Joint Proxy Statement/Prospectus. We encourage you to read those
documents as they will be the legal documents which will govern Interpore and
define the rights and preferences of Interpore shareholders after the
reincorporation.
REINCORPORATION IN DELAWARE (SEE PAGES 96-101)
The Interpore Board of Directors is submitting to the Interpore shareholders
a proposal to reincorporate in the State of Delaware. The primary reason for the
reincorporation is to take advantage of the comprehensive and predictable nature
of the DGCL. Further, the Delaware courts have expertise in corporate law and
lend clarity and consistency to the judicial development of the statutory law
and corporate common law. See "Proposal for Interpore to Reincorporate in
Delaware" for a comparison of the rights of Interpore shareholders before the
reincorporation and the rights of the Interpore and Cross stockholders if the
merger and reincorporation are approved and effected.
TAX CONSEQUENCES OF THE REINCORPORATION (SEE PAGE 97)
The reincorporation is intended to be a reorganization within the meaning of
Section 368(a) of the Code, so that no gain or loss would generally be
recognized by Interpore and no gain or loss would generally be recognized by
Interpore shareholders for federal income tax purposes. Tax matters are very
complicated and the tax consequences of the reincorporation to you will depend
on the facts of your own situation. Interpore shareholders should consult your
own tax advisors for a full understanding of the tax consequences of the
reincorporation to you. For a further discussion of the federal income tax
consequences of the reincorporation, see "Proposal for Interpore to
Reincorporate in Delaware -- Certain Consequences of the Reincorporation --
Federal Income Tax Consequences."
6
<PAGE> 12
INTERPORE SUMMARY HISTORICAL FINANCIAL DATA
The selected financial data as of and for the years ended December 31, 1997,
1996, 1995, 1994 and 1993 set forth below have been derived from the
consolidated financial statements of Interpore, which have been audited by Ernst
& Young LLP. This data is qualified in its entirety by, and should be read in
conjunction with, Interpore Financial Statements and related notes thereto
appearing elsewhere herein. See "Financial Information of Interpore" and
"Interpore Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales(1) ...................... $ 15,511 $ 19,917 $ 17,103 $ 18,458 $ 14,315
Cost of goods sold ................ 3,135 5,394 4,520 5,648 4,898
Royalty expense ................... 52 249 278 761 612
-------- -------- -------- -------- --------
Gross profit ...................... 12,324 14,274 12,305 12,049 8,805
Total operating expenses .......... 12,180(1) 14,379 12,332(3) 10,137 8,246
-------- -------- -------- -------- --------
Income (loss) from operations ..... 144 (105) (27) 1,912 559
Total interest and other income
(expense), net ............... 992 763 661 601 (9)
-------- -------- -------- -------- --------
Income before taxes ............... 1,136 658 634 2,513 550
Income tax (benefit) provision..... (1,635)(2) -- (1,404)(2) 101 14
-------- -------- -------- -------- --------
Net income ........................ $ 2,771 $ 658 $ 2,038 $ 2,412 $ 536
======== ======== ======== ======== ========
Net income per share:
Basic ....................... $ .40 $ .09 $ .30 $ .37 $ .11
======== ======== ======== ======== ========
Diluted ..................... $ .37 $ .09 $ .27 $ .32 $ .10
======== ======== ======== ======== ========
Shares used in computing net
income per share:
Basic ....................... 7,002 6,996 6,752 6,576 5,081
Diluted ..................... 7,401 7,468 7,535 7,568 5,279
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ...................... $ 22,776 $ 20,323 $ 21,705 $ 20,177 $ 15,667
Long-term debt, including
current portion ................... -- 5 191 369 712
Preferred and common stock ........ 36,251 35,917 37,101 37,219 34,963
Accumulated deficit ............... (14,615) (17,386) (18,044) (20,082) (22,494)
</TABLE>
- ------------------
(1) Interpore's dental implant business was sold in May 1997. The transaction,
including associated costs, resulted in a net charge to operating expenses
of $617,000 in 1997. Net sales of dental implants were approximately $1.7
million, $7.1 million, $8.1 million, $9.8 million and $10.0 million in 1997,
1996, 1995, 1994 and 1993, respectively.
(2) In fiscal years 1997 and 1995, Interpore recognized deferred tax assets of
$1.7 million and $1.5 million, respectively, which had previously been fully
reserved in accordance with Statement of Financial Accounting Standards No.
109.
(3) In 1995, Interpore recorded a $411,000 provision for distributor returns to
reflect the estimated value of product returns it would accept from
distributors terminated as of December 31, 1995.
7
<PAGE> 13
CROSS SUMMARY HISTORICAL FINANCIAL DATA
(In thousands, except per share data)
The selected consolidated financial data presented below for, and as of the
end of, each of the years in the five year period ended December 31, 1997 is
derived from the financial statements of Cross which have been audited by
Coopers & Lybrand L.L.P. The following selected consolidated financial data
should be read in conjunction with the Cross' consolidated financial statements
and related notes and with "Cross Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ..................................... $ 12,918 $ 8,572 $ 4,091 $ 2,880 $ 1,360
Cost of goods sold .......................... 5,923 3,854 1,995 1,189 358
Gross margin ................................ 6,995 4,718 2,096 1,691 1,002
Selling, general and administrative
expenses .................................... 6,689 4,330 3,224 2,483 1,984
Research and development expenses ........... 1,226 687 859 977 800
Operating loss .............................. (920)(1) (299) (1,987) (1,769) (1,782)
Interest expense, net ....................... 426 439 101 3 15
Loss before income taxes .................... (1,346) (738) (2,088) (1,772) (1,797)
Net income (loss) from continuing
operations .................................. (862) 50(2) (1,442) (1,176) (1,194)
Net income (loss) per share from
continuing operations (basic and
diluted) .................................. $ (0.17) $ 0.01 $ (0.31) $ (0.25) $ (0.27)
Weighted average shares used in basic and
diluted earnings per share calculations.... 5,065 4,772 4,661 4,704 4,442
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ............................. $ 13,356 $ 8,241 $ 3,135 $ 2,599 $ 2,032
Total assets ................................ 18,762 19,590 9,498 7,413 5,782
Short-term obligations ...................... 95 1,659 3,081 6 7
Long-term obligations ....................... 5,124 5,482 7 -- 6
Total shareholders' equity .................. 9,998 5,648 3,522 3,390 3,008
</TABLE>
(1) In 1997, Cross recognized $925,000 of inventory valuation adjustment for
obsolete and slow moving inventory related to market acceptance of certain
improvements and modifications to its spinal implant system.
(2) In 1996, Cross recognized income of $459,000 from the reversal of a
valuation allowance provided against deferred tax assets.
8
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
FOR COMBINED COMPANY
Interpore and Cross expect that the merger will be accounted for as a
"pooling of interests." Accordingly, for accounting and financial reporting
purposes the companies will be treated as if they had always been combined. For
a more detailed description of pooling of interests accounting, see "The Merger
- -- Accounting Treatment of the Merger" at page 35. Interpore and Cross have
presented below summary unaudited pro forma financial data that reflects the
pooling of interests method of accounting and is intended to portray a more
meaningful view of what the financial statements of the companies might have
looked like had they always been combined.
The unaudited pro forma financial data presents statement of income data as
if the merger had occurred as of the beginning of the periods presented, and
balance sheet data as if the merger had occurred as of December 31, 1997.
The companies may have performed differently had they actually been
combined. You should not rely on the pro forma information as being indicative
of the historical results that we would have had or the future results that we
will experience after the merger. See "Unaudited Pro Forma Condensed Combining
Financial Statements" on page 56.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales .................................................. $ 28,429 $ 28,489 $ 21,194
Gross profit ............................................... 19,319 18,992 14,401
Loss from continuing operations ............................ (776) (404) (2,014)
Total interest and other income, net ....................... 566 324 560
Net income from continuing operations ...................... $ 1,909 $ 708 $ 596
======== ======== ========
Net income per share from continuing operations:
Basic .................................................... $ .14 $ .05 $ .05
======== ======== ========
Diluted .................................................. $ .13 $ .05 $ .04
======== ======== ========
Shares used in calculation:
Basic .................................................... 13,460 13,080 12,695
Diluted .................................................. 14,908 14,530 13,478
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1997(1)
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and short-term investments............. $ 16,635
Working capital............................. 28,744
Total assets................................ 42,123
Term debt, net of current maturities........ 5,080
Shareholders' equity........................ 29,234
</TABLE>
(1) The pro forma balance sheet data has been adjusted to reflect the estimated
non-recurring costs of the merger, which are estimated at approximately $4.0
million ($2.4 million net of tax).
9
<PAGE> 15
COMPARATIVE HISTORICAL AND PRO FORMA COMBINED PER SHARE DATA
The following table sets forth (i) the historical net income per share from
continuing operations and the historical book value per share of Interpore
common stock, (ii) the historical net income (loss) per share from continuing
operations and the historical book value per share of Cross common stock, (iii)
the unaudited pro forma combined net income per share and the unaudited pro
forma combined book value per share of Interpore common stock after giving
effect to the merger, and (iv) the unaudited pro forma net income per share from
continuing operations and the unaudited pro forma book value per share of an
equivalent share of Cross common stock assuming an exchange ratio for each share
of Cross common stock of 1.275 shares of Interpore common stock. The pro forma
combined diluted net income per share is based on the combined weighted average
number of common shares and common share equivalents, after adjusting Cross'
weighted average number of common shares outstanding and dilutive common share
equivalents for the conversion into Interpore common stock at a conversion ratio
of 1.275. Common share equivalents consist of common stock issuable upon the
exercise of outstanding options and warrants and upon conversion of convertible
subordinated debentures.
The pro forma combined information does not purport to be indicative of the
financial position or operating results which would have been achieved had
Interpore and Cross actually been combined and should not be construed as
representative of future financial performance or operating results.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- --------------------
CROSS(1)
INTERPORE CROSS COMBINED EQUIVALENT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
COMPARATIVE PER SHARE DATA(2):
Net income (loss) per share from continuing
operations:
Basic
Year ended December 31, 1995 .......... $ .30 $ (.31) $ .05 $ .06
Year ended December 31, 1996 .......... .09 .01 .05 .06
Year ended December 31, 1997 .......... .40 (.17) .14 .18
Diluted
Year ended December 31, 1995 .......... $ .27 $ (.31) $ .04 $ .05
Year ended December 31, 1996 .......... .09 .01 .05 .06
Year ended December 31, 1997 .......... .37 (.17) .13 .17
Book value per share:
December 31, 1997 ....................... $ 3.05 $ 1.91 $ 2.12 $ 2.70
</TABLE>
- ----------------
(1) Pro Forma Cross Equivalent per share amounts were computed by multiplying
the Pro Forma Combined per share amounts by the exchange ratio of 1.275.
(2) Neither Interpore nor Cross has ever paid dividends on their common stock
and there is no current intention to do so.
10
<PAGE> 16
RISK FACTORS
In addition to general investment risks and those factors set forth
elsewhere herein, the following risks should be considered by Cross stockholders
in deciding whether to approve and adopt the merger agreement and thereby become
stockholders of Interpore and by Interpore shareholders in deciding whether to
adopt the merger agreement and approve the proposed reincorporation. In
addition, Interpore shareholders and Cross stockholders should consider the
factors set forth in "Interpore Management's Discussion And Analysis Of
Financial Condition And Results Of Operations" on page 72 and "Cross
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations" on page 85.
RISKS RELATING TO THE MERGER AND REINCORPORATION
Integration of Certain Operations. Interpore and Cross have entered into the
merger agreement with the expectation that the merger will result in beneficial
synergies for the combined company. See "The Merger -- Recommendation of the
Boards of Directors of Interpore and Cross; Reasons for the Merger." Achieving
the anticipated benefits of the merger will depend, in part, upon whether
integration is accomplished in an efficient and effective manner, and there can
be no assurance that this will occur. Interpore and Cross estimate that the
integration, if successful, will take several quarters to accomplish. The
combination of Interpore and Cross will require, among other things, integration
of product offerings and coordination of sales and marketing, financial
reporting and research and development efforts. There can be no assurance that
integration will be accomplished smoothly or successfully. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations with distinct cultures. While the companies intend to
use a combined sales and marketing force, they may experience product offering
limitations due to the limited regulatory indications for their products
approved by the U.S. Food and Drug Administration (the "FDA"). The transfer of
certain operations, among other reasons, may result in the loss of key personnel
from Cross and Interpore. Failure to accomplish the integration of the
operations of Interpore and Cross, inefficiencies or delays in integration or
the loss of key personnel could have a material adverse effect on the business,
operating results or financial condition of Interpore or Cross.
Risk that the Merger Will Fail to Occur; Termination Payments. No assurance
can be given that the merger between Interpore and Cross will be consummated.
Failure to consummate the merger may result in a material adverse effect on the
business or prospects of Interpore or Cross. Such a material adverse effect may
result from, among other factors, the significant amount of time and resources
that have been dedicated by the managements of Interpore and Cross to the
transactions contemplated by the merger agreement. In addition, the merger
agreement provides for the payment by Interpore or Cross of a termination fee of
up to $2.0 million if the merger is terminated under certain circumstances. The
obligation to make such payments may adversely affect the ability of Interpore
or Cross to engage in another transaction and the payment of the fee may have an
adverse impact on the financial condition of the company incurring such
obligation.
Risks Associated with Fixed Exchange Ratio. Cross stockholders will receive
1.275 shares of Interpore's common stock for each share of Cross common stock
that they own at the time of the merger. This exchange ratio is fixed and will
not change regardless of any fluctuation in the market price of Interpore's
common stock. The prices of Interpore common stock and Cross common stock may
vary materially from their respective prices at the date of the signing of the
Merger Agreement and at the date of the consummation of the Merger. Accordingly,
the value of the combined company's shares to be issued to Cross stockholders
will depend on the market price of Interpore's common stock at the time of the
merger.
Dependence on Key Personnel and Medical Advisory Board. The combined
company's continued success will depend in large part on its ability to attract
and retain highly qualified scientific, management, marketing and sales
personnel. The competition for skilled personnel in Interpore's and Cross'
industry and geographical locations is intense. While consummation of the merger
will increase the combined company's human resources in these areas, there is an
inherent risk in transactions of this type that the combination process could
result in the departure of key employees. There can be no assurance that the
announcement of the proposed merger will not adversely affect the combined
company's ability to attract and retain key personnel. Interpore's and/or Cross'
operations could be adversely affected if, for any reason, one or more key
executive officers ceases to be active in either company's management or in the
event that any member of Cross' Medical Advisory Board would choose to leave the
board and support a competing implant system. The loss of a significant group of
personnel or particular key personnel could adversely affect the combined
company.
Conflicts of Interest. In considering the recommendation of the Boards of
Directors of Interpore and Cross with respect to the merger agreement, Interpore
and Cross stockholders should be aware that certain members of the management
and Board of Cross have interests in the merger that are in addition to the
interests of Interpore
11
<PAGE> 17
and Cross stockholders generally. Joseph A. Mussey, Cross' President and Chief
Executive Officer, and other executive officers of Cross are parties to
employment agreements with change of control provisions with Cross providing
certain benefits upon termination of the officer following the merger. Under
each employment agreement, termination of the officer under certain
circumstances will entitle the officer to receive payments for two years equal
to the salary and bonus he was entitled to receive prior to the termination, as
well as certain employee benefits. In addition, all unvested stock options
issued under the Cross 1994 Stock Option Plan will become immediately
exercisable on the date of the merger. Interpore has also agreed to maintain in
effect, for six years from and after the effective time of the merger,
directors' and officers' liability insurance policies covering the persons who
are currently directors and officers of Interpore and Cross and on terms not
materially less favorable than the existing insurance coverage with respect to
matters occurring prior to the effective time of the merger. The Boards of
Directors of Interpore and Cross were aware of these interests and considered
them, among other matters, in approving the merger agreement. See "The Merger --
Interests of Certain Persons in the Merger."
Limitations on Changes in Control. If the proposal to reincorporate
Interpore in the state of Delaware is approved, Interpore will merge with and
into Interpore Delaware, Inc., a newly formed Delaware subsidiary of Interpore,
and certain rights of shareholders of Interpore will be governed by the Delaware
General Corporation Law and by the Certificate of Incorporation and Bylaws of
Interpore Delaware, Inc. The Delaware General Corporation Law as well as the
Certificate of Incorporation and Bylaws of Interpore Delaware, Inc. contain
certain provisions different from the California General Corporation Law and the
Articles of Incorporation and Bylaws of Interpore which could make more
difficult a change in control of Interpore Delaware, Inc., including, but not
limited to, a staggered board of directors, no cumulative voting, no shareholder
action by written consent, a higher number of authorized shares and restrictions
on the power to engage in business combinations with interested stockholders.
The existence of such provisions could have the effect of deterring an offer for
outstanding stock of Interpore Delaware, Inc. which might otherwise enable the
holders thereof to earn a premium over the then current market price of such
securities. See "Proposal for Interpore to Reincorporate in Delaware --
Comparison of Rights of Shareholders of Interpore and Stockholders of the
Delaware Company."
Certain Federal Income Tax Consequences. Although the merger has been
structured in an attempt to qualify as a reorganization within the meaning of
Section 368(a) of the Code, neither party has made any covenants,
representations or warranties that the merger will be tax-free or taxable in
nature. Because of the inherently factual nature of the questions presented and
the lack of representations, warranties and/or covenants regarding the
intentions of the parties, there can be no assurance that the merger will
constitute a tax-free transaction for federal income tax purposes. Each holder
of Cross common stock is strongly advised to consult his, her or its tax advisor
regarding the tax consequences of the merger. See "The Merger -- Certain Federal
Income Tax Consequences."
Certain Debt Obligations. As of April 3, 1998, Cross had outstanding
approximately $4,983,000 principal amount of 8.5% Convertible Subordinated
Debentures Due 2003. In connection with the merger, Interpore has agreed, within
a reasonable time after the effective time of the merger, to enter into a
supplemental indenture providing that the holder of each debenture shall have
the right to convert such debenture into the same number of shares of
Interpore's common stock that such holder would have been entitled to receive in
the merger if such debenture had been converted into Cross' common stock
immediately prior to the effective time. In addition, the combined company will
be required to provide the debenture holders with notice of the merger and
Interpore is obligated to offer to purchase the debentures, at the option of the
holder of the debentures, at 101% of the principal amount thereof plus accrued
interest. If a substantial number of debenture holders elect to redeem their
debentures, it could have a negative impact on the financial condition of the
combined company.
RISKS RELATING TO THE COMPANIES
Product Liability, Litigation and Insurance. The manufacture and sale of
both Interpore's and Cross' products involve the risk of product liability
claims. Although Interpore maintains product liability insurance with coverage
limits of $10.0 million per occurrence and $10.0 million in the aggregate per
year and Cross maintains product liability insurance with coverage limits of
$5.0 million per occurrence and $5.0 million in the aggregate per year, there
can be no assurance that the coverage limits of Interpore's or Cross' insurance
policies will be adequate. Such insurance is expensive and in the future may not
be available on acceptable terms, if at all. In 1997, Cross switched insurance
carriers when Cross was notified that insurance would no longer be available on
acceptable terms from its prior carrier. The new insurance carrier is providing
similar insurance coverage for future claims. For claims that have been incurred
but not yet filed, Cross plans to purchase, prior to the closing of the merger,
extended claims coverage from its prior carrier. The medical device industry and
the spinal implant industry in particular have been historically litigious and
Interpore and Cross each face an inherent business risk of financial exposure to
product liability claims. Such claims, regardless of their merit or eventual
outcome, could have a material adverse effect upon Interpore's or Cross'
business, financial condition and results of operations. Since both Interpore's
and Cross' products are designed to be implanted in the human body,
manufacturing errors or design defects could result in injury or death to the
patient, and could result in a recall of products and substantial
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monetary damages. Cross has been named as a defendant in more than 750 cases
alleging principally that Cross participated in an industry-wide conspiracy to
market pedicle screw implants without the proper regulatory approvals. None of
the 750 cases involve products manufactured by Cross. Cross anticipates that
additional similar suits will be filed in the future. In addition, Cross has
been named as a defendant in 16 cases alleging claims of products liability for
defective products manufactured by Cross. See "The Business of Cross -- Legal
Proceedings." Interpore is also a party to certain commercial litigations. A
successful claim brought against Interpore or Cross in excess of its insurance
coverage could have a material adverse effect on each company's business
reputation, financial condition and results of operations.
Rapid Technological Change; Intense Competition; Product Acceptance. The
medical device market is highly competitive. Interpore and Cross both compete
with many companies, some of which have access to financial and other resources
greater than those of Interpore and Cross combined. Furthermore, the medical
device market is characterized by intense development efforts and rapidly
advancing technology. Interpore's and Cross' present and future products could
be rendered obsolete or uneconomical by technological advances made by one or
more of Interpore's and Cross' current or future competitors or by alternative
therapies such as drugs. The Company's success will depend, in large part, upon
its ability to anticipate and keep pace with such advances. Competitive market
forces may also adversely affect the prices at which the Company sells its
products. In order to maintain its current level and increase its future sales
of Pro Osteon, Interpore will have to continue to demonstrate to the medical
community the surgical and patient advantages, safety, efficacy, cost
effectiveness and clinical results of Pro Osteon. The spinal implant industry is
intensely competitive with respect to technology, distribution, quality and
variety, and there are several well-established competitors with substantially
greater financial and other resources than the combined company. Some of Cross'
competitors have been in existence for a substantially longer period than Cross
and many are better established with physicians in the markets where Cross
distributes its products. See "Competition."
Challenges to Patents and Proprietary Rights. Both Interpore and Cross rely
on a combination of patents, trade secrets and nondisclosure agreements to
protect their respective proprietary intellectual property. Interpore and Cross
each own numerous U.S. and foreign patents and patent applications and have
license rights to certain patents held by third parties. There can be no
assurance that pending patent applications will result in issued patents, that
patents issued to or licensed by the combined company will not be challenged or
circumvented by competitors or that such patents will be found to be valid or
sufficiently broad to protect the combined company's technology or to provide
the combined company with any competitive advantage. Third parties could also
obtain patents that may require licensing for the conduct of the combined
company's business, and there can be no assurance that the required licenses
would be available. The combined company will also rely on confidentiality
agreements with certain employees, consultants and other parties to protect, in
part, trade secrets and other proprietary technology. There can be no assurance
that these agreements will not be breached, that the combined company will have
adequate remedies for any breach, that others will not independently develop
substantially equivalent proprietary information or that third parties will not
otherwise gain access to the combined company's trade secrets and proprietary
knowledge. See "Proprietary Rights."
FDA and Other Governmental Regulation. The medical devices manufactured and
marketed by Interpore and Cross are subject to rigorous regulation by the FDA
and numerous other federal, state and foreign governmental authorities. The
process of obtaining regulatory approvals to market a medical device,
particularly from the FDA, can be costly and time-consuming, and there can be no
assurance that such approvals will be granted on a timely basis, if at all.
While Interpore and Cross believe that they have obtained all necessary
clearances for the manufacture and sale of their current products and that they
are generally in compliance with applicable FDA and other material regulatory
requirements, there can be no assurance that the combined company will be able
to continue such compliance. If the FDA were to believe that the combined
company was not in compliance with applicable laws or regulations, it could
institute proceedings to detain or seize the combined company's products, issue
a recall, impose operating restrictions, enjoin future violations and assess
civil and criminal penalties against the combined company, its officers or its
employees and could recommend criminal prosecution to the Department of Justice.
The regulatory process may delay the marketing of new products for lengthy
periods and impose substantial additional costs or it may prevent the
introduction of new products altogether. Moreover, foreign governmental
authorities have become increasingly stringent and the combined company may be
subject to more rigorous regulation by foreign governmental authorities in the
future. If marketing clearance for any product cannot be obtained under Section
510(k), alternative approval procedures such as PMA submissions are likely to be
costly and time consuming and there can be no assurance that the required
approvals for marketing any newly developed products will be obtained. All
products and manufacturing facilities are subject to continual review and
periodic inspection by the FDA. After approval, the FDA may require
post-marketing approval surveillance programs to monitor the effects of
newly-approved medical devices. FDA approval may be withdrawn for noncompliance
with regulatory standards or the occurrence of unforeseen problems following
initial market introduction. In addition, the extent of potentially adverse
government regulations which might arise from future administrative action or
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<PAGE> 19
legislation cannot be predicted. Finally, product modifications may require the
submission of a new 510(k) premarket notification or a PMA supplement prior to
marketing introduction. There can be no assurance that marketing clearances or
approvals will be obtained on a timely basis, or at all. Delays in receiving, or
the failure to receive, such approvals or clearances could have a material
adverse effect on the combined company.
Possible Denial of Third-Party Reimbursement. Interpore's and Cross'
products are purchased by hospitals, doctors and other health care providers who
are reimbursed for the health care services provided to their patients by
third-party payors, such as governmental programs (e.g., Medicare and Medicaid),
private insurance plans and managed care programs. These third-party payors may
deny reimbursement if they should determine that a device used in a procedure
was not used in accordance with cost-effective treatment methods, as determined
by such third-party payor, or was used for an unapproved indication. Also,
third-party payors are increasingly challenging the prices charged for medical
products and services. There can be no assurance that the combined company's
products will be considered cost-effective by third-party payors, that
reimbursement will be available or, if available, that the third-party payors'
reimbursement policies will not adversely affect the combined company's ability
to sell its products profitably.
Cross' Limited History of Profitability. In fiscal 1997, Cross reported a
net loss from continuing operations of $862,000, and had incurred net losses
from continuing operations in three of the previous four years. The combined
company intends to continue to invest to expand the distribution and marketing
of the SYNERGY(TM) Spinal Implant System, as well as to invest in research and
development to expand the system to include a cervical version and a spinal
implant cage. Cross believes that the SYNERGY(TM) Spinal Implant System has
technological advantages over existing spinal implant systems, although certain
competitors have much greater market share and well-developed distribution
networks. There can be no assurance that the combined company will be successful
in increasing its sales of spinal implants and managing its operations to a
profitable level.
Limited Sales and Marketing Experience; Product Concentration and
Obsolescence. Cross anticipates the majority of its sales growth, if any, in the
future will be in spinal implants. Cross has sold its spinal implant products in
the United States through a limited direct sales and marketing staff and a
network of independent commissioned sales agencies supported by Cross' technical
support staff. Independent commissioned sales agencies typically market
orthopedic and neurological implants and instruments for a variety of
manufacturers. Cross provides extensive sales training, however, existing or
future sales agencies may not have prior experience selling spinal implants.
Interpore has recently restructured its distribution channels for the sale of
Pro Osteon, replacing certain underperforming distributors with direct sales
representatives. The process of converting distributor territories to direct
sales or agent territories has had and may continue to have an adverse effect on
sales during the conversion period, because the distributors involved are either
returning their unexpired inventory to Interpore for credit (to the extent that
Interpore is obligated to accept such return) or selling their inventories to
depletion, during which time Interpore would not expect to receive additional
orders from these distributors. There can be no assurance that the combined
company will be able to develop an effective distribution network or that the
combined sales forces of Interpore and Cross will be able to successfully sell
the combined company's products.
Cross anticipates that most of its spinal implant sales and sales growth in
the future, if any, will come from the SYNERGY(TM) Spinal Implant System.
Interpore anticipates that most of its sales and revenue growth in the future
will come from its bone graft material. Cross' current primary product
development efforts involve a cervical version of the SYNERGY(TM) Spinal Implant
System and a spinal implant cage. Interpore's primary product development
efforts involve resorbable and osteoinductive bone graft materials. There can be
no assurance that Interpore or Cross will be successful in marketing their
current products or in developing and marketing their products in development or
that a competitor will not introduce a superior product or technology that would
render either company's products obsolete. In either event, Interpore or Cross
may not be able to produce sufficient sales to achieve profitability.
Dependence on Suppliers. Cross does not manufacture the components for its
spinal implants and instruments and is dependent upon several suppliers for the
production of such components and expects to continue to be dependent upon such
manufacturers for the foreseeable future. Cross is dependent upon these
manufacturers for timely and cost-effective manufacturing services. In the event
that Cross is unable to obtain components, or obtain such components on
commercially reasonable terms, it may not be able to manufacture or distribute
its products on a timely and competitive basis, or at all. Interpore must also
comply with the requirements of the Convention of International Trade of
Endangered Species of Wild Fauna and Flora ("CITES"). This is an international
agreement signed by approximately 140 nations which regulates the import and
export of products which are derived from endangered wildlife. Although the
coral used by Interpore is not an endangered species, all harvested coral is
subject to regulation under CITES. As a result, Interpore must register and
obtain licensure from the U.S. Department of Fish and Wildlife for both the
import of raw coral and the export of finished product. Because each shipment of
product exported outside of the United States or its possessions requires
individual permitting, and also to improve shipping efficiencies and service to
its international customers, Interpore has entered into an
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agreement with a contract warehouse in the Netherlands for the purpose of
international distribution of Interpore's products. In the future, regulations
could make the import or export of coral or coral-derived products prohibitive
and could interrupt Interpore's ability to supply its products. Interpore does
maintain several years' supply of coral to minimize the risk of this
possibility. However, there can be no assurance that this supply of raw coral is
sufficient, that Interpore will be able to obtain sufficient quantities of coral
in the future or that future regulations will not prohibit its use altogether.
Volatility of Market Price. Market prices for securities of orthopedic
device companies have historically been highly volatile. Quarterly operating
results of Interpore and Cross, restructuring of distribution channels, the
announcement of technological innovations or new products by Interpore, Cross or
their competitors, governmental regulation, timing of regulatory approvals,
developments related to patents or proprietary rights or publicity regarding
actual or potential malfunctions of Interpore's, Cross' or their competitors'
products may cause the market price of the combined company's common stock to
fluctuate substantially.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Interpore and Cross have made forward-looking statements in this document
that are subject to risks and uncertainties. These statements are based on
management's beliefs and assumptions, based on information currently available
to management. Forward-looking statements include the information concerning
possible or assumed future results of operations of Interpore and Cross set
forth (1) under "Summary," "The Merger -- Background of the Merger," " --
Recommendations of the Boards of Directors of Interpore and Cross; Reasons for
the Merger," " -- Opinion of Financial Advisor to Interpore," " -- Opinion of
Cross' Financial Advisor," "Unaudited Pro Forma Condensed Combining Financial
Statements," "The Combined Company," "Business of Interpore," "Interpore
Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business of Cross," and "Cross Management's Discussion and
Analysis of Financial Condition and Results of Operations" and (2) in this
document preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "intends," "plans," "estimates" or similar
expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of Interpore and Cross may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond Interpore's and Cross' ability to control or
predict. Stockholders are cautioned not to put undue reliance on any
forward-looking statements. In addition, Interpore and Cross do not have any
intention or obligation to update forward-looking statements after they
distribute this Joint Proxy Statement/Prospectus, even if new information,
future events or other circumstances have made them incorrect or misleading. For
those statements, Interpore and Cross claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
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<PAGE> 21
THE INTERPORE ANNUAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
Interpore International ("Interpore") as part of the solicitation of proxies by
the Interpore Board of Directors for use at the Annual Meeting of shareholders
of Interpore (the "Interpore Annual Meeting") to be held on May 6, 1998 at 10:00
a.m. local time, at Interpore's executive offices at 181 Technology Drive,
Irvine, California 92618-2402. This Joint Proxy Statement/Prospectus and the
enclosed form of proxy are first being mailed to shareholders of Interpore on or
about April 8, 1998.
The purpose of the Interpore Annual Meeting is: (a) to consider and vote on
a proposal to approve and adopt an Agreement and Plan of Merger, dated February
11, 1998 (the "Merger Agreement"), by and among Interpore and Cross pursuant to
which, among other things, (i) a wholly-owned subsidiary of Interpore will be
merged with and into Cross, with Cross surviving and becoming a wholly-owned
subsidiary of Interpore, and (ii) each issued and outstanding share of Cross
common stock, par value $.01 per share ("Cross Common Stock") will be converted
into the right to receive 1.275 fully paid and nonassessable share of common
stock, no par value per share, of Interpore ("Interpore Common Stock"); (b) to
consider and vote on a proposal to change Interpore's state of incorporation
from California to Delaware (the "Reincorporation"); (d) to elect a board of
five directors for the ensuing year or until the election and qualification of
their respective successors; and (e) to transact such other business that may
properly come before the Interpore Annual Meeting. Each copy of this Joint Proxy
Statement/Prospectus mailed to holders of Interpore Common Stock is accompanied
by a form of proxy for use at the Interpore Annual Meeting.
The Interpore Board of Directors recommends that shareholders vote "FOR" the
approval and adoption of the Merger Agreement, "FOR" the Reincorporation and
"FOR" the election of the five nominees to Interpore's Board of Directors.
RECORD DATE AND VOTING
Only holders of record of the 7,110,898 shares of Interpore Common Stock and
32,906 shares of Interpore Series E Preferred Stock outstanding at the close of
business on the record date, April 3, 1998, will be entitled to notice of and to
vote at the Interpore Annual Meeting or any adjournment or postponement thereof.
On each matter to be considered at the Interpore Annual Meeting, each
shareholder will be entitled to cast one vote for each share of Interpore Common
Stock, and 1.0045 or 1.0058 votes (depending on issuance date) for each share of
Interpore Series E Preferred Stock, held of record by such shareholder on April
3, 1998. Accordingly, an aggregate of 7,143,965 votes may be cast on each matter
to be considered at the Interpore Annual Meeting. For the election of directors,
each shareholder may have cumulative voting rights which entitle a shareholder
to cast that number of votes equal to the number of shares held by them
multiplied by the number of directors to be elected. Each shareholder may cast
his or her votes for a single candidate or may distribute his or her vote among
any of the candidates as he or she chooses. No shareholder may cumulate votes
for a candidate unless, prior to voting, the name of the candidate is placed in
nomination and a shareholder has given notice of his or her intention to
cumulate votes. If any shareholder has given such notice, all shareholders may
cumulate their votes.
The approval of the Merger Agreement and the transactions contemplated
thereby will require the affirmative vote of the holders of a majority of the
shares of Interpore Common Stock and Interpore Series E Preferred Stock, voting
together, outstanding on the record date. The approval of the Reincorporation
will require (i) the affirmative vote of the holders of a majority of the shares
of Interpore Common Stock outstanding on the record date and (ii) the
affirmative vote of the holders of a majority of the shares of Interpore Series
E Preferred Stock outstanding on the record date. Election of the nominees to
serve on the Interpore Board of Directors will require affirmative vote of a
plurality of the shares of Interpore Common Stock and Interpore Series E
Preferred Stock, voting together, present and entitled to vote, in person or by
proxy, at the Interpore Annual Meeting, except in the case where votes are
cumulated, in which case the five nominees receiving the highest number of votes
of the shares of Interpore Common Stock and Interpore Series E Preferred Stock,
voting together, present or represented and entitled to vote shall be elected as
directors.
Shares of Interpore Common Stock and Interpore Series E Preferred Stock
represented in person or by proxy will be counted for the purposes of
determining whether a quorum is present at the Interpore Annual Meeting. Shares
which abstain from voting as to a particular matter will be treated as shares
that are present and entitled to vote at the Interpore Annual Meeting for
purposes of determining whether a quorum exists, but will not be counted as
votes cast on such matter. If a broker or nominee holding stock in "street name"
indicates on a proxy that it does not have discretionary authority to vote as to
a particular matter ("broker non-votes"), those shares will be
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treated as present and entitled to vote at the Interpore Annual Meeting for
purposes of determining whether a quorum exists, but will not be counted as
votes cast on such matter. Accordingly, abstentions and broker non-votes will
have the same effect as votes against approval of the Merger Agreement and the
Reincorporation. Abstentions or broker non-votes as to the election of directors
will not affect the election of the candidates receiving the plurality of votes.
Holders of an aggregate of 642,759 shares of Interpore Common Stock (the
"Interpore Shareholders"), representing over 9% of the outstanding shares of
Interpore Common Stock as of the record date for the Interpore Annual Meeting,
have entered into a Shareholder Agreement (the "Interpore Shareholder
Agreement") with Cross pursuant to which such holders have agreed, among other
things, to vote their shares of Interpore Common Stock in favor of the Merger
Agreement. See "Other Agreements -- Interpore Shareholder Agreement."
As of the record date for the Interpore Annual Meeting, directors and
executive officers of Interpore and their affiliates may be deemed to be
beneficial owners of an additional approximately 10.3% of the outstanding shares
of Interpore Common Stock (excluding shares covered by the Interpore Shareholder
Agreement). Each of the directors and executive officers of Interpore, including
the persons named as proxies in the accompanying form of proxy, has advised that
he or she intends to vote or direct the vote of all shares of Interpore Common
Stock over which he or she has voting control for approval of the Merger
Agreement, the Reincorporation and the election of the five nominees to
Interpore's Board of Directors.
PROXIES
All shares of Interpore Common Stock and Interpore Series E Preferred Stock
which are entitled to vote and are represented at the Interpore Annual Meeting
by properly executed proxies received prior to or at such Interpore Annual
Meeting, and not revoked, will be voted at the Interpore Annual Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker non-votes), such proxies will be
voted for approval and adoption of the Merger Agreement, the Reincorporation,
the election of the five nominees to Interpore's Board of Directors.
The Interpore Board of Directors does not know of any matters other than
those described in the notice of the Interpore Annual Meeting that are to come
before the Interpore Annual Meeting. If any other matters are properly presented
at the Interpore Annual Meeting for consideration, including, among other
things, consideration of a motion to adjourn such meeting to another time and/or
place (including, without limitation, for the purposes of soliciting additional
proxies or allowing additional time for the satisfaction of conditions to the
Merger), the persons named in the enclosed forms of proxy and acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Interpore, at or before the taking of the vote at the
Interpore Annual Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of Interpore before the taking of the
vote at the Interpore Annual Meeting or (iii) attending the Interpore Annual
Meeting and voting in person (although attendance at the Interpore Annual
Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent to Interpore
International, 181 Technology Drive, Irvine, California 92618-2402, Attention:
Secretary, or hand delivered to the Secretary of Interpore at or before the
taking of the vote at the Interpore Annual Meeting.
All expenses of Interpore's solicitation of proxies for the Interpore Annual
Meeting will be borne by Interpore, except that the cost of preparing and
mailing this Joint Proxy Statement/Prospectus (other than Interpore's and Cross'
legal fees, which will be borne by Interpore and Cross, respectively) will be
borne equally by Interpore and Cross. In addition to solicitation by use of the
mails, proxies may be solicited from Interpore shareholders by directors,
officers and employees of Interpore in person or by telephone, telegram or other
means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Interpore reserves the right to
retain a proxy solicitation firm for assistance in connection with the
solicitation of proxies for the Interpore Annual Meeting. Arrangements will also
be made with brokerage houses, custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such brokerage houses, custodians, nominees and fiduciaries, and
Interpore will reimburse such brokerage houses, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection therewith.
INTERPORE SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXIES. IT WILL NOT BE NECESSARY FOR INTERPORE SHAREHOLDERS TO EXCHANGE STOCK
CERTIFICATES IN CONNECTION WITH THE REINCORPORATION.
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THE CROSS ANNUAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of Cross as part of the solicitation of proxies by the Cross Board of Directors
for use at the Annual Meeting of Stockholders of Cross (the "Cross Annual
Meeting") to be held on May 6, 1998 at 10:00 a.m. local time, at Cross'
executive offices located at 5160-A Blazer Memorial Parkway, Dublin, Ohio
43017-1339. This Joint Proxy Statement/Prospectus and the enclosed form of proxy
are first being mailed to stockholders of Cross on or about April 8, 1998.
The purpose of the Cross Annual Meeting is: (a) to consider and vote on a
proposal to approve and adopt the Merger Agreement, pursuant to which, among
other things, (i) a wholly-owned subsidiary of Interpore will merge with and
into Cross with Cross surviving the Merger and becoming a wholly-owned
subsidiary of Interpore and (ii) each issued and outstanding share of Cross
Common Stock will be converted into the right to receive 1.275 fully paid and
nonassessable shares of Interpore Common Stock; (b) to elect three directors to
three-year terms as Class II members of Cross' Board; and (c) to transact such
other business that may properly come before the Cross Annual Meeting. Each copy
of this Joint Proxy Statement/Prospectus mailed to holders of Cross Common Stock
is accompanied by a form of proxy for use at the Cross Annual Meeting.
The Cross Board of Directors recommends that stockholders vote "FOR" the
approval and adoption of the Merger Agreement and "FOR" the election of the
three Class II nominees for election to Cross' Board of Directors.
RECORD DATE AND VOTING
Cross has fixed the close of business on April 3, 1998 as the record date
for the determination of the Cross stockholders entitled to notice of and to
vote at the Cross Annual Meeting. Accordingly, only holders of record of Cross
Common Stock on the record date will be entitled to notice of and to vote at the
Cross Annual Meeting. As of April 3, 1998, there were outstanding and entitled
to vote 5,273,252 shares of Cross Common Stock (constituting all of the voting
stock of Cross), which shares were held by approximately 384 holders of record.
Each holder of record of shares of Cross Common Stock on the record date is
entitled to one vote per share, which may be cast either in person or by
properly executed proxy, at the Cross Annual Meeting. The presence, in person or
by properly executed proxy, of the holders of a majority of the outstanding
shares of Cross Common Stock entitled to vote at the Cross Annual Meeting is
necessary to constitute a quorum at the Cross Annual Meeting.
The approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the shares of Cross Common Stock outstanding on the
record date. The election of each of Cross' directors requires the affirmative
vote of the holders of a plurality of shares of Cross Common Stock voted at the
Cross Annual Meeting.
Shares of Cross Common Stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the Cross
Annual Meeting. Shares which abstain from voting as to a particular matter will
be treated as shares that are present and entitled to vote at the Cross Annual
Meeting for purposes of determining whether a quorum exists, but will not be
counted as votes cast on such matter. If a broker or nominee holding stock in
"street name" indicates on a proxy that it does not have discretionary authority
to vote as to a particular matter ("broker non-votes"), those shares will be
treated as present and entitled to vote at the Cross Annual Meeting for purposes
of determining whether a quorum exists, but will not be counted as votes cast on
such matter. Accordingly, abstentions and broker non-votes will have the same
effect as votes against approval of the Merger Agreement.
Holders of an aggregate of 1,426,931 shares of Cross Common Stock (the
"Cross Stockholders"), representing over 27% of the outstanding shares of Cross
Common Stock as of the record date for the Cross Annual Meeting, have entered
into a Stockholder Agreement (the "Cross Stockholder Agreement" and, together
with the Interpore Shareholder Agreement, the "Stockholder Agreements") with
Cross pursuant to which such stockholders have agreed, among other things, to
vote their shares of Cross Common Stock in favor of the Merger Agreement.
See "Other Agreements -- Cross Stockholder Agreement."
As of the record date for the Cross Annual Meeting, directors and executive
officers of Cross and their affiliates may be deemed to be beneficial owners of
approximately 12.3% of the outstanding shares of Cross Common Stock (excluding
shares covered by the Cross Stockholder Agreement). Each of the directors and
executive officers of Cross has advised that he or she intends to vote or direct
the vote of all shares of Cross Common Stock over which he or she has voting
control for approval of the Merger Agreement and the election of the three Class
II nominees to Cross' Board of Directors.
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PROXIES
All shares of Cross Common Stock which are entitled to vote and are
represented at the Cross Annual Meeting by properly executed proxies received
prior to or at the Cross Annual Meeting, and not revoked, will be voted at the
Cross Annual Meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated (other than in the case of broker
non-votes), such proxies will be voted for approval of the Merger Agreement and
the election of the three nominees to the Cross Board of Directors. In the event
that any of the nominees for director should become unavailable (which
management does not expect), the proxies may be voted for a substitute nominee
at the discretion of those named as proxies.
The Cross Board of Directors does not know of any matters other than those
described in the notice of the Cross Annual Meeting that are to come before the
Cross Annual Meeting. If any other matters are properly presented at the Cross
Annual Meeting for consideration, including, among other things, consideration
of a motion to adjourn such Meeting to another time and/or place (including,
without limitation, for the purposes of soliciting additional proxies or
allowing additional time for the satisfaction of conditions to the Merger), the
persons named in the enclosed forms of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Corporate Secretary of Cross, at or before the taking of the vote at
the Cross Annual Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Corporate Secretary of Cross before the taking
of the vote at the Cross Annual Meeting or (iii) attending the Cross Annual
Meeting and voting in person (although attendance at the Cross Annual Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or subsequent proxy should be sent to Cross Medical
Products, Inc., 5160-A Blazer Memorial Parkway, Dublin, Ohio 43017-1339,
Attention: Secretary; or hand delivered to the Secretary of Cross at or before
the taking of the vote at the Cross Annual Meeting.
All expenses of Cross' solicitation of proxies for the Cross Annual Meeting
will be borne by Cross, except that the cost of preparing and mailing this Joint
Proxy Statement/Prospectus (other than Interpore's and Cross' legal fees, which
will be borne by Interpore and Cross, respectively) will be borne equally by
Interpore and Cross. In addition to solicitation by use of the mails, proxies
may be solicited from Cross stockholders by directors, officers and employees of
Cross in person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Cross reserves the right to retain a proxy solicitation firm for
assistance in connection with the solicitation of proxies for the Cross Annual
Meeting. Arrangements will also be made with brokerage houses, custodians,
nominees and fiduciaries for forwarding of proxy solicitation materials to
beneficial owners of shares held of record by such brokerage houses, custodians,
nominees and fiduciaries, and Cross will reimburse such brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith.
CROSS STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.
CROSS COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR INTERPORE COMMON STOCK
CERTIFICATES AND CASH IN LIEU OF FRACTIONAL SHARES FOLLOWING CONSUMMATION OF THE
MERGER IN ACCORDANCE WITH INSTRUCTIONS TO BE SENT TO HOLDERS OF CROSS COMMON
STOCK AFTER THE MERGER.
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<PAGE> 25
THE MERGER
BACKGROUND OF THE MERGER
For several years, the Interpore Board of Directors has believed that the
trading price of Interpore Common Stock did not properly reflect the value of
Interpore's operations. In response, Interpore decided to pursue a dual
strategy. In order to focus its efforts on penetration of the orthopaedic bone
graft substitute business, Interpore completed the sale of its dental implant
business in May 1997. At the same time, Interpore continued to explore various
strategic options, a process which it had begun in 1996. Among the alternatives
considered by the Interpore Board of Directors were: (i) maintaining Interpore's
operations and expanding its research and development program; (ii) pursuing
incremental growth through the acquisition of product lines or small businesses;
(iii) exploring the merger of Interpore with another entity of roughly the same
size and resources; and (iv) undertaking the sale of Interpore to a third party.
Interpore management had confidential discussions with several companies
regarding strategic alliances. In connection with Interpore's review of its
alternatives, in early February 1997, Genesis Merchant Group Securities LLC
("Genesis") submitted a written proposal to be retained as Interpore's
investment banker to assist Interpore in exploring its strategic alternatives,
including certain merger and acquisition opportunities. Following several
meetings with Interpore's management, including meetings with Interpore's
management at the American Academy of Orthopaedic Surgeons on February 13, 1997
and a presentation to the Interpore Board of Directors on February 25, 1997,
Genesis was engaged on March 24, 1997.
Following their engagement, Genesis prepared and circulated approximately 14
confidential information packages regarding Interpore to certain potential
strategic partners, including (i) potential acquirors of Interpore; (ii)
potential acquisition targets for Interpore; and (iii) potential merger
candidates of roughly the same size and resources as Interpore. Interpore signed
confidentiality agreements with several potential strategic partners, however,
material discussions regarding combinations or acquisitions never developed. In
preparing and distributing the information package, Interpore's management and
Genesis identified Cross as a company that had certain complementary products
and with which a combination could produce certain potential synergies.
Interpore management decided to approach Cross concerning a possible combination
of the two companies.
In late September 1997, Genesis contacted Joseph A. Mussey, President and
Chief Executive Officer of Cross, to determine if Cross would be interested in
discussing a strategic alliance with Interpore. As a result of Cross' indication
of interest, on October 10, 1997, Mr. Mussey and David C. Mercer, President and
Chief Executive Officer of Interpore, met in Columbus, Ohio, signed
confidentiality agreements and discussed the possibility of a combination of the
two companies. At this meeting and at subsequent meetings, representatives of
the two companies considered the strategic merits of a business combination of
the companies, as well as the financial and organizational aspects of such a
transaction. Richard L. Harrison, the Chief Financial Officer of Interpore, and
Paul A. Miller, the Chief Financial Officer of Cross, attended the October 10
meeting, together with a representative of Genesis.
On October 28, 1997, Genesis made a presentation to Interpore's Board of
Directors regarding their activities to date, including Interpore's preliminary
discussions with Cross and the responses from other potential strategic partners
to the information packages. The Interpore Board directed management to continue
its effort to identify an attractive strategic opportunity, including a
transaction with Cross.
On October 29 and 30, 1997, Messrs. Mussey and Miller visited the Interpore
headquarters in Irvine, California. Representatives of Interpore and Cross
discussed, as to each company, the current portfolio of products offered,
products under development, distribution networks and financial and accounting
policies.
In early November 1997, Cross' management began to discuss the proposed
transaction with Piper Jaffray, whom Cross' management intended to retain as
financial advisor to Cross in connection with the transaction. Cross formalized
the engagement of Piper Jaffray in early November.
On November 6, 1997, Messrs. Mercer and Harrison attended a portion of the
regularly scheduled Cross Board of Directors meeting and made a presentation
regarding the business of Interpore. In addition, Genesis made a presentation
regarding the possible benefits of a business combination of Cross and
Interpore. The members of the Cross Board of Directors discussed a proposed
combination as a strategic alternative to Cross' then existing growth plans and
objectives. As a result of such discussions, Cross' management was directed to
continue to explore a potential transaction with Interpore. In addition to a
potential transaction with Interpore, the Cross Board of Directors and
management directed Piper Jaffray to consider other potential strategic
partners. Piper Jaffray contacted ten potential partners with some such contacts
resulting in the signing of confidentiality agreements and the receipt by such
potential partners of a confidential information package regarding Cross.
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<PAGE> 26
Between November 6 and November 25, 1997, Piper Jaffray solicited
indications of interest from other prospective strategic partners and began to
study the business of Interpore. On November 25, 1997, the Cross Board of
Directors held a special board meeting, which all directors attended, at which
representatives of Piper Jaffray reported on their initial contacts with these
prospective strategic partners. The Cross Board of Directors directed Piper
Jaffray to continue to study exploring a business combination with Interpore or
these other third parties.
Following the Cross Board of Directors meetings in November of 1997,
representatives of both Interpore and Cross had multiple discussions in which
they considered various issues relating to a proposed combination, including the
anticipated synergies of the combination and the benefits to the respective
stockholders at various levels of valuation. Over the next several weeks,
Genesis prepared various financial analyses of the transaction for use by
Interpore's management and the Interpore Board of Directors.
On December 19, 1997, Messrs. Mercer and Mussey, together with certain of
their representatives, participated in a conference call concerning the
preliminary financial data and projections prepared by each company and the need
for the exchange of certain diligence materials. In late December 1997 and early
January 1998, the parties and their respective financial advisors continued to
discuss the possible terms of a combination of the two companies.
On January 7, 1998, Messrs. Mercer, Mussey, Harrison, Miller and Simmonds,
together with representatives from Genesis and Piper Jaffray, met at Interpore's
headquarters in Irvine, California, to discuss various ways to integrate the
companies' operations, including ways to combine sales and marketing efforts.
On January 9 and 12, 1998, Messrs. Mercer, Mussey, Harrison and Miller,
together with representatives from Genesis and Piper Jaffray, held conference
calls to discuss the financial data and projections as well as forecasted
results for each of the companies.
On January 15 and 16, 1998, Mr. Miller and representatives of Porter,
Wright, Morris & Arthur, counsel to Cross, performed legal due diligence on
Interpore at the offices of Latham & Watkins in Costa Mesa, California. On
January 19 and 20, 1998, Mr. Harrison and representatives of Latham & Watkins
performed legal due diligence on Cross at the offices of Porter, Wright, Morris
& Arthur in Columbus, Ohio. Counsel for Interpore and Cross subsequently
exchanged additional information and conducted interviews and performed other
due diligence investigations.
A special meeting of the Interpore Board of Directors was held on January
22, 1998 to discuss, among other things, the possibility of a business
combination with Cross. Each of the members of the Interpore board were in
attendance. At this meeting, Interpore's senior management and representatives
of Genesis presented its view of the strategic benefits of a merger transaction
with Cross and reviewed the discussions to date. The Interpore Board of
Directors also discussed the other potential strategic partners identified by
management and compared the potential transactions with those parties and with
Cross. The Interpore Board of Directors then directed its management to continue
negotiations with Cross.
These diligence meetings and discussions culminated in a meeting in Boston,
Massachusetts, on January 26, 1998, between Messrs. Mercer and Mussey. At this
meeting, Messrs. Mercer and Mussey discussed certain terms of a proposed
transaction, including the ranges of appropriate stock exchange ratios and
certain proposals relating to corporate governance matters.
On January 29, 1998, a special meeting of the Interpore Board of Directors
was held for the purpose of reviewing the proposed transaction with Cross. All
of the Interpore directors participated in this meeting, together with
representatives of Genesis and Latham & Watkins, legal counsel to Interpore in
connection with the transaction. At the meeting, the basic outline and general
terms of the proposed transaction were reviewed and discussed, as were the
reasons for, and the pros and cons of, the merger with Cross. Interpore's senior
management reviewed for the Interpore Board of Directors certain historical
financial information regarding the two companies. Latham & Watkins, together
with Interpore's management, also reviewed for the Interpore Board of Directors
the due diligence process undertaken to that point. Genesis reviewed its
financial analysis of the terms of the proposed combination, including certain
pro forma financial information about the combined enterprise, and its views on
the strategic merits of the transaction. Genesis also briefed the Interpore
Board of Directors on the status of discussions with other potential strategic
allies. At the conclusion of the meeting, the Interpore Board of Directors
authorized its management to proceed with the negotiations with Cross.
The Cross Board of Directors held a special meeting on January 30, 1998 for
purposes of further evaluating Cross' strategic alternatives. At such meeting,
in which all of Cross' directors, excluding Dr. Gregorie, and certain members of
Cross' senior management participated, representatives of Piper Jaffray
presented a summary
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of its contacts to date with prospective strategic partners available to Cross.
Representatives of Piper Jaffray also presented certain preliminary financial
analyses regarding the proposed transaction with Interpore, including certain
historical and pro forma financial information regarding Cross and Interpore and
reviewed the potential synergies of a possible business combination between
Cross and Interpore indicated by the managements of Cross and Interpore.
Thereafter, Mr. Mussey reported on the reasons for pursuing a combination with
Interpore based on the synergies between the two companies as well as the status
of the negotiations with Interpore to date and led a discussion about the
general business terms of the transaction as then proposed. Members of the Cross
Board of Directors discussed, among other things, the relative valuations of
Cross and Interpore and various issues pertaining to the management composition
and corporate governance structure of Interpore. At the conclusion of the
meeting, the Cross Board of Directors authorized Cross' management to continue
negotiations with Interpore.
During the period from January 30 to February 10, 1998, representatives of
Interpore and Cross negotiated the terms of the transaction, including the legal
structure to be used for the business combination, the terms and conditions of
the Merger Agreement (including the conversion of each outstanding share of
Cross Common Stock into the right to receive 1.275 shares of Interpore Common
Stock (the "Exchange Ratio"), and the existence and amount of termination fees),
the terms of the Stock Option Agreements and the Stockholder Agreements, various
organizational and employee matters, and other aspects of the proposed business
combination. Also during this period, the two sides completed their due
diligence review of each other and prepared documentation for the transaction.
On February 11, 1998, meetings of the Boards of Directors of Interpore and
Cross were held to review the terms of the proposed transaction.
At the Interpore Board of Directors meeting on February 11, 1998, in which
all of the directors participated, Mr. Mercer, as Chairman of the Board, led a
discussion of the proposed transaction. Latham & Watkins reviewed the fiduciary
duties of the directors of Interpore, and Mr. Mercer reviewed Interpore's
strategic alternatives, including maintaining the status quo, seeking to grow
through alternative transactions, seeking to sell Interpore, and the merger with
Cross. See " -- Recommendation of the Boards of Directors of Interpore and
Cross; Reasons for the Merger -- Interpore." Mr. Mercer reviewed for the
Interpore Board of Directors the material terms of the Merger Agreement, and
Latham & Watkins reviewed the results of the due diligence review performed with
respect to Cross. Genesis made a presentation to the Interpore Board of
Directors regarding the fairness to the Interpore shareholders, from a financial
point of view, of the consideration to be paid in the Merger. See "The Merger --
Opinion of Financial Advisor to Interpore." Mr. Harrison made a presentation
regarding Ernst & Young's (Interpore's independent auditors) preliminary
concurrence with Interpore management's conclusion as to the appropriate
accounting treatment of the Merger as a "pooling of interests." Following such
presentations and extensive discussion among the members of the Interpore Board
of Directors, the Interpore Board of Directors approved and authorized the
execution of the Merger Agreement and other related agreements and authorized
Interpore's management to take all such actions as are necessary to consummate
the transactions contemplated by the Merger Agreement.
The Cross Board of Directors held a board meeting in Columbus, Ohio on
February 11, 1998, that was attended by all members of the Cross Board of
Directors. At such meeting, Mr. Mussey led a discussion regarding the proposed
combination of Interpore and Cross and reported on the results of both parties'
negotiations to date. Mr. Mussey also reviewed the reasons for pursuing the
business combination with Interpore. See "-- Recommendation of the Boards of
Directors of Interpore and Cross; Reasons for the Merger -- Cross." Piper
Jaffray made a presentation about the fairness to the Cross stockholders, from a
financial point of view, of the consideration to be received in the Merger by
the Cross stockholders. The meeting also was attended by a representative of
Porter, Wright, Morris & Arthur, Cross' outside legal counsel for the
transaction, who discussed the significant terms of the Merger Agreement and
explained the fiduciary duties of the members of the Cross Board of Directors in
deciding whether to approve such agreement. Following such presentations and
further discussion among the members of the Cross Board of Directors, the Cross
Board of Directors approved and authorized the execution of the Merger Agreement
and other related agreements and authorized Cross' management to take all such
actions as are necessary to consummate the transactions contemplated by the
Merger Agreement. The Cross Board of Directors also authorized the modification
of certain existing severance and benefits arrangements (see "The Merger --
Interests of Certain Persons in the Merger -Employment Agreements").
Following the Board meetings, the Merger Agreement and the Stock Option
Agreements were executed and delivered by representatives of Interpore and
Cross, and the Stockholder Agreements were executed and delivered by
representatives of Interpore and Cross and the Interpore Shareholders and the
Cross Stockholders. On the morning of February 12, 1998, both Interpore and
Cross issued press releases announcing the transaction.
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RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF INTERPORE AND CROSS; REASONS FOR
THE MERGER
Interpore. The Interpore Board of Directors believes that the terms of the
Merger are fair to, and in the best interests of, Interpore and its
shareholders. Accordingly, the Interpore Board of Directors has approved and
adopted the Merger Agreement and the transactions contemplated thereby and
recommends its approval and adoption by the shareholders of Interpore.
The Interpore Board of Directors believes that by combining Interpore's
strengths as a leading manufacturer and marketer of synthetic bone graft
materials with Cross' strong spinal implant product offerings, it will create a
company with a unique combination of spinal and bone graft technologies and with
an expanded product portfolio and combined distribution channels specifically
addressing the spine/orthopaedic market. See "The Combined Company." The
Interpore Board of Directors also believes that the Merger will provide
important economies of scale which will allow for certain cost savings and will
allow Interpore to offer to physicians and other customers an expanded line of
products with a strong presence in market segments in which Interpore currently
does not compete. The Interpore Board of Directors believes that the combined
resources of Interpore and Cross will allow it to better compete in a
consolidating industry. It also believes that Interpore will benefit from Cross'
strong research and development program and that the sales of each Company's
products will be enhanced by the combination of their sales and distribution
networks. The Interpore Board of Directors also believes that the Merger
represents the best strategic alternative for Interpore.
In reaching its determination to approve the Merger Agreement and recommend
approval of the Merger, the Interpore Board of Directors consulted with
Interpore's management and its legal and financial advisors, and considered a
number of factors, including without limitation, the following:
(i) Cross' Business, Condition and Prospects. The Interpore Board of
Directors considered information with respect to the financial
condition, results of operations and business of Cross, on both
a historical and prospective basis, and current industry,
economic and market conditions. Management and Interpore's legal
and financial representatives made presentations to and provided
the Interpore Board of Directors with information regarding
Cross' financial condition and prospects after conducting
business, legal and financial due diligence. In evaluating
Cross' prospects, the Interpore Board of Directors considered,
among other things, the sales and reputation of Cross' products,
the strength of Cross' international sales force, the strength
of its management team, the status of Cross' insurance coverage
and pending litigation and the reputation of the Cross brand
name in the spinal implant market. The Interpore Board of
Directors also considered Cross' sales and distribution network
and found it to be complementary to the Interpore sales force.
(ii) Interpore's Business, Condition and Prospects. The Interpore
Board of Directors considered information with respect to the
financial condition, results of operations and business of
Interpore, on both a historical and prospective basis, and
current industry, economic and market conditions. The Interpore
Board of Directors considered Interpore's historical growth
strategies, including research and development. Management and
Interpore's legal and financial representatives made
presentations to and provided the Interpore Board of Directors
with information regarding Interpore's financial condition and
prospects after conducting business, legal and financial due
diligence. The Interpore Board of Directors also considered the
lack of alternatives for strategic alliances which were as
attractive as the proposed transaction with Cross. In addition,
the Interpore Board of Directors concluded that the Merger may
be accretive to Interpore's earnings as early as the first full
fiscal year following the transaction, excluding transaction
costs.
(iii) Opinion of Genesis. The Interpore Board of Directors considered
the opinion delivered on February 11, 1998 by Genesis that as of
such date the Exchange Ratio pursuant to the Merger Agreement is
fair, from a financial point of view to the shareholders of
Interpore. The Interpore Board also considered the oral and
written presentations made to it by Genesis. See "The Merger --
Opinion of Financial Advisor to Interpore." A copy of Genesis's
written opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached
as Annex II to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference.
(iv) Fixed Exchange Ratio. The Interpore Board of Directors
considered that the Exchange Ratio is a fixed number and will
not be adjusted in the event of any increases or decreases in
the price of either the Interpore Common Stock or Cross Common
Stock. The Interpore Board of Directors considered that the
prices of Interpore Common Stock and Cross Common Stock at the
time at which the Merger shall be consummated (the "Effective
Time") may vary materially from their respective prices at the
date of the execution of the Merger Agreement. Such variations
may be the result of changes in the business, operations or
prospects of Interpore or Cross, market assessments of the
likelihood that the Merger will
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be consummated, the timing thereof and the prospects of
post-Merger operations, regulatory considerations, general
market and economic conditions and other factors. The Interpore
Board of Directors considered the fact that, based on the recent
trading prices for Interpore Common Stock and Cross Common
Stock, the Cross stockholders would receive a premium for the
then current market price of Interpore Common Stock (which
premium was 5.4% based on the average closing stock prices of
Interpore and Cross for the 10 trading period ended February 10,
1998, or 3.3% based on the average of stock prices of Interpore
and Cross for the 30 trading day period ended on February 10,
1998); see "Comparative Market Prices and Dividends." While the
Interpore Board would have preferred that the Merger not involve
a premium or discount for either side, it was felt that Cross
would not agree to the transaction without a premium, and the
amount of the premium, when viewed in the context of recent
trading averages for the two stocks, was not viewed as
inappropriate.
(v) Strategic Combination. The Interpore Board of Directors
considered that the Merger would combine the strength of Cross'
spinal implant product line with Interpore's reputation and
strength in the synthetic bone graft materials market, creating
a company with a unique combination of spinal and bone graft
technologies. Further, it is the opinion of the Interpore Board
of Directors that the management team, growth strategy and
products of Cross are complementary to those of Interpore. In
considering the Merger, the Interpore Board of Directors took
into account that the combined company will have enhanced market
presence and a broader range of products to offer to surgeons.
The Interpore Board of Directors considered the likelihood that
the combination of Interpore and Cross would create significant
opportunities for the development and growth of the companies on
a combined basis, including continued growth in international
and domestic sales. The Interpore Board of Directors also
considered the current trend toward consolidation in the medical
device industry, the competitive environment within the bone
graft industry, the prospect for further changes in the industry
and the importance of operational scale, market capitalization,
financial resources and the importance of worldwide sales to
remaining competitive in the long term.
(vi) Financial Considerations. The Interpore Board of Directors
considered the likelihood that the Merger would enable Interpore
and Cross to realize higher total revenues and cash flows
through a number of means, including the cross-selling of
products and an increased customer base. The Interpore Board of
Directors also considered the likelihood that a combination with
Cross would allow Interpore to enjoy opportunities for operating
efficiencies, cost reductions and synergies as a result of the
Merger, particularly through the integration of the combined
company's sales forces, marketing efforts and administrative
functions.
(vii) Terms of the Merger. The Interpore Board of Directors considered
the terms and conditions of the Merger Agreement, the Stock
Option Agreements and the Stockholder Agreement, including the
terms of the Merger Agreement that allow Cross or Interpore to
terminate the Merger Agreement and the requirement under certain
circumstances that one of the parties pay a $2 million
termination fee. The Interpore Board of Directors considered
such a termination fee in light of the range of fees payable in
comparable transactions. The Interpore Board also considered
that, pursuant to the Cross Stockholder Agreement, the holders
of over 27% of the outstanding shares of Cross Common Stock have
agreed to vote their shares of Cross Common Stock in favor of
the Merger Agreement. The Interpore Board also considered the
fact that the Merger is expected to be accomplished on a
tax-free basis and to be accounted for as a pooling of
interests.
(viii) Management of the Combined Company. The Interpore Board of
Directors considered that the combined company will have a Board
of Directors consisting of six members, with three members
selected by each of Interpore and Cross and a management team
comprised of representatives of the executive management of both
companies. The Interpore Board considered the likelihood that
the management teams of Interpore and Cross will complement each
other and work well together in the combined company.
(ix) Integration of Operations; Nonrealization of Synergies. The
Merger involves the integration of two companies that have
previously operated independently. The Interpore Board of
Directors considered the possibility that Interpore will not be
able to integrate the respective operations of Interpore and
Cross without encountering difficulties or experiencing the loss
of key Interpore or Cross personnel due to relocation or other
reasons and the possibility that the benefits expected from such
integration will not be realized. In addition, the Interpore
Board considered the possibility that Interpore will not be able
to realize anticipated operating synergies and cost reductions
from the Merger.
The foregoing discussion of the information and factors considered and given
weight by the Interpore Board of Directors is not intended to be exhaustive, but
is believed to include all material factors considered by the Interpore
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Board of Directors. In addition, in reaching the determination to approve and
recommend approval and adoption of the Merger Agreement, in view of the wide
variety of factors considered in connection with its evaluation thereof, the
Interpore Board of Directors did not assign any relative or specific weights to
the foregoing factors, and individual directors may have given differing weights
to the different factors.
THE INTERPORE BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, INTERPORE AND ITS SHAREHOLDERS. THE
INTERPORE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
Cross. The Cross Board of Directors has determined and believes that the
terms of the Merger are fair to, and in the best interests of, Cross and its
stockholders. Accordingly, the Cross Board of Directors has approved and adopted
the Merger Agreement and the transactions contemplated thereby and recommends
its approval and adoption by the Cross stockholders.
In reaching its determination, the Cross Board of Directors consulted with
Cross' management, as well as its legal counsel and financial advisor, and
considered a number of factors, including:
(i) Solicitation of Possible Alternative Transactions. After
Interpore approached Cross regarding a possible business
combination, the Cross Board of Directors authorized Piper
Jaffray to pursue any interest in possible strategic mergers,
sales or similar transactions with other medical technology
companies. Several of the medical technology companies
approached by Piper Jaffray expressed an interest in a possible
transaction and after executing confidentiality agreements,
these companies were provided with evaluation materials
pertaining to Cross. Although the senior management of Cross,
with the assistance of Piper Jaffray, had discussions with two
of the interested medical technology companies, each of these
companies determined not to pursue a possible business
combination with Cross at that time.
(ii) Strategic Combination. In lieu of remaining independent, the
Cross Board of Directors considered the benefits of the Merger
including the combination of the strength of Cross' spinal
implant product line with Interpore's reputation and strength in
the synthetic bone graft materials market. The business
combination of these two companies broadens the available
product offerings for the repair of spinal/skeletal injuries
(subject to limitations on marketing in the U.S. dictated by the
FDA) and solidifies the combined company as a "pure play"
orthopedic company. The Cross Board of Directors considered the
likelihood that the combination of Interpore and Cross would
create significant opportunities for the development and growth
of the companies on a combined basis, including international
development as well as further growth in domestic sales. The
Cross Board of Directors also considered the current trend
toward consolidation in the medical device industry, the
prospect for further changes in the industry and the importance
of operational scale, financial resources and worldwide sales to
remaining competitive in the long term.
(iii) Synergies. The Board of Directors of Cross considered that
Interpore had certain complementary products and potential
synergies, including but not limited to: (a) the combination of
Cross' customer base with Interpore's direct distribution model
could have the effect of increasing incremental revenue through
cross-selling and bundling of products, coverage of new
territories by the combined company and capture of the
distribution margin; (b) the combination could create growth
opportunities internationally by combining Interpore's
international presence with Cross' strong worldwide distributor
relationships; and (c) the combination could create
administrative and operating efficiencies by combining two
publicly held companies and thereby eliminating certain
duplicative administrative and operating expenses currently
incurred by each company. In addition, the Cross Board of
Directors considered the possibility that the combined company
would not be able to integrate the respective operations of
Cross and Interpore and that the combined company would not be
able to realize the anticipated synergies and reduction of
administration and operating expenses of the Merger.
(iv) Business of Interpore. The Cross Board of Directors considered
historical and prospective information with respect to the
financial condition, results of operations and business of
Interpore, as well as current industry, economic and market
conditions. In evaluating Interpore's prospects, the Cross Board
of Directors considered, among other things, the sales of
Interpore's products, specifically the acceptance of Pro-Osteon
in the marketplace and the introduction of Interpore's new
products currently under development, the strength of its
management team, the ability of the combined company to support
more competitive research and development spending levels and
development efforts, and the reputation of the Interpore brand
name in the medical device industry. The Cross Board of
Directors
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also considered Interpore's sales and distribution network and
found it to be complementary to the Cross sales force. In
addition, the Merger enhances the financial flexibility of Cross
given that the assets contributed by Interpore include
approximately $13.5 million in cash and marketable securities.
After conducting due diligence, Cross' legal and financial
representatives made presentations to and provided the Cross
Board of Directors with information regarding Interpore's
financial condition and prospects.
(v) Terms of the Merger. The Cross Board of Directors considered the
terms and conditions of the Merger Agreement, the Stock Option
Agreements and the Stockholder Agreements. The Cross Board of
Directors considered the ability of Cross to incur the $2
million termination fee provided for in the Merger Agreement,
the impact such termination fee would have on Cross' ability to
pursue superior transaction and the appropriateness of such
termination fee in light of the range of fees payable in
comparable transactions. The Cross Board of Directors also
considered the fact that the Merger is expected to be
accomplished on a tax-free basis to its stockholders and to be
accounted for as a pooling of interests.
(vi) Fixed Exchange Ratio. The Cross Board of Directors considered
that the Exchange Ratio is fixed at 1.275, that the respective
per share stock prices of Interpore and Cross would likely
fluctuate between the effective date of the Merger Agreement and
the Effective Time, and that the Exchange Ratio will not be
adjusted for such fluctuations resulting from, among other
factors, changes in the business, operating results or financial
condition of Cross or Interpore, the likelihood or timing of the
consummation of the Merger, the likelihood that the stockholders
of Cross and Interpore will approve the Merger, the expectations
of success of the combined company's operations, and general,
economic, and market conditions. The Cross Board of Directors
also considered the likelihood that the fixed Exchange Ratio and
the fluctuations in the respective per share stock prices of
Interpore and Cross would not provide the Cross stockholders
adequate consideration for their shares of Cross Common Stock
based on the then current market price of Interpore and Cross at
the Effective Time.
(vii) Management of the Combined Company. The Cross Board of Directors
considered that the combined company will have a Board of
Directors consisting of six members, with three members selected
by each of Interpore and Cross. In addition, the Cross Board of
Directors considered that the management team of the combined
company would be comprised of representatives of the executive
management of both companies, and the likelihood that the
management teams of Interpore and Cross will complement each
other and work well together in a combined company.
(viii) Opinion of Piper Jaffray. The Cross Board of Directors
considered the opinion delivered on February 11, 1998 by Piper
Jaffray as to the fairness of the consideration to be received
in the Merger from a financial point of view to the stockholders
of Cross. The Cross Board of Directors also considered the oral
and written financial presentations made to it by Piper Jaffray.
See "Opinion of Cross' Financial Advisor." A copy of Piper
Jaffray's written opinion is attached as Annex III to this Joint
Proxy Statement/Prospectus and is incorporated herein by
reference.
(ix) Liquidity of Cross Common Stock. The Cross Board of Directors
considered that the transaction with Interpore creates a larger
market cap for the combined company's common stock and could
thereby provide greater liquidity to existing Cross
stockholders. The Cross Board of Directors also considered that
the increased market capitalization of the combined company
could attract, over time, more attention from securities
analysts, as well as institutional investors which could be
expected to enhance the value of the combined company and better
position the combined company for future acquisitions.
(x) Cross Business, Condition and Prospects. The Cross Board of
Directors considered information with respect to the financial
condition, results of operations and business of Cross, on both
a historical and prospective basis, the current industry,
economic and market conditions, as well as the prospects for
remaining independent or pursuing a superior transaction.
The foregoing discussion of the information and factors considered and given
weight by the Cross Board of Directors is not intended to be exhaustive, but is
believed to include all material factors considered by the Cross Board of
Directors. In addition, in reaching the determination to approve and recommend
approval and adoption of the Merger Agreement, in view of the wide variety of
factors considered in connection with its evaluation thereof, the Cross Board of
Directors did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to the
different factors.
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<PAGE> 32
THE CROSS BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, CROSS AND ITS STOCKHOLDERS. THE CROSS
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO INTERPORE
Genesis was retained by Interpore to act as its financial advisor in
connection with the Merger and related matters based upon Genesis' experience
and expertise. On February 11, 1998, Genesis rendered to the Board of Directors
of Interpore an opinion to the effect that, as of such date and based on and
subject to certain considerations stated therein, the Exchange Ratio, pursuant
to the Merger Agreement, was fair from a financial point of view to the holders
of shares of Interpore Common Stock (the "Genesis Opinion").
A copy of the Genesis Opinion dated February 11, 1998, which sets forth the
assumptions made, matters considered and limitations on the review undertaken by
Genesis, is attached as Annex II to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. Genesis has consented to the use of the
Genesis Opinion in this Joint Proxy Statement/Prospectus. Shareholders of
Interpore are urged to read carefully the Genesis Opinion in its entirety. The
Genesis Opinion is addressed to the Interpore Board of Directors and relates
only to the fairness from a financial point of view of the Exchange Ratio, and
does not address any other aspects of the Merger or any related transaction and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote with respect to the proposed Merger. The summary of the
Genesis Opinion set forth in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of the Genesis Opinion.
In arriving at the Genesis Opinion, Genesis, among other things, (i)
reviewed certain publicly available business and financial information relating
to Cross and Interpore; (ii) reviewed certain other information concerning
Interpore, including financial forecasts, prepared by the management of
Interpore; (iii) met with the management of Interpore to discuss the business
and prospects of Interpore, (iv) reviewed certain other information concerning
Cross, including financial forecasts, prepared by the management of Cross; (v)
met with the management of Cross to discuss the business and prospects of Cross;
(vi) discussed with the managements of Interpore and Cross their views of the
strategic rationale for the Merger and the anticipated cost savings and
synergies expected to result from the Merger; (vii) considered certain financial
and stock market data of Interpore and Cross and compared that data with similar
data for other publicly held companies in businesses similar to that of Cross
and Interpore; (viii) considered the financial terms of certain other business
combinations and other transactions that had recently been effected; (ix)
reviewed the Merger Agreement, the Stock Option Agreements, the Stockholder
Agreements and certain related documents; and (vi) considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that Genesis deemed relevant.
In connection with the Genesis Opinion, Genesis did not assume
responsibility for independent verification of any of the information provided
to or otherwise reviewed by Genesis and relied upon such information being
complete and accurate in all material respects. With respect to the financial
forecasts, Genesis assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of Interpore's
management as to the future financial performance of Interpore. Genesis relied
upon, with the consent of Interpore, the assumptions of the managements of
Interpore and Cross regarding incremental revenues and cost savings that are
expected to result from the Merger. Genesis did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Interpore or Cross, including any potential future product liability costs
and damages of Cross, nor was Genesis furnished with any such evaluations or
appraisals. Genesis assumed that the Merger will qualify as a "pooling of
interests" business combination for accounting and financial reporting purposes
and will qualify as a tax-free transaction under the Code. Genesis also assumed
that the Merger will be consummated in accordance with the terms set forth in
the Merger Agreement. The Genesis Opinion is necessarily based on information
available to it and financial, economic, market and other conditions as they
existed and could be evaluated on the date of the Genesis Opinion. Although
Genesis evaluated the fairness from a financial point of view of the Exchange
Ratio, Genesis was not requested to, and did not, recommend the specific
Exchange Ratio or the implied consideration payable to Cross shareholders, which
ratio and consideration were determined through arm's-length negotiations
between the Boards of Directors of Interpore and Cross.
The following is a brief summary of certain analyses performed by Genesis
and reviewed with the Board of Directors of Interpore in connection with the
preparation by Genesis of its oral presentation and delivery of the written
Genesis Opinion to the Board of Directors of Interpore on February 11, 1998.
Historical Trading Analysis. Genesis reviewed the historical trading prices
and volumes for Cross Common Stock and Interpore Common Stock. Genesis also
compared the historical trading prices of Cross Common Stock and Interpore
Common Stock to the S&P 400 Industrials Index, the S&P 500 Index and a composite
index of
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orthopedic and medical product companies. Such analyses indicated that the high
and low closing prices for shares of Interpore Common Stock for the three, six
and twelve month periods ended February 10, 1998 were $9.13 and $5.56; $11.63
and $5.50; and $11.63 and $4.00, respectively. This stock performance analysis
also indicated that the high and low closing prices for shares of Cross Common
Stock for the three, six and twelve month periods ended February 10, 1998 were
$9.38 and $7.50; $9.72 and $7.50; and $9.72 and $6.00, respectively. Such
analyses also indicated that the consideration paid per share of Cross Common
Stock of $9.15, (based upon the 1.275 Exchange Ratio and the closing price of
Interpore Common Stock for the ten day period ended February 10, 1998)
represented premiums to the average closing prices of Cross Common Stock for the
three, six and twelve month periods ended February 10, 1998 of 7.3%, 6.1%, and
13.9%, respectively.
Historical Exchange Ratio Analysis. Genesis calculated the consideration to
be paid to the holders of Cross Common Stock pursuant to the Merger Agreement in
relation to the historical daily exchange ratios between Interpore Common Stock
and Cross Common Stock. Such analysis indicated that the high, low and average
daily exchange ratios for the three month period from November 11, 1997 to
February 10, 1998 were 1.67, 0.89, and 1.21, respectively; the high, low and
average daily exchange ratios for the six month period from August 11, 1997 to
February 10, 1998 were 1.67, 0.79, and 1.14, respectively; and the high, low and
average daily exchange ratios for the twelve month period from February 11, 1997
to February 10, 1998 were 1.88, 0.79, and 1.33, respectively. These ratios
compare with the Exchange Ratio of 1.275.
Comparable Company Analysis. Genesis performed a comparable companies
analysis in which it compared certain publicly available financial data,
projections of future financial performance and market statistics (based upon
closing stock prices as of February 10, 1998) with certain calculated ratios and
multiples of Cross. Genesis considered the enterprise value (i.e., market value
of common equity plus estimated value of debt and preferred stock less cash) as
a multiple of the latest publicly available twelve month ("LTM") sales and as a
multiple of LTM earnings before interest, taxes, depreciation and amortization
("EBITDA"). Genesis' analyses indicated multiples of enterprise value to LTM
sales ranged from a low of 1.5x to a high of 10.5x, with a mean and median
multiple of 3.9x and 3.2x, respectively. Genesis' analyses indicated multiples
of enterprise value to LTM EBITDA ranged from a low of 7.7x to a high of 28.5x,
with a mean and median multiple of 15.3x and 14.2x, respectively. The multiple
of enterprise value to LTM sales implied by the Exchange Ratio is 3.9x, based on
the average closing price of Cross Common Stock for the ten day period ended
February 10, 1998. Cross generated a negative LTM EBITDA and as result multiples
of enterprise value to LTM EBITDA are not meaningful.
Genesis also calculated the ratios of price to earnings for the LTM period
and estimated calendar years 1997, 1998 and 1999 ("P/E Ratios") based on the
Institutional Broker Estimate System ("IBES") estimates. Based upon closing
stock prices as of February 10, 1998, the LTM P/E Ratios for 1997 ranged from a
high of 34.6x to a low of 18.0x with a mean and median multiple of 24.8x and
20.9x, respectively; for projected 1998, ranged from a high of 33.5x to a low of
11.6x with a mean and median multiple of 21.7x and 21.0x, respectively; and for
projected 1999 ranged from a high of 49.4x to a low of 8.1x with a mean and
median multiple of 19.9x and 17.2x, respectively. Cross indicated P/E Ratios for
projected fiscal 1998 and fiscal 1999 based on the stock price of Cross Common
Stock implied by the Exchange Ratio and using IBES estimates for Cross, are
60.9x and 32.7x, respectively.
Selected Acquisition Analysis. Genesis analyzed certain information relating
to selected acquisitions in the orthopedic and medical device industry
("Industry Acquisitions"). Such analysis indicated that for the Industry
Acquisitions: (i) aggregate consideration to LTM sales ranged from 0.5x to
71.4x, as compared to the 3.9x for the aggregate consideration to be received by
holders of Cross Common Stock in the Merger; (ii) consideration to LTM EBITDA
ranged from 7.4x to 49.5x, (iii) equity consideration to LTM net income ranged
from 6.4x to 79.7x; and (iv) the percentage premium paid based on the stock
prices of the companies involved four weeks prior to the announcement of the
acquisition (as provided by Securities Data Corporation) ranged from (12.3%) to
141.9%, as compared to the premium implied by the Exchange Ratio of 1.0% to the
price of Cross Common Stock four weeks prior to the announcement of the merger
on February 12, 1998.
Discounted Cash Flow Analysis. Genesis prepared a discounted cash flow
analysis of Cross and Interpore for the fiscal years 1998 through 2001 based on
operating and financial assumptions, forecasts and other information prepared by
management of Interpore using alternative assumptions provided by management
regarding revenue growth, EBITDA margins, timing and market penetration of new
product introductions, and assuming a range of discount rates and terminal
values. For Interpore, Genesis calculated a net present value of free cash flows
for the fiscal years 1998 through 2001 using discount rates ranging from 11.0%
to 15.0% and calculated terminal values in fiscal year 2001 based on multiples
to EBITDA ranging from 9.0x to 14.0x. For Cross, Genesis calculated a net
present value of free cash flows for the fiscal years 1998 through 2001 using
discount rates ranging from 11.0% to 15.0% and calculated terminal values in
fiscal year 2001 based on multiples to EBITDA ranging from 9.0x to 14.0x. Based
on the implied values per share for Interpore and Cross, excluding anticipated
incremental revenues expected to result from the cross selling of products and
the increased selling base of the combined company and costs savings resulting
from the integration of the combined company's sales forces, marketing efforts
and
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administrative functions, this analysis indicates that the implied Exchange
Ratio ranges from a low of .379 to a high of 1.352 (with a mean of .733).
Including anticipated incremental revenues and cost savings expected by
Interpore management to result from the Merger, the analysis indicates that the
implied Exchange Ratio ranges from a low of .621 to a high of 2.782 (with a mean
of 1.413).
Pro Forma Merger Analysis. Genesis prepared pro forma analyses of the
financial impact of the Merger. Using financial projections for Interpore and
Cross prepared by the management of Interpore for the fiscal years 1998 and
1999, Genesis compared the adjusted fully-taxed EPS of Interpore, on a
stand-alone basis, to the adjusted fully-taxed EPS of the common stock of the
combined companies on a pro forma basis. Genesis performed this analysis based
on the Exchange Ratio of 1.275 and assuming: (i) a stock price for Interpore of
$7.18 based on the average closing price of Interpore Common Stock for the ten
days ended February 10, 1998; and (ii) the inclusion of incremental revenues and
cost savings anticipated by Interpore management to result from the Merger. This
analysis indicated that excluding non-recurring expenses related to the Merger,
the transaction is anticipated to be slightly dilutive to Interpore EPS in
fiscal 1998 and accretive to Interpore EPS in the fiscal years 1999, 2000 and
2001.
Relative Contribution Analysis. Genesis analyzed and compared the respective
contribution of sales, EBITDA, and pretax income of Interpore and Cross to the
combined entity resulting from the merger in the fiscal years 1997, 1998, and
1999, based on financial projections prepared by Interpore management. Genesis
considered relative contributions of Cross and Interpore, both including and
excluding anticipated incremental revenues and cost savings related to the
Merger. Excluding such anticipated incremental revenues and costs savings, the
analyses indicate that Interpore in fiscal 1997 would have contributed 54.6% of
pro forma combined sales. Cross incurred negative EBITDA and pretax income in
1997. Based on projections provided by Interpore management, Interpore is
projected to contribute: 47.9% to 50.7% of combined sales in 1998 and 48.3% to
54.7% of combined sales in 1999; 53.0% to 60.6% of combined EBITDA in 1998 and
54.0% to 63.2% of combined EBITDA in 1999; and 74.4% to 75.3% of combined pretax
income in 1998 and 67.9% to 71.3% of combined pretax income in 1999. Including
anticipated incremental revenues and costs savings resulting from the merger and
based upon projections provided by Interpore management, Interpore, on a
stand-alone basis, is projected to contribute: 46.2% to 49.0% of combined sales
in 1998 and 45.6% to 53.1% of combined sales in 1999; 36.4% to 46.0% of combined
EBITDA in 1998 and 36.6% to 51.1% of combined EBITDA in 1999; and 53.6% to 57.1%
of combined pretax income in 1998 and 46.7% to 57.6% of combined pretax income
in 1999. Following the merger, shareholders of Interpore will own approximately
52% of the equity of the combined company.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the opinion of Genesis. In arriving at its fairness determination,
Genesis considered the results of all of its analyses and did not assign
relative weights to any of the analyses. No company or transaction used in the
above analyses as a comparison is identical to Cross, Interpore or the Merger.
The analyses were prepared solely for purposes of Genesis providing its opinion
to the Interpore Board of Directors as to the fairness from a financial point of
view of the Exchange Ratio in connection with the Merger and do not purport to
be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts of future results
are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors and events beyond the control of the parties or their respective
advisors, none of Interpore, Genesis, or any other person assumes responsibility
if future results are materially different from those forecast.
Genesis, as part of its investment banking business, is engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Board of Directors of Interpore
retained Genesis based upon Genesis' experience and expertise and familiarity
with the healthcare industry. Genesis is a full service securities firm engaged
in securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of its trading
and brokerage activities, Genesis or its affiliates may at any time hold long or
short positions, and may trade or otherwise effect transactions, for its own
account or the accounts of customers, in debt or equity securities of Interpore
and Cross.
The consideration to be received by Interpore shareholders pursuant to the
Merger Agreement was determined through negotiations between Interpore and
Cross, and was approved by the Interpore Board of Directors.
Pursuant to a letter agreement dated March 24, 1997, Interpore has agreed to
pay Genesis (i) a retainer fee of $25,000, (ii) a fee of $100,000, payable upon
delivery of the Genesis opinion and (iii) a transaction fee equal to 2% of the
aggregate purchase price paid in the Merger, payable upon consummation of the
Merger. Any advisory fees
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and fee previously paid upon delivery of the Genesis Opinion will be credited
against the transaction fee. In addition to the foregoing, Interpore has agreed
to reimburse Genesis for its expenses, including fees and expenses of counsel,
and to indemnify Genesis for liabilities and expenses arising out of the
engagement and the transactions in connection therewith including liabilities
under federal securities laws.
OPINION OF CROSS' FINANCIAL ADVISOR
Piper Jaffray was retained by Cross on November 11, 1997 to assist Cross in
its evaluation of strategic alternatives and, at the request of the Cross Board
of Directors, to render an opinion to the Cross Board of Directors concerning
the fairness, from a financial point of view, of appropriate aspects of any
proposed transaction.
Piper Jaffray delivered to the Cross Board of Directors on February 11,
1998, its written opinion (the "Piper Jaffray Opinion"), to the effect that, as
of the date thereof based on and subject to the assumptions, factors and
limitations set forth therein, the consideration proposed to be paid to the
stockholders of Cross in the Merger pursuant to the Merger Agreement was fair,
from a financial point of view, to such stockholders. A copy of the Piper
Jaffray Opinion is attached as Annex III to this Proxy Statement/Prospectus and
is incorporated herein by reference. The Cross stockholders are urged to read
the attached Piper Jaffray Opinion in its entirety.
Piper Jaffray was not requested and did not make any recommendation to the
Cross Board of Directors as to the form or amount of the consideration to be
received by the Cross stockholders in the Merger, which was determined through
negotiations between the parties to the Merger. The Piper Jaffray Opinion was
rendered to the Cross Board of Directors and does not constitute a
recommendation to any stockholder of Cross as to how such stockholder should
vote at the Cross Annual Meeting. The Piper Jaffray Opinion does not address
Cross' underlying business decision to proceed with or consummate the Merger.
In arriving at the Piper Jaffray Opinion, Piper Jaffray reviewed: (i) the
draft of the Merger Agreement dated February 9, 1998, (ii) certain information
relative to the business, financial condition and operations of Cross, (iii)
certain internal financial planning information of Cross on a stand-alone basis
and on a combined basis with Interpore (the "Combined Company") furnished by
management of Cross, (iv) certain financial and securities data of Cross and
companies deemed similar to Cross or representative of the business sector in
which Cross operates, (v) to the extent publicly available, the financial terms
of certain acquisition transactions deemed comparable to the Merger, (vi)
certain publicly available information relative to the business, financial
condition and operations of Interpore, (vii) certain publicly available
financial and securities data of Interpore and companies deemed similar to
Interpore or representative of the business sector in which Interpore operates
and (viii) certain internal financial information of Interpore on a stand-alone
basis prepared for financial planning purposes and furnished by the management
of Interpore. In addition, Piper Jaffray engaged in discussions with members of
management of Interpore and Cross concerning the respective financial condition,
current operating results and business outlook of Interpore and Cross and the
plans and business outlook for the Combined Company following the Merger.
In delivering the Piper Jaffray Opinion to the Cross Board of Directors on
February 11, 1998, Piper Jaffray prepared and delivered to the Cross Board of
Directors certain written materials containing various analyses and other
information material to the Piper Jaffray Opinion. The following is a summary of
these materials.
Implied Purchase Price. Based on the 10-day average closing price of
Interpore for the period ended February 9, 1998 of $7.19 and the proposed
Exchange Ratio, Piper Jaffray calculated an implied purchase price per share of
Cross Common Stock of $9.16. The implied price per share yielded an aggregate
equity value for Cross Common Stock (and common stock equivalents) of $50.4
million.
Interpore Background. Piper Jaffray reviewed general background information
concerning Interpore. Piper Jaffray reviewed certain publicly available analyst
estimates of Interpore earnings per share and selected internal financial
planning data for Interpore on a stand-alone basis prepared by Interpore
management and revised by Cross' management for purposes of evaluating the
proposed Merger.
As part of its analysis of Interpore, Piper Jaffray compared various
operating and valuation data of Interpore with that of a select group of six
small cap orthopedic companies (Osteotech, Inc., Arthrocare Corp., Innovasive
Devices Inc., Cross, Metro Biosystems Inc. and Orthologic Corp.) and four large
cap orthopedic companies (Stryker Corp., Biomet Inc., Depuy Inc. and
Sofamor/Danek Group, Inc.). The small cap group was comprised of
orthopedic-related companies (biologics, sports medicine and bone healing) with
innovative technologies or products which are generating solid gross margins,
are establishing a distribution infrastructure, have latest twelve month ("LTM")
revenue below $100 million and have market capitalization less than $250
million. The large cap group was comprised of orthopedic companies (hips, knees,
spine and trauma) with proven product lines, an established distribution network
and profitable operations, have LTM revenue greater than $100 million and
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market capitalization greater than $1.0 billion. This analysis produced selected
valuation data based on the closing price of Interpore of $7.31 per share on
February 9, 1998 as follows: stock price as a percentage of 52-week high for
orthopedic small cap group ranging from 50.0% to 87.3%, with a mean and median
of 78.0% and 81.7%, respectively, for the orthopedic large cap group ranging
from 86.6% to 96.7%, with a mean and median of 93.5% and 95.3%, respectively,
and for Interpore 59.7%; enterprise value (market capitalization plus debt less
cash) to LTM revenue for the orthopedic small cap group ranging from 1.6x to
11.9x, with a mean and median of 5.4x and 4.3x, respectively, for the large cap
group ranging from 3.5x to 6.6x, with mean and median of 4.7x and 4.4x,
respectively, and for Interpore 2.2x; enterprise value to LTM operating income
for the orthopedic small cap group ranging from 24.4x to 24.4x, with a mean and
median of 24.4x, for the large cap group ranging from 14.3x to 23.0x, with a
mean and median of 18.3x and 18.0x, respectively, and for Interpore this
multiple was not meaningful; market price to LTM earnings for the orthopedic
small cap group was not meaningful, for the orthopedic large cap ranged from
24.2x to 34.9x, with a mean and median of 29.2x and 28.8x, respectively, and for
Interpore this multiple was not meaningful; market price to 1998 calendar
earnings estimate for the orthopedic small cap group ranging from 29.8x to
56.7x, with a mean and median of 43.2x and 43.3x, respectively, for the
orthopedic large cap group ranging from 20.9x to 28.9x, with a mean and median
of 24.5x and 24.2x, respectively, and for Interpore 29.0x.
Market Analysis. Piper Jaffray reviewed selected market data relating to
ownership, price, volume and analyst coverage for each of Cross and Interpore.
In addition, Piper Jaffray reviewed the relative stock performance of both Cross
Common Stock and Interpore Common Stock in comparison to the large cap
orthopedic group, the small cap orthopedic group and the Nasdaq Composite Index
for the period August 8, 1997 through February 9, 1998.
Historical Trading Analysis. Piper Jaffray analyzed the historical trading
relationship between the stock prices of Cross and Interpore at various times or
over various periods and then compared the average ratio to the Exchange Ratio
set forth in the Merger Agreement of 1.2750. For each period selected, the
average ratios were calculated by dividing the closing stock price of Cross
Common Stock by the closing stock price of Interpore Common Stock for each day
during the period. The time periods (each ending February 9, 1998) selected for
the analysis were as follows: latest 12 months, latest six months, latest 60
trading days, latest 20 trading days, latest 5 trading days and at the close on
February 9, 1998. The average ratios or actual ratio, as the case may be, of the
closing price of Cross Common Stock to Interpore Common Stock for each of the
aforementioned time periods or days were 1.3337, 1.1457, 1.2145, 1.1826, 1.2189
and 1.1624, respectively.
Comparable Public Company Analysis. Piper Jaffray compared certain financial
information and valuation ratios relating to Cross to corresponding data and
ratios from a group of selected publicly traded companies deemed comparable to
Cross. These groups were identical to the small and large cap orthopedic groups
used for purposes of comparable company analysis of Interpore, except that Cross
was replaced by Interpore in the small cap group. For purposes of analysis,
Piper Jaffray compared both the closing market price per share ($8.50) for Cross
on February 9, 1998 and the implied purchase price per share ($9.16) in the
Merger to the comparable companies. This analysis produced multiples of selected
valuation data as follows: stock price as a percentage of 52-week high for
orthopedic small cap group ranged from 50.0% to 87.3%, with a mean and median of
73.6% and 81.1%, respectively, for the orthopedic large cap group ranged from
86.6% to 96.7%, with a mean and median of 93.5% and 95.3%, respectively, and for
Cross 86.1% based on the February 9, 1998 close and 92.8% based on the implied
purchase price in the Merger enterprise value to LTM revenue for the orthopedic
small cap group ranged from 1.6x to 11.9x, with a mean and median of 5.2x and
3.6x, respectively, for the orthopedic large cap group ranged from 3.5x to 6.6x,
with a mean and median of 4.7x and 4.4x, and for Cross, 3.7x based on the
February 9, 1998 close and 4.2x based on the implied purchase price in the
Merger, enterprise value to LTM operating income for the orthopedic small cap
group was 24.4x based on the only entity for which there was operating income,
for the orthopedic large cap group ranged from 14.3x to 23.0x, with a mean and
median of 18.3x and 18.0x, respectively, and for Cross was not meaningful;
market price to LTM earnings was meaningful only for the orthopedic large cap
companies which ranged from 20.9x to 28.9x, with a mean and median of 24.5x and
24.2x, respectively; and market price to 1998 calendar earnings estimate for
orthopedic small cap group ranged from 29.0x to 29.8x, with a mean and median of
29.4x, for the orthopedic large cap group ranged from 20.9x to 28.9x, with a
mean and median of 24.5x and 29.2x, and for Cross 56.7x based on the February 9,
1998 close and 61.1x based on the implied purchase price in the Merger.
Cross Stand-Alone Discounted Cash Flow Analysis. Piper Jaffray estimated the
present value of the projected future cash flows of Cross on a stand-alone basis
using internal financial planning data prepared by Cross management for the
years ending December 31, 1998 through 2001. Piper Jaffray applied a range of
terminal value multiples of forecasted 2001 earnings before interest and taxes
of 11.0x to 13.0x and a range of discount rates of 25% to 35%. This analysis
yielded a range of estimated present values of aggregate Cross equity of
approximately $37.6 million to $63.1 million and per share Cross equity of
approximately $7.14 to $11.07.
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Merger of Equals Analysis. Piper Jaffray reviewed certain merger of equals
transactions which it deemed comparable in whole or in part to the Merger, based
upon, among other things, relative market values, pro forma ownership and
management and board composition. Specifically, Piper Jaffray analyzed 19
completed transactions involving the combination of public companies in all
industries since January 1, 1992 and which resulted in equal representation of
each company on the board of directors of the combined company. Piper Jaffray
calculated the percentage premium or discount of the exchange ratios in the
selected transactions relative to the stock market prices of the companies
involved in the selected transactions over averaging periods of 20 trading days
and 5 trading days prior to announcement. This analysis indicated a range of
premiums (discounts) as follows: 5 trading days before announcement ranging from
(31.5%) to 37.2% with a mean and median of 3.4% and 1.7%, respectively, and for
the Merger of 4.6%; and 20 trading days before the announcement ranging from
(30.8%) to 35.9% with a mean and median of 2.0% and 0.4%, respectively, and for
the Merger of 7.8%. Estimated premiums paid for the comparable transactions were
based on information obtained from public filings, public company disclosures,
press releases, industry and popular press reports, databases and other sources.
Accretion/Dilution Analysis. Piper Jaffray examined the hypothetical pro
forma effect of the Merger on the Combined Company's earnings per share for the
fiscal years ending December 31, 1998 through 2001, with synergies anticipated
by Cross and Interpore management from incremental revenue through bundling and
cross selling, additional selling coverage, conversion to direct representative
distribution, elimination of duplicative public company costs and other selling,
general and administrative savings. The analysis indicated that the Merger is
anticipated to be slightly accretive to projected stand-alone earnings per share
of Interpore in fiscal 1998 and accretive in fiscal 1999 and beyond. The
analysis indicated that the Merger is anticipated to be significantly accretive
to projected stand-alone earnings per share of Cross in fiscal 1998 and
accretive in fiscal 1999 and beyond. The actual operating and financial results
achieved by Interpore may vary from projected results and variations may be
material as a result of business and market risks, the timing and amount of
synergies, the costs associated with achieving such synergies and other factors.
Contribution Analysis. Piper Jaffray also analyzed the expected
contributions of each of Interpore and Cross to revenue, gross profit, operating
income, pre-tax income and stockholders' equity of the Combined Company for the
year ended December 31, 1997 based on pro forma results and for the years ending
December 31, 1998 and 1999 based on Cross' and Interpore's combined stand-alone
financial planning data. The analysis indicated that during these periods Cross
contributed or would contribute to the combined entity revenues ranging from
45.4% to 53.2%, gross profit ranging from 36.2% to 46.1%, operating income
ranging from not meaningful to 46.4%, pretax income ranging from not meaningful
to 38.8%, and stockholders' equity ranging from 30.0% to 31.6%. Cross will
account for approximately 48.2% of the ownership of the Combined Company based
on treatment of convertible debt on a common stock equivalent basis and 50.7%
based on treatment of convertible debt on an as if converted basis.
Combined Company Discounted Cash Flow Analysis. Piper Jaffray estimated the
present value of the projected future cash flows of the Combined Company for the
years ending December 31, 1998 through 2001 based on the same financial planning
data for the Combined Company furnished by Cross management utilized in the
accretion/dilution analysis described above. Piper Jaffray applied a range of
terminal value multiples of forecasted 2001 earnings before interest and taxes
of 11x to 13x and a range of discount rates of 20% to 30%. This analysis yielded
a range of estimated present values of aggregate Combined Company equity of
approximately $120.9 million to $190.6 million and of per share Combined Company
equity of approximately $8.32 to $13.11. Piper Jaffray adjusted these per share
amounts by the Exchange Ratio set forth in the Merger Agreement of 1.2750 per
share and calculated per share equity values ranging from $10.61 to $16.72.
Piper Jaffray compared these per share equity values to the equivalent per share
amount of the Combined Company to which each holder of a share of Cross Common
Stock is entitled to in the Merger.
In reaching its conclusion as to the fairness of the consideration to be
received in the Merger and in its presentation to the Cross Board of Directors,
Piper Jaffray did not rely on any single analysis or factor described above,
assign relative weights to the analyses or factors considered by it, or make any
conclusions as to how the results of any given analysis, taken alone, supported
its Piper Jaffray Opinion. The preparation of a fairness opinion is a complex
process and not necessarily susceptible to partial analyses or summary
description. Piper Jaffray believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all factors and analyses, would create a misleading
view of the processes underlying the Piper Jaffray Opinion. The analyses of
Piper Jaffray are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Analyses relating to the value of companies do not purport to be
appraisals or valuations or necessarily reflect the price at which companies may
actually be sold. No company or transaction used in any comparable analysis as a
comparison is identical to Interpore, Cross or the Merger. Accordingly, an
analysis of the results is not mathematical; rather, it involves complex
considerations and judgments concerning differences in the various
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies to which Interpore and
Cross were compared.
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For purposes of the Piper Jaffray Opinion, Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial and other
information made available to it and did not assume responsibility independently
to verify such information. Piper Jaffray relied upon the assurances of the
respective managements of Interpore and Cross that the information provided by
Interpore and Cross had a reasonable basis and, with respect to financial
planning data, products and technologies under development and other business
outlook information, reflected the best available estimates, and that they were
not aware of any information or fact that would make the information provided to
Piper Jaffray incomplete or misleading. Financial planning data was prepared
based on numerous variables and assumptions that are inherently uncertain,
including, without limitation, factors related to general economic and
competitive conditions, and actual results could vary significantly from those
set forth in such financial planning data. Piper Jaffray has assumed no
liability for such financial planning data. Upon the advice of Interpore and
Cross and their legal and accounting advisors, Piper Jaffray assumed (i) the
Merger would be treated as a "pooling of interests" for accounting purposes and
(ii) the Merger would qualify as a reorganization within the meaning of Section
368(a) of the Code.
Piper Jaffray assumed with Cross' consent that neither Cross nor Interpore
was a party to any material pending transaction, including financial,
recapitalization, acquisition or merger discussions, other than the Merger or in
the ordinary course of business. Further, Piper Jaffray assumed that, in the
course of obtaining the necessary regulatory approvals for the Merger, no
restrictions, including any divestiture requirements will be imposed that will
have a material adverse effect on the Combined Company. Piper Jaffray's opinion
is limited to the consideration to be received by the holders of common stock in
the Merger pursuant to the Merger Agreement and made no evaluation for purposes
of expressing an opinion, and expressed no opinion concerning, any other terms
of the Merger Agreement or any other agreement entered into in connection with
the Merger, including without limitation the Stockholder Agreements and the
Stock Option Agreements. In arriving at its Piper Jaffray Opinion, Piper Jaffray
also assumed, based on discussions with management and legal representatives of
Cross, that the Merger will not result in a change in control of Cross under
applicable state corporate law.
In arriving at the Piper Jaffray Opinion, Piper Jaffray did not perform and
was not provided any appraisal or valuation of specific assets or liabilities
(contingent or otherwise) of Interpore or Cross and expressed no opinion
regarding the liquidation value of any entity. Piper Jaffray did not make any
physical inspection of the properties or assets of Cross or Interpore. No
limitations were imposed by Cross on the scope of Piper Jaffray's investigation
or the procedures to be followed in rendering its Piper Jaffray Opinion. Piper
Jaffray expressed no opinion as to the price at which shares of Cross or
Interpore have traded or at which shares of Interpore Common Stock may trade at
any future time. The Piper Jaffray Opinion is based upon information available
to Piper Jaffray and the facts and circumstances as they existed and were
subject to evaluation on the date of the Piper Jaffray Opinion. Events occurring
after such date could materially affect the assumptions used in preparing the
Piper Jaffray Opinion.
Piper Jaffray, as a customary part of its investment banking business, is
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions, underwritings and other distributions of securities,
private placements and evaluations for estate, corporate and other purposes. The
Cross Board of Directors selected Piper Jaffray because of its expertise,
reputation and familiarity with the medical technology industry in general and
the orthopedic segment in particular. In the ordinary course of its trading
activities, Piper Jaffray and its affiliates may, from time to time, have a long
or short position in and buy and sell Cross securities, which positions, on
occasion, may be material in size relative to the volume of trading activity. In
the ordinary course of its business, Piper Jaffray and its affiliates may also
actively trade securities of Interpore for its own account or the accounts of
its customers and, accordingly, may at any time hold a long or short position in
the securities.
For rendering its services to the Cross Board of Directors in connection
with the Merger, Cross paid Piper Jaffray a $25,000 non-refundable cash
retainer, $25,000 on January 1, 1998 and $250,000 for rendering the Piper
Jaffray Opinion upon rendering the Piper Jaffray Opinion. Cross has also agreed
to pay an additional amount equal to 2% of the aggregate value of the Merger
(less amounts paid relating to the retainer and Piper Jaffray Opinion) upon
consummation of the Merger. The contingent nature of a portion of these fees may
have created a potential conflict of interest in that Cross would be unlikely to
consummate the Merger unless it had received the Piper Jaffray Opinion. Whether
or not the Merger is consummated, Cross has agreed to pay the reasonable
out-of-pocket expenses of Piper Jaffray and to indemnify Piper Jaffray against
certain liabilities incurred (including liabilities under the federal securities
laws) in connection with the engagement of Piper Jaffray by Cross.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of Interpore
and Cross with respect to the Merger, Interpore shareholders and Cross
stockholders should be aware that certain members of management of Interpore and
Cross and of the Interpore Board of Directors and the Cross Board of Directors
have interests in the
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Merger that are different from, or in addition to, the interests of the
stockholders of Interpore and Cross generally. The Board of Directors of each of
Interpore and Cross was aware of such interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Board of Directors and Committees of Interpore. As provided in the Merger
Agreement, immediately after the Effective Time, the Interpore Board of
Directors will consist of 6 directors, three of which will be designated by
Interpore (the "Initial Interpore Directors") and three of which will be
designated by Cross (the "Initial Cross Directors"). The Merger Agreement also
provides that the persons who serve initially on the Interpore Board of
Directors immediately after the Effective Time who are "Initial Interpore
Directors" shall be David C. Mercer, William A. Eisenecher and G. Bradford
Jones; and the persons who serve initially on the Interpore Board of Directors
at the Effective Time who are "Initial Cross Directors" shall be Joseph A.
Mussey, Daniel A. Funk and Robert J. Williams. The directors of Interpore and
Cross who are not either Initial Interpore Directors or Initial Cross Directors
have indicated that they intend to resign upon consummation of the Merger. The
Merger Agreement provides that, immediately after the Effective Time, the Board
of Directors shall be divided into three classes. One of the Initial Interpore
Directors will be in each of the three classes directors of Interpore, and one
of the Initial Cross Directors will be in each of the three classes of directors
of Interpore. The Initial Interpore Directors and Initial Cross Directors shall
be evenly spread between Interpore's three classes of directors as follows:
Messrs. Mercer and Mussey shall serve until the third annual meeting of
Interpore's stockholders following the Effective Time; (ii) Messrs. Eisenecher
and Funk shall serve until the second annual meeting of Interpore's stockholders
following the Effective Time; and (iii) Messrs. Jones and Williams shall serve
until the first annual meeting of Interpore's stockholders following the
Effective Time. The classification of the Interpore directors will only be
accomplished if the Reincorporation is approved by the Interpore shareholders.
Indemnification of Directors and Officers of Interpore and Cross. The Merger
Agreement provides that (a) from and after the Effective Time, Interpore will,
and will cause Cross and Interpore to, indemnify and hold harmless each present
and former director and officer of Interpore and Cross and their respective
subsidiaries (the "Indemnified Parties"), against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that
Interpore or Cross, as the case may be, would have been permitted under Delaware
or California law and its certificate or articles, as applicable, of
incorporation or bylaws in effect on the date hereof to indemnify such
Indemnified Party, and (b) for a period of six years after the Effective Time
Interpore will maintain (to the extent available in the market) policies of
directors' and officers' liability insurance with coverage in amount and scope
at least as favorable as Interpore's and Cross' existing coverage (provided the
annual aggregate premium does not exceed 200% of the annual premium currently
paid by Interpore or Cross for such coverage) with respect to claims arising
from facts or events which occurred on or before the Effective Time.
Employment Agreements. Joseph A. Mussey, Cross' President and Chief
Executive Officer, and Paul A. Miller, Ira Benson, Philip A. Mellinger and
Thomas E. Zimmer, other executive officers of Cross, are parties to employment
agreements with change of control provisions with Cross providing certain
benefits upon a termination of their employment following a change of control of
Cross, including the Merger. Under each employment agreement, termination of the
officer other than for Cause (as defined in the employment agreement) or
termination by the officer of his employment for Good Reason (as defined in the
employment agreement) within one year after a change in control of Cross (as
defined in the employment agreement, including the Merger), will entitle the
officer to receive payments for two years equal to the salary and bonus he was
entitled to receive prior to the termination. In addition, the officer also will
be entitled to receive certain employee benefits for two years after such
involuntary termination. Because there will be a change in control as a result
of the Merger, any termination of the employment of any officer who is a party
to such an agreement as described above within one year after the Merger will
trigger the foregoing payments and benefits.
Dr. Edward R. Funk is a party to an employment agreement with Cross. In
addition to the employment agreement, Cross, the Edward R. Funk Irrevocable Life
Insurance Trust #1 and the Edward R. Funk Irrevocable Life Insurance Trust #2,
are parties to two Split Dollar Insurance Plans (the "Plans"), dated November
15, 1988. Dr. Funk, the trusts and Cross have entered into an agreement dated
February 11, 1998, where, conditioned and effective upon the consummation of the
Merger, the Plans will be terminated, the employment agreement will be
terminated, and Dr. Funk will receive $240,000 in consideration for the
termination of the employment agreement and the Plans. See "Proposal to Elect
Cross' Directors -- Employment Contracts."
Stock Options. The Cross 1994 Stock Option Plan, as amended (the "Cross 1994
Plan") provides for vesting of options upon a "change in control." The Merger
will constitute a change in control pursuant to the definition set forth in the
Cross 1994 Plan. As a result, all of the options outstanding under the Cross
1994 Plan will become fully vested and immediately exercisable upon consummation
of the Merger. As of the record date for the Cross
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Annual Meeting, there were 552,776 options granted and currently outstanding
under the Cross 1994 Plan, of which 309,563 were unvested. As of such date, the
executive officers and directors of Cross (in the aggregate) held 183,240 vested
and 160,460 unvested options to purchase an aggregate of 343,700 shares of Cross
Common Stock under the Cross 1994 Plan. The exercise prices of the options held
by the executive officers range from $3.50 to $8.875, with a weighted average
exercise price of $6.79 per share. Stock options outstanding under the Cross
1984 Incentive Stock Option Plan, the Cross 1984 Nonstatutory Stock Option Plan,
the Interpore Amended and Restated Stock Option Plan and the Interpore 1995
Stock Option Plan will not be affected by the Merger. The treatment in the
Merger of outstanding options granted under the Cross 1994 Plan is described
under "The Merger Agreement -- Certain Covenants -- Stock Plans."
ACCOUNTING TREATMENT OF THE MERGER
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Interpore and Cross will be carried forward to the
combined company at their recorded amounts, the operating results of Interpore
will include the operating results of Interpore and Cross for the entire fiscal
year in which the combination occurs and the reported operating results of the
separate companies for prior periods will be combined and restated as the
operating results of the combined company. It is a condition to the consummation
of the Merger that Interpore receive a letter from Ernst & Young LLP,
Interpore's independent auditors, to the effect that they concur with the
conclusions of Interpore's and Cross' management as to the propriety of using
pooling of interests accounting for the transaction contemplated. It is a
condition to the consummation of the combination that Cross receive from Coopers
& Lybrand L.L.P., Cross' independent accountants, a letter to the effect that
they concur with the conclusions of Cross' management that no conditions exist
with respect to Cross which would preclude Cross from being a party to a merger
accounted for as a pooling of interests. Interpore and Cross have agreed that
they will use all reasonable efforts to cause each of their directors, officers
and other persons who may be deemed to be affiliates to execute a written
agreement providing that such persons will not take certain actions, including
the disposition of common stock held or received in the merger under certain
circumstances, that would jeopardize the accounting treatment of the Merger as a
"pooling of interests." See "The Merger -- Accounting Treatment of the Merger"
and "The Merger Agreement -- Conditions to Obligations to Effect the Merger."
CERTAIN FEDERAL REGULATORY MATTERS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and
the rules and regulations thereunder require that parties of a certain size to a
proposed merger or business combination exceeding a certain size file with the
Antitrust Division of the Department of Justice and the Federal Trade Commission
Notification and Report Forms with respect to such merger or business
combination. Because neither Interpore, Cross nor the Merger meet the applicable
size requirements under the HSR Act, no filings were required under the HSR Act
in connection with the Merger. Notwithstanding the foregoing, the parties to the
Merger will be subject to antitrust laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax considerations
generally applicable to holders of Cross Common Stock who hold their stock as a
capital asset and who, pursuant to the Merger, exchange their Cross Common Stock
solely for Interpore Common Stock. Consummation of the Merger is conditioned
upon the receipt by Cross of an opinion of Porter, Wright, Morris & Arthur,
counsel to Cross, dated as of the Closing Date, to the effect that the Merger
will be treated for federal income tax purposes as a reorganization described in
Section 368(a) of the Code. In rendering such opinion Porter, Wright, Morris &
Arthur shall be entitled to rely upon certain qualifications and assumptions and
upon representations made by the parties to the Merger and their respective
officers, stockholders and directors, which representations will not be
independently investigated or verified by Porter, Wright, Morris & Arthur and
will be assumed to be true as of the Effective Time. The portion of the summary
below under "Treatment of Holders of Cross Common Stock" assumes that the Merger
will be treated in accordance with the opinion of Porter, Wright, Morris &
Arthur described above.
The following summary is based upon current provisions of the Code,
currently applicable Treasury regulations, and judicial and administrative
decisions and rulings and is for general information only. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a contrary
view, and no ruling from the IRS has been or will be sought. Future legislative,
judicial or administrative changes or interpretations could alter or modify the
statements and conclusions set forth herein, and any such changes or
interpretations could be retroactive and could affect the tax consequences to
Interpore, Cross and their stockholders.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular stockholders in light of their individual
circumstances, and is not intended for stockholders subject to special
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treatment under the federal income tax law (e.g., insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
persons, stockholders who hold their stock as part of a hedge, appreciated
financial position, straddle or conversion transaction, stockholders who do not
hold their stock as capital assets and stockholders who have acquired their
stock upon the exercise of employee options or otherwise as compensation). In
addition, this discussion does not consider the effect of any applicable state,
local or foreign tax laws.
Except as discussed below under " -- Cash in Lieu of Fractional Shares," a
holder of Cross Common Stock who, pursuant to the Merger, exchanges Cross Common
Stock for Interpore Common Stock will not recognize gain or loss upon such
exchange. Such holder's tax basis in the Interpore Common Stock received
pursuant to the Merger will be equal to its tax basis in the Cross Common Stock
surrendered (excluding any portion of its tax basis allocated to fractional
shares with respect to which cash is received), and its holding period for the
Interpore Common Stock will include its holding period for the Cross Common
Stock surrendered, provided that the Cross Common Stock was a capital asset in
the hands of Cross stockholders at the Effective Time.
Cash in Lieu of Fractional Shares. A holder of Cross Common Stock who
receives cash in lieu of fractional shares of Interpore Common Stock will be
treated as having received such fractional shares pursuant to the Merger and
then as having exchanged such fractional shares for cash in a redemption by
Interpore. Any gain or loss attributable to fractional shares generally will be
capital gain or loss. The amount of such gain or loss will be equal to the
difference between the ratable portion of the holder's tax basis in the Cross
Common Stock surrendered in the Merger that is allocated to his fractional share
and the cash received in lieu thereof. Any such capital gain or loss will
constitute long-term capital gain or loss if the Cross Common Stock has been
held by the holder for more than one year at the Effective Time. Long-term
capital gain recognized by certain non-corporate stockholders is subject to
federal income tax at preferential capital gains rates, and such gain recognized
with respect to an asset with a holding period of more than 18 months at the
Effective Time is subject to federal income tax at potentially further reduced
capital gains rates.
Reporting Requirements and Backup Withholding. Each stockholder of Cross
receiving Interpore Common Stock as a result of the Merger will be required to
retain certain records and file with his federal income tax return a statement
setting forth certain facts relating to the Merger. Backup withholding at the
rate of 31% may apply with respect to certain payments unless the recipient (i)
is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A Cross stockholder who does not provide Interpore with his
correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amounts withheld under the backup withholding rules may be allowed
as a refund or a credit against the stockholder's federal income tax liability
provided that certain required information is furnished to the IRS. Interpore
will report to stockholders of Interpore and to the IRS the amount of
"reportable payments" and any amount withheld with respect to Interpore Common
Stock during each calendar year.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Interpore Common
Stock could be changed by future regulations.
Effect on Shareholders of Interpore. The Merger is expected to be tax-free
to shareholders of Interpore for federal income tax purposes.
THE FOREGOING DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY, IS NOT TAX ADVICE, AND MAY NOT APPLY TO ALL
STOCKHOLDERS OF INTERPORE AND CROSS. ACCORDINGLY, EACH STOCKHOLDER OF INTERPORE
AND CROSS IS URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL OR FOREIGN TAX LAWS.
DELISTING AND DEREGISTRATION OF CROSS COMMON STOCK; LISTING OF INTERPORE COMMON
STOCK
Interpore Common Stock currently is listed for quotation on the Nasdaq
National Market under the symbol "BONZ." Cross Common Stock currently is listed
on the Nasdaq SmallCap Market under the symbol "CRSS." Upon consummation of the
Merger, Cross Common Stock will be delisted from the Nasdaq SmallCap Market and
deregistered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Application will be made for the inclusion in the Nasdaq
National Market of the shares of Interpore Common Stock to be issued in the
Merger. This inclusion in the Nasdaq National Market is a condition to the
consummation of the Merger. See "The Merger Agreement -- Conditions to
Obligations to Effect the Merger." Following the Merger, Cross stockholders will
need to exchange their outstanding stock certificates for certificates
representing shares of Interpore Common Stock. See "The Merger Agreement --
Exchange of Stock Certificates."
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RESALES OF INTERPORE COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER;
AFFILIATE AGREEMENTS
Interpore Common Stock issued in connection with the Merger will be freely
transferable, except that shares of Interpore Common Stock received by persons
who are deemed to be "affiliates" (as such term is defined by Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), of Cross at the
Effective Time may be resold by them only in transactions permitted by the
resale provisions of Rule 145 under the Securities Act or as otherwise permitted
under the Securities Act. Cross has agreed that it will use all reasonable
efforts to cause each of its executive officers and directors and persons who
may be deemed to be "affiliates" to execute a written agreement (a "Cross
Affiliate Agreement") providing, among other things, that such person will not
offer, sell, transfer or otherwise dispose of any of the shares of Interpore
Common Stock obtained as a result of the Merger except in compliance with the
Securities Act and the rules and regulations of the Securities and Exchange
Commission (the "SEC") thereunder. Each Cross Affiliate Agreement also (i) will
provide that the affiliate covered by such agreement may not take certain
actions that would jeopardize the accounting treatment of the Merger as a
"pooling of interests" and (ii) require such affiliate to make certain
representations with respect to certain tax matters. Interpore has agreed that
it will use all reasonable efforts to cause each of its executive officers and
directors and persons who may be deemed to be "affiliates" to execute a written
agreement (an "Interpore Affiliate Agreement") providing that the affiliate
covered by such agreement may not take certain actions that would jeopardize the
accounting treatment of the Merger as a "pooling of interests."
DISSENTERS' AND APPRAISAL RIGHTS
Interpore. Holders of record of Interpore Common Stock who do not vote in
favor of the principal terms of the Merger and who otherwise comply with the
requirements under Chapter 13 of the CGCL will be entitled to dissenters' rights
under the CGCL. A person having a beneficial interest in shares of Interpore
Common Stock held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect dissenters' rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO DISSENTERS' RIGHTS UNDER THE CGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE
FULL TEXT OF CHAPTER 13 WHICH IS REPRINTED IN ITS ENTIRETY AS ANNEX IV. ALL
REFERENCES IN CHAPTER 13 AND THIS SUMMARY TO A "SHAREHOLDER" OR "HOLDER" ARE TO
THE RECORD HOLDER OF THE SHARES OF INTERPORE COMMON STOCK AS TO WHICH
DISSENTERS' RIGHTS ARE ASSERTED.
If no instructions are indicated on proxies received by Interpore, such
proxies will be voted for the proposal to approve the principal terms of the
Merger at the Interpore Annual Meeting. Those shareholders who return their
proxies without instructions, resulting in a vote for the approval of the
principal terms of the Merger, will not be entitled to dissenters' rights.
Interpore shareholders will not have dissenters' rights unless demands for
purchase in cash of such shares at their fair market value as of February 11,
1998, pursuant to Section 1301 of the CGCL (a "Demand") are made with respect to
five percent or more of the outstanding shares of Interpore Common Stock (before
giving effect to the Merger). Such Demands must be received by Interpore, or its
transfer agent not later than the date of the Interpore Annual Meeting. In the
event that Demands are made with respect to five percent or more of the
outstanding shares of Interpore Common Stock, on or before the date of the
Interpore Annual Meeting, the Interpore shareholders who made Demands will be
entitled to dissenters' rights, provided that such dissenters' rights are
perfected pursuant to Chapter 13; provided, however, that if Demands are made
with respect to five percent or more of the outstanding shares of Interpore
Common Stock, Interpore shall have no obligation to consummate the Merger and
unless the Merger is consummated, no Interpore shareholder shall be entitled to
dissenters' rights.
In the event that the principal terms of the Merger are approved by the
Interpore shareholders, a holder of Interpore Common Stock who objects to the
Merger (a "Dissenting Shareholder") will be entitled to payment in cash of the
fair market value as of February 11, 1998 of their shares ("Dissenting Shares");
provided that: (i) such shares were outstanding immediately prior to the date
for the determination of shareholders entitled to vote on the Merger; (ii) the
Dissenting Shareholder voted his or her shares against the approval of the
principal terms of the Merger; (iii) the Dissenting Shareholder made a Demand;
and (iv) the Dissenting Shareholder has submitted for endorsement certificates
representing his or her Dissenting Shares, in accordance with Section 1302 of
the CGCL. On February 11, 1998, the closing price per share of Interpore Common
Stock on the Nasdaq National Market was $8.25.
The Demand must: (i) be a written demand requesting that Interpore purchase
the Dissenting Shares and make payment to the Dissenting Shareholder in cash of
their fair market value as of February 11, 1998; (ii) be received
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by Interpore on or before the date of the Interpore Annual Meeting; (iii) state
the number and class of Interpore shares held of record by the Dissenting
Shareholder which the Dissenting Shareholder demands Interpore to purchase; and
(iv) contain a statement of what the Dissenting Shareholder claims to be the
fair market value of his or her Dissenting Shares as of February 11, 1998. Such
statement of the fair market value constitutes an offer by the Dissenting
Shareholder to sell his or her Dissenting Shares at such price. A Dissenting
Shareholder who has made such a demand for payment may not withdraw such Demand
unless Interpore consents thereto. A proxy or vote against the approval of the
principal terms of the Merger Agreement does not in itself constitute a Demand.
The Dissenting Shareholder must submit the certificates representing the
Dissenting Shares for endorsement as Dissenting Shares to Interpore at its
principal office or at the office of any transfer agent of Interpore within 30
days after the date on which notice of approval of the Merger by the Interpore
shareholders was mailed to such Dissenting Shareholder.
If any Interpore shareholder may have dissenters' rights, Interpore will
mail to each such shareholder a notice of the approval of the principal terms of
the Merger by the Interpore shareholders within ten days after the date of such
approval, accompanied by: (i) a copy of Sections 1300, 1301, 1302, 1303 and 1304
of Chapter 13 of the CGCL; (ii) a statement of the price determined by Interpore
to represent the fair market value as of February 11, 1998 of the Dissenting
Shares; and (iii) a brief description of the procedure to be followed if the
shareholder desires to exercise his or her dissenters' rights under such
sections. The statement of price constitutes an offer by Interpore to purchase
such Dissenting Shares.
If Interpore denies that shares submitted to it as Dissenting Shares are
Dissenting Shares, or if Interpore and a Dissenting Shareholder fail to agree on
the fair market value of the Dissenting Shares, either such Dissenting
Shareholder or Interpore may file a complaint in the Superior Court of the
proper county in California requesting that the court determine such issue. Such
complaint must be filed within six months after the date on which notice of the
approval of the Merger is mailed to the Dissenting Shareholders.
On trial of the action, the court will first determine if the shares are
Dissenting Shares, and if so determined, the court will either determine the
fair market value or appoint one or more impartial appraisers to do so. If both
Interpore and the Dissenting Shareholder fail to file a complaint with six
months after the date on which notice of the approval of the principal terms of
the Merger was mailed to the Dissenting Shareholders, such Dissenting
Shareholder will lose his or her dissenters' rights. In addition, if the
Dissenting Shareholder transfers such Dissenting Shares prior to their
submission for the required endorsement, such shares will lose their status as
Dissenting Shares.
ANY DEMANDS, NOTICES, CERTIFICATES OR OTHER DOCUMENTS DELIVERED TO INTERPORE
PRIOR TO THE MERGER MAY BE SENT TO RICHARD L. HARRISON, SECRETARY, INTERPORE
INTERNATIONAL, 181 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618.
FAILURE TO TAKE ANY NECESSARY STEP WILL RESULT IN A TERMINATION OR WAIVER OF
THE RIGHTS OF THE HOLDER UNDER CHAPTER 13 OF THE CGCL. A PERSON HAVING A
BENEFICIAL INTEREST IN INTERPORE COMMON STOCK THAT IS HELD OF RECORD IN THE NAME
OF ANOTHER PERSON, SUCH AS A TRUSTEE OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE
RECORD HOLDER TO FOLLOW THE REQUIREMENTS OF CHAPTER 13 OF THE CGCL IN A TIMELY
MANNER IF SUCH PERSON ELECTS TO DEMAND PAYMENT OF THE FAIR MARKET VALUE OF SUCH
SHARES.
Holders of Interpore Common Stock are not entitled to dissenters rights
under the CGCL in connection with the Reincorporation.
Cross. Holders of record of Cross Common Stock who do not vote in favor of
the Merger Agreement and who otherwise comply with the requirements of Section
262 summarized herein will be entitled to appraisal rights under the DGCL. A
person having a beneficial interest in shares of Cross Common Stock held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS ANNEX V. ALL
REFERENCES IN SECTION 262 AND THIS SUMMARY TO A "STOCKHOLDER" OR "HOLDER" ARE TO
THE RECORD HOLDER OF THE SHARES OF CROSS COMMON STOCK AS TO WHICH APPRAISAL
RIGHTS ARE ASSERTED.
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Under the DGCL, holders of shares of Cross Common Stock ("Appraisal Shares")
who follow the procedures set forth in Section 262 will be entitled to have
their Appraisal Shares appraised by the Delaware Chancery Court and to receive
Payment in cash of the "fair value" of such Appraisal Shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, it any, is determined by such court;
provided, however, that if demands for appraisal rights are made with respect to
five percent or more of the outstanding shares of Cross Common Stock, Interpore
shall have no obligation to consummate the Merger and unless the Merger is
consummated, no Cross stockholder shall be entitled to appraisal rights.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was such on the record
date for such meeting with respect to shares to which appraisal rights are
available, that appraisal rights are so available, and must include in such
notice a copy of Section 262.
This Joint Proxy Statement/Prospectus constitutes such notice to the holders
of Appraisal Shares and the applicable statutory provisions of the DGCL are
attached to this Joint Proxy Statement/Prospectus as Annex V. Any Cross
stockholder who wishes to exercise such appraisal rights or who wishes to
preserve his right to do so should review the following discussion and Annex V
carefully, because failure to comply timely and properly with the procedures
specified will result in the loss of appraisal rights under the DGCL.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL
RIGHTS MUST (1) NOT VOTE IN FAVOR OF THE MERGER AGREEMENT AND (2) DELIVER TO
CROSS PRIOR TO THE VOTE ON THE MERGER AGREEMENT AT THE CROSS ANNUAL MEETING TO
BE HELD ON MAY 6, 1998, A WRITTEN DEMAND FOR SUCH HOLDER'S APPRAISAL RIGHTS. A
HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL RIGHTS
MUST BE THE RECORD HOLDER OF SUCH APPRAISAL SHARES ON THE DATE THE WRITTEN
DEMAND FOR APPRAISAL IS MADE AND MUST CONTINUE TO HOLD SUCH APPRAISAL SHARES OF
RECORD UNTIL THE CONSUMMATION OF THE MERGER. ACCORDINGLY, A HOLDER OF APPRAISAL
SHARES WHO IS THE RECORD HOLDER OF APPRAISAL SHARES ON THE DATE THE WRITTEN
DEMAND FOR APPRAISAL IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH APPRAISAL SHARES
PRIOR TO THE CONSUMMATION OF THE MERGER, WILL LOSE ANY RIGHT TO APPRAISAL IN
RESPECT OF SUCH APPRAISAL SHARES. A PROXY OR VOTE AGAINST THE APPROVAL OF THE
PRINCIPAL TERMS OF THE MERGER AGREEMENT DOES NOT IN ITSELF CONSTITUTE A DEMAND
FOR APPRAISAL RIGHTS.
Only a holder of record of Appraisal Shares is entitled to assert appraisal
rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificate. If
the Appraisal Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Appraisal Shares are owned of record by more than one
person as in a joint tenancy or tenancy in common, the demand should be executed
by or on behalf of all joint owners. An authorized agent, including one or more
joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds Appraisal
Shares as nominee for several beneficial owners may exercise appraisal rights
with respect to the Appraisal Shares held for one or more beneficial owners
while not exercising such rights with respect to the Appraisal Shares held for
other beneficial owners; in such case, the written demand should set forth the
number of Appraisal Shares as to which appraisal is sought. When no number of
Appraisal Shares is expressly mentioned, the demand will be presumed to cover
all Appraisal Shares held in the name of the record owner. Stockholders who hold
their Appraisal Shares in brokerage accounts or other nominee forms and who wish
to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO CROSS
MEDICAL PRODUCTS, INC., 5160-A BLAZER MEMORIAL PARKWAY, DUBLIN, OHIO 43017-1339,
ATTENTION: PAUL A. MILLER.
Within 10 days after the consummation of the Merger, the combined company
will notify each stockholder who has properly asserted rights under Section 262
and has not voted in favor of the Merger Agreement of the date the Merger became
effective.
Within 120 days after the consummation of the Merger but not thereafter, the
combined company or any stockholder who has complied with the statutory
requirements summarized above may file a petition in the
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Delaware Chancery Court demanding a determination of the fair value of the
Appraisal Shares. Accordingly, it is the obligation of the stockholders to
initiate all necessary action to perfect their appraisal rights within the time
prescribed in Section 262.
Within 120 days after the consummation of the Merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from Interpore a statement setting
forth the aggregate number of Appraisal Shares not voted in favor of adoption of
the principal terms of the Merger and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
Appraisal Shares. Such statements must be mailed within 10 days after a written
request therefor has been received by Interpore.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the fair value of their Appraisal Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their Appraisal Shares as
determined under Section 262 could be more than, the same as or less than the
value of the consideration they would receive pursuant to the Merger Agreement
it they did not seek Appraisal of their Appraisal Shares and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262. The Delaware Supreme
Court has stated that proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court should be considered in the appraisal proceedings.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose Appraisal Shares
have been appraised. The costs of the action may be determined by the Delaware
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems
equitable. The Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who had duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the Merger, be
entitled to vote the Appraisal Shares subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on those
Appraisal Shares (except dividends or other distributions payable to holders of
record of Appraisal Shares as of a record date prior to the consummation of the
Merger).
If any stockholder who properly demands appraisal of his Appraisal Shares
under Section 262 fails to perfect, or effectively withdraws or loses, his right
to appraisal, as provided in the DGCL, the Appraisal Shares of such stockholder
will be converted into the right to receive the consideration receivable with
respect to such Appraisal Shares in accordance with the Merger Agreement. A
stockholder will fail to perfect, or effectively lose or withdraw his right to
appraisal if, among other things, no petition for appraisal is filed within 120
days after the consummation of the Merger, or if the stockholder delivers to
Interpore a written withdrawal of his demand for appraisal. Any such attempt to
withdraw an appraisal demand more than 60 days after the consummation of the
Merger will require the written approval of Interpore.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A STOCKHOLDER WILL
BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH
APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN VIEW OF THE
COMPLEXITY OF THE PROVISIONS OF SECTION 262, CROSS STOCKHOLDERS WHO ARE
CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT THEIR OWN LEGAL ADVISORS.
See "Comparative Rights of Cross Stockholders and Interpore Shareholders --
Dissenters' and Appraisal Rights."
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THE COMBINED COMPANY
Management of Interpore and Cross believe that the Merger will create a
medical device company with a unique combination of spinal and bone graft
technologies and with an expanded product portfolio and combined distribution
channels specifically addressing the spine/orthopaedic market. The Merger will
combine Interpore's strengths as a leading manufacturer and marketer of
synthetic bone graft materials with Cross' strong spinal implant product
offerings, and create a stronger, more competitive medical device company.
Interpore and Cross also believe that the Merger will provide opportunities to
achieve benefits for our stockholders and customers that might not otherwise be
available, including immediate opportunities for revenue growth, product
improvement, new product development, improved distribution and savings in
operating costs. The Boards of Directors of Cross and Interpore believe that the
combined resources of the two companies will allow it, among other things, to
better compete in a consolidating industry, to further research and development
programs and to enhance the sales of each company's products. The Boards of
Directors of Cross and Interpore also believe that the Merger is the best
strategic alternative for each of Interpore and Cross.
As a result of the Merger, Cross will become a wholly-owned subsidiary of
Interpore. The corporate headquarters of the combined company will be in Irvine,
California. The combined company intends to continue the separate existence of
Cross as one of Interpore's two operating subsidiaries. Management of Interpore
and Cross are jointly reviewing the two companies' operations in order to
develop plans and proposals regarding the integration and combination of all
functional areas of the combined business. The goal of management of Interpore
and Cross is to complete much of its transition plan prior to the consummation
of the Merger, so that the plan may be implemented as soon thereafter as
possible. Interpore Orthopaedics, Inc., the existing wholly-owned primary
operating subsidiary of Interpore, will continue the business of developing,
manufacturing and marketing synthetic bone graft material for the orthopaedic,
oral and maxillofacial markets. Using Interpore's proprietary manufacturing
processes, the unique skeletal structures of certain species of coral are
converted into biocompatible bone graft materials. These materials have
interconnected porosity, architecture and chemical composition similar to that
of human cancellous bone, and facilitate bone and tissue ingrowth. Cross will
continue the business of developing and distributing spinal implant products.
Cross' implants are used by surgeons to obtain fusion in areas of the spine
affected by degenerative diseases, deformities, trauma and tumors. The spinal
implant stabilizes the spine while fusion occurs, and assists in preventing the
bone graft material (which is used in the areas of the spine where the disc has
been removed) from collapsing or migrating.
Upon consummation of the Merger, the executive management of Interpore will
be comprised of members of the existing executive management of Interpore and
Cross as follows: (i) David C. Mercer, the current President and Chief Executive
Officer of Interpore, will become Chief Executive Officer and Chairman of the
Board of Interpore; (ii) Joseph A. Mussey, the current President and Chief
Executive Officer of Cross, will become the President and Chief Operating
Officer of Interpore; (iii) Richard L. Harrison, the current Vice President,
Finance and Chief Financial Officer of Interpore, will become the Senior Vice
President and Chief Financial Officer of Interpore and (iv) Paul A. Miller, the
current Vice President and Chief Financial Officer of Cross, will become the
Vice President, Administration and Business Development of Interpore.
Following the Merger, the Interpore Board of Directors is expected to
consist of the following six persons: David C. Mercer, William A. Eisenecher and
G. Bradford Jones (all of whom were designated by Interpore), and Joseph A.
Mussey, Daniel A. Funk and Robert J. Williams (all of whom were designated by
Cross). If the Reincorporation is approved by the Interpore shareholders, the
Interpore Board of Directors will be divided into three classes, each consisting
of two directors. Class I directors will be initially elected for a term
expiring at the first annual meeting of Interpore stockholders following the
Effective Time. Class II directors will be initially elected for a term expiring
at the second annual meeting of Interpore stockholders following the Effective
Time. Class III directors will be initially elected for a term expiring at the
third annual meeting of Interpore stockholders following the Effective Time. The
Initial Interpore Directors and the Initial Cross Directors shall be evenly
spread between Interpore's three classes of directors as follows: Messrs. Mercer
and Mussey shall be Class III Directors; (ii) Messrs. Eisenecher and Funk shall
be Class II Directors; and (iii) Messrs. Jones and Williams shall be Class I
Directors. For a description of the business background of Messrs. Mercer,
Eisenecher and Jones, see "Proposal to Elect Interpore's Directors." For a
description of the business background of Messrs. Mussey, Funk and Williams, see
"Proposal to Elect Cross' Directors."
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex I to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
Interpore and Cross are urged to read the Merger Agreement in its entirety for a
more complete description of the terms and conditions of the Merger.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger by
the stockholders of Interpore and Cross and the satisfaction or waiver of the
other conditions to the Merger, Cross will become a wholly-owned subsidiary of
Interpore, and the holders of Cross Common Stock will become holders of
Interpore Common Stock.
If the Merger Agreement is approved by the stockholders of Interpore and
Cross, and the other conditions to the Merger are satisfied or waived, the
Closing will take place on the second business day (the "Closing Date")
following the date on which the last of the conditions is satisfied or waived,
or at such other time and date to which Interpore and Cross mutually agree. On
the Closing Date, Cross and Interpore will cause a certificate of merger to be
filed with the Secretary of State of the State of Delaware as provided in
Section 251 of the DGCL. The Merger will become effective upon the filing of
such certificate of merger or at such later time as is specified therein. See
"The Merger Agreement -- Conditions to Obligations to Effect the Merger."
Subject to the satisfaction (or waiver) of the other conditions to the
obligations of Interpore and Cross to consummate the Merger, it is presently
expected that the Merger will be consummated as soon as practicable following
the Interpore Annual Meeting and the Cross Annual Meeting.
CONVERSION OF SHARES
The Merger Agreement provides that the Merger will be effected by the merger
of a newly-formed subsidiary of Interpore ("Interpore Sub"), with and into
Cross, in which Cross will be the surviving corporation.
At the Effective Time, in the Merger: (i) each issued and outstanding share
of Cross Common Stock (other than shares that are canceled as described below)
will be converted into 1.275 shares of fully paid and nonassessable shares of
Interpore Common Stock; (ii) each issued and outstanding share of common stock
of Interpore Sub will be converted into one share of common stock of Cross, the
surviving corporation in the Merger; and (iii) each share of Cross Common Stock
that is owned by Cross as treasury stock or is owned by Interpore or any of its
wholly-owned subsidiaries will be canceled and will cease to exist and no stock
of Interpore or other consideration shall be delivered in exchange therefor.
Consequently, as a result of the Merger, Cross will become a wholly-owned
subsidiary of Interpore and holders of Cross Common Stock will become holders of
Interpore Common Stock.
Based upon the number of shares of Interpore Common Stock and Cross Common
Stock outstanding on the record date for the Interpore Annual Meeting and the
record date for the Cross Annual Meeting, respectively, and the exchange ratio
described above, Interpore's current stockholders will own approximately 51%,
and Cross' current stockholders will own approximately 49%, of the Interpore
Common Stock that will be outstanding upon completion of the Merger.
EXCHANGE OF STOCK CERTIFICATES
Exchange Procedure. As soon as reasonably practicable after the Effective
Time, U.S. Stock Transfer Corporation, as exchange agent will mail to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Cross Common Stock, a letter of
transmittal and instructions for use in effecting the surrender of such
certificates in exchange for certificates representing shares of Interpore
Common Stock. Upon surrender of a certificate for cancellation to the exchange
agent, together with such letter of transmittal, duly executed, the holder of
such certificate will be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Interpore Common Stock and the
amount of any cash payable in lieu of fractional shares of Interpore Common
Stock and other dividends or distributions which such holder is entitled to
receive as provided in the next three paragraphs, and the certificates so
surrendered will promptly be canceled.
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No Further Ownership Rights in Cross Common Stock. All shares of Interpore
Common Stock (and cash in lieu of fractional shares) issued upon the surrender
for exchange of certificates which immediately prior to the Effective Time
represented shares of Cross Common Stock will be deemed to have been issued (and
paid) in full satisfaction of all rights pertaining to the shares of Cross
Common Stock previously represented by such certificates, subject, however, to
the obligations of Cross to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by Cross on such shares of Cross Common Stock prior to the date of the
Merger Agreement and which remain unpaid at the Effective Time. From and after
the Effective Time there shall be no further registration of transfers on the
stock transfer books of Cross of the shares of Cross Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates which immediately prior to the Effective Time represented
shares of Cross Common Stock are presented to Interpore for any reason, such
certificates will be canceled and exchanged in the manner described above.
Fractional Shares. No fractional shares of Interpore Common Stock will be
issued in the Merger. In lieu of any such fractional shares, each holder of
shares of Cross Common Stock outstanding immediately prior to the Effective Time
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Interpore Common Stock (after taking into
account all certificates representing shares of Cross Common Stock delivered by
such holder) will receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Interpore Common Stock multiplied by
the per share sales price of Interpore Common Stock (as reported on the Nasdaq
National Market) on the closing of the first day of regular-way trading of
Interpore Common Stock on the Nasdaq National Market after the Effective Time.
Dividends and Distributions. No dividends or other distributions declared or
made after the Effective Time with respect to Interpore Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered certificate representing shares of Cross Common Stock with respect
to the shares of Interpore Common Stock the holder thereof is entitled to
receive in respect thereof and no cash payment in lieu of fractional shares will
be paid to any such holder until the holder of record of such certificate shall
surrender such certificate to Interpore as described above. Subject to the
effect of applicable laws, following surrender of any such certificate, there
will be paid to the record holder of the certificates representing whole shares
of Interpore Common Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Interpore Common Stock to which such holder is entitled
under " -- Fractional Shares" above and an amount equal to the amount of
dividends or other distributions with a record date after the Effective Time
previously paid with respect to whole shares of Interpore Common Stock, and (ii)
at the appropriate payment date, an amount equal to the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
whole shares of Interpore Common Stock, in each case without interest.
Failure to Exchange. Any shares of Interpore Common Stock, and any portion
of monies from which cash payments in lieu of fractional shares of Cross Common
Stock which remain undistributed to the former stockholders of Cross for 180
days after the Effective Time will be delivered to Interpore upon demand, and
any former stockholder of Cross who has not previously exchanged certificates
which immediately prior to the Effective Time represented shares of Cross Common
Stock will thereafter look only to Interpore for payment of such former
stockholder's claim for Interpore Common Stock and any cash in lieu of
fractional shares of Interpore Common Stock.
No Liability. None of Interpore, Cross, or the exchange agent will be liable
to any holder of shares of Cross Common Stock for any shares of Interpore Common
Stock (or cash in lieu of fractional shares of Interpore Common Stock or any
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. Interpore
will be entitled to deduct and withhold from the consideration otherwise payable
to any holder of certificates which prior to the Effective Time represented
shares of Cross Common Stock such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld, such withheld amounts shall be treated as having been paid to the
holder of the shares of Cross Common Stock in respect of which such deduction
and withholding was made.
Lost Certificates. If any certificate which prior to the Effective Time
represented shares of Cross Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed and, if required by Interpore,
the posting by such person of a bond in such reasonable amount as Interpore may
direct as indemnity against any claim that may be made against it with respect
to such certificate, the exchange agent will issue in exchange for such lost,
stolen or destroyed certificate the shares of Interpore Common Stock and any
cash in lieu of fractional shares and unpaid dividends and distributions on
shares of Interpore Common Stock otherwise deliverable in respect thereof.
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HOLDERS OF CROSS COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE A TRANSMITTAL FORM FROM U.S. STOCK TRANSFER CORPORATION, THE
EXCHANGE AGENT FOR INTERPORE.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties, subject to identified exceptions, relating to, among other things,
(a) due organization, valid existence and good standing of each of Interpore,
Cross and their respective subsidiaries and certain similar corporate matters;
(b) the capital structure of each of Interpore and Cross; (c) the authorization,
execution, delivery and enforceability of the Merger Agreement, the Stockholder
Agreements and the Stock Option Agreements, the consummation of the transactions
contemplated by the Merger Agreement, the Stockholder Agreements and the Stock
Option Agreements and related matters; (d) conflicts under charters or bylaws,
required consents or approvals and violations of any instruments or law; (e)
documents and financial statements filed by each of Interpore and Cross with the
SEC and the accuracy of information contained therein; (f) the absence of
undisclosed liabilities; (g) the absence of certain material adverse events,
changes or events; (h) taxes and tax returns; (i) properties; (j) intellectual
property; (k) regulations; (l) agreements, contracts and commitments; (m)
litigation; (n) environmental matters and hazardous materials; (o) employee
benefit plans; (p) compliance with laws; (q) accounting and tax matters relating
to the Merger; (r) the accuracy of information supplied by each of Interpore and
Cross in connection with the Registration Statement and this Joint Proxy
Statement/Prospectus; (s) labor matters; (t) insurance; (u) opinions of
financial advisors; (v) the absence of existing discussions with other parties;
(w) the inapplicability to the Merger of certain provisions of the DGCL; (x) the
absence of certain events under the Work Adjustment and Retraining Notification
Act of 1986; (y) transactions with related parties; (z) suppliers and customers;
and (aa) the Interpore Rights Plan.
CERTAIN COVENANTS
Conduct of Business. Pursuant to the Merger Agreement, each of Interpore and
Cross has agreed that, during the period from the date of the Merger Agreement
until the Effective Time, except as included on the disclosure schedules
attached to the Merger Agreement or as otherwise consented to in writing by the
other party or as contemplated by the Merger Agreement, it and each of its
respective subsidiaries will: (a) carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted;
(b) pay its debts and taxes when due subject to good faith disputes over such
debts or taxes, and pay or perform other obligations when due; (c) use
reasonable efforts to preserve intact its present business organization,
management team and business relationships; (d) not accelerate, amend or change
the period of exercisability of options or restricted stock granted under any
employee stock plan or authorize cash payments in exchange for any options
granted under any employee stock plan, except as required pursuant to the plan
or any related agreement; (e) not declare or pay any dividends on or make other
distributions in respect of any of its capital stock, not effect certain other
changes in its capitalization, and not purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with the termination of service; (f) not
issue or sell, or authorize or propose the issuance or sale of, any shares of
its capital stock or securities convertible into shares of its capital stock, or
any subscriptions, rights, warrants or options to acquire or other agreements
obligating it to issue any such shares or other convertible securities (subject
to certain exceptions, including the grant of options consistent with past
practices to employees or directors (up to 200,000 shares for each of Interpore
and Cross), the issuance of shares upon the exercise of outstanding stock
options and convertible debt and the issuance of capital stock under the
Interpore Rights Plan if required by the respective terms thereof); (g) not make
any material acquisitions; (h) not sell, lease, license or otherwise dispose of
material properties or assets outside the ordinary course of business; (i) not
increase the compensation payable to its officers or employees (except for
increases to non-officer employees consistent with past practices), grant
additional severance or termination pay or enter into employment or severance
agreements, enter into any collective bargaining agreement (other than as
required by law) or establish, adopt, enter into or amend any plan for the
benefit of its directors, officers, or employees; (j) not amend its certificate
of incorporation or bylaws, except as contemplated by the Merger Agreement; (k)
not incur indebtedness for money borrowed other than in the ordinary course of
business; (l) not take any action that would or is reasonably likely to result
in a material breach of any provision of the Merger Agreement or the Stock
Option Agreements or in any of its representations or warranties set forth in
the Merger Agreement or the Stock Option Agreements being untrue on the Closing
Date; (m) not make or rescind any material tax elections, settle any tax claims
or make any material change in its accounting methods; (n) not settle any
material litigation relating to the transactions contemplated by the Merger
Agreement; (o) not settle or take any material action with respect to any
pending litigation; (p) not cancel or amend any insurance policy; and (q) not
take, or agree in writing to take, any of the actions described in (d) through
(p) above.
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No Solicitation. The Merger Agreement provides that Interpore and Cross will
not, directly or indirectly, through any officer, director, employee, financial
advisor, representative or agent, (i) solicit, initiate or encourage any
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, business combination, sale
of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transaction involving such party
or any of its subsidiaries, other than the transactions contemplated by the
Merger Agreement (any of the foregoing inquiries or proposals being referred to
as an "Acquisition Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Acquisition Proposal, or (iii) agree to or recommend any
Acquisition Proposal; provided, however, that nothing contained in the Merger
Agreement will prevent Interpore or Cross or their respective Boards of
Directors from (a) furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written Acquisition Proposal by such person or entity or
recommending an unsolicited bona fide written Acquisition Proposal to the
stockholders of such party, if and only to the extent that (1) the Board of
Directors of such party believes in good faith (after consultation with its
financial advisor) that such Acquisition Proposal is reasonably capable of being
completed on the terms proposed and, after taking into account the strategic
benefits anticipated to be derived from the Merger and the prospects of Cross
and Interpore as a combined company, would, if consummated, result in a
transaction more favorable to the stockholders of such party over the long term
than the transaction contemplated by the Merger Agreement (any such more
favorable Acquisition Proposal being referred to as a "Superior Proposal") and
the Board of Directors of such party determines in good faith after consultation
with outside legal counsel that such action is required for such Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law and (2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, such Board of Directors
receives from such person or entity an executed confidentiality agreement with
terms no less favorable to such party than those contained in the
Confidentiality Agreements, each dated October 10, 1997 between Interpore and
Cross (the "Confidentiality Agreements"); or (b) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal. Each
of Interpore and Cross also agrees not to release any third party from, or waive
any provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another person who has made, or who may
reasonably be considered likely to make, an Acquisition Proposal, unless its
Board of Directors determines in good faith after consultation with outside
legal counsel that such action is required for such Board of Directors to comply
with its fiduciary duties to stockholders under applicable law.
The Merger Agreement requires each of Interpore and Cross to promptly notify
the other party (orally and in writing) upon receipt of any Acquisition Proposal
or request for non-public information or access to its properties, books or
records in connection with an Acquisition Proposal. The party providing such
notice also is required to indicate in reasonable detail the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact, and
continue thereafter to keep the other party informed, on a current basis, of the
status of any such discussions or negotiations and the terms being discussed or
negotiated.
Nasdaq Listings. The Merger Agreement requires each of Cross and Interpore
to continue the quotation and listing of Cross Common Stock and Interpore Common
Stock, respectively, on the Nasdaq SmallCap Market and the Nasdaq National
Market, respectively, during the term of the Merger.
Information. The Merger Agreement provides that upon reasonable notice,
Cross and Interpore shall each (and shall cause each of their respective
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other, access, during normal business hours during
the period prior to the Effective Time, to all its personnel, properties, books,
contracts, commitments and records and, during such period, each of Cross and
Interpore shall, and shall cause each of their respective subsidiaries to,
furnish promptly to the other (a) copies of monthly financial reports and
development reports, (b) a copy of each report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of federal securities laws and (c) all other information concerning
its business, properties and personnel as such other party may reasonably
request. The parties will hold any such information which is nonpublic in
confidence in accordance with the Confidentiality Agreements. No information or
knowledge obtained in any investigation shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the Merger.
Stockholders' Meetings. The Merger Agreement provides that each of Interpore
and Cross will call a meeting of its respective stockholders to be held as
promptly as practicable for the purpose of voting upon the Merger Agreement and
the Merger. Subject to the discussion above under " -- No Solicitation," each of
Interpore and Cross agreed to recommend to its stockholders adoption of the
Merger Agreement and approval of such matters, to coordinate and cooperate with
respect to the timing of its stockholders' meeting and to use its best efforts
to hold such meeting on the same day as the other party's stockholders' meeting
and as soon as practicable after the date of the Merger Agreement. Unless
otherwise required to comply with the applicable fiduciary duties of the
respective directors of Interpore and Cross, as determined by such directors in
good faith after consultation with outside legal
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counsel, each party agreed to use all reasonable efforts to solicit from
stockholders of such party proxies in favor of such matters.
Post-Merger Corporate Governance; Employment Arrangements. The Merger
Agreement provides that certain corporate governance matters relating to
Interpore will be as described above under "The Merger -- Interests of Certain
Persons in the Merger -- Board of Directors and Committees of Interpore" and
"The Combined Company." The Merger Agreement also provides that Interpore will
have certain executive officers as described under "The Combined Company."
The Merger Agreement provides that each of Interpore and Cross will cause
Interpore to incorporate the provisions described in the immediately preceding
paragraph into the Bylaws of Interpore in effect at the Effective Time, as
appropriate, which provisions will thereafter be amended by the Interpore Board
of Directors only with the approval of 75% of the members of the Interpore Board
of Directors.
Stock Plans. At the Effective Time, each outstanding option to purchase
shares of Cross Common Stock (a "Cross Stock Option"), whether vested or
unvested, will be deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such Cross Stock Option, the same number
of shares of Interpore Common Stock as the holder of such Cross Stock Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time (rounded
downward to the nearest whole number). The exercise price per share of each such
option, as so converted, will be equal to (x) the aggregate exercise price for
the shares of Cross Common Stock, purchasable pursuant to such Cross Stock
Option, immediately prior to the Effective Time divided by (y) the number of
whole shares of Interpore Common Stock deemed purchasable pursuant to such Cross
Stock Option, as determined above (rounded downward to the nearest whole cent).
As of the record date for the Cross Annual Meeting, 716,776 options to acquire
shares of Cross Common Stock were outstanding. All outstanding Cross Stock
Options issued pursuant to the Cross 1994 Plan will become exercisable in full
at the Effective Time, pursuant to the terms of such stock options.
Pursuant to the Merger Agreement, Interpore has agreed to reserve for
issuance a sufficient number of shares of Interpore Common Stock for delivery
upon exercise of the Interpore Stock Options or the Cross Stock Options, as the
case may be, assumed as described above. As soon as practicable after the
Effective Time, Interpore will amend its registration statement on Form S-8 with
respect to the shares of Interpore Common Stock subject to such options and will
use its best efforts to maintain the effectiveness of such registration
statement for so long as such options remain outstanding.
Director and Officer Indemnification. The Merger Agreement provides that,
from and after the Effective Time, Interpore and Cross will indemnify and hold
harmless each present and former director and officer of Interpore and Cross
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities or amounts paid in settlement incurred in
connection with any claim, action, suit, proceeding or investigation arising out
of or pertaining to any matter existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, or at or after the
Effective Time, to the fullest extent that Interpore or Cross, as the case may
be, would have been permitted under California or Delaware law, as applicable
and its certificate or articles of incorporation or bylaws in effect on the date
of the Merger Agreement to indemnify such person. Interpore and Cross will also
be obligated to advance expenses as incurred to the fullest extent permitted
under applicable law, provided the person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification.
For a period of six years after the Effective Time, Interpore will maintain
(to the extent available in the market) in effect a directors' and officers'
liability insurance policy covering those persons who are covered as of the date
of the Merger Agreement by Interpore's or Cross' directors' and officers'
liability insurance policy, with coverage in an amount and scope at least as
favorable as Interpore's or Cross' existing coverage; provided that in no event
will Interpore be required to expend in excess of 200% of the annual premium
paid by Interpore or Cross for such coverage, and if the premium would at any
time exceed 200% of such amount, then Interpore will maintain insurance policies
which provide the maximum coverage available at an annual premium equal to 200%
of such amount.
Shareholder Rights Plan. Interpore entered into a Rights Agreement dated as
of August 29, 1995 with U.S. Stock Transfer Corporation (the "Interpore Rights
Plan"). The Interpore Rights Plan provides that the transactions contemplated by
the Merger Agreement, the Stock Option Agreements and the Stockholder Agreements
are exempt from the provisions of the Interpore Rights Plan, and that all rights
issued pursuant to the Interpore Rights Plan will not be exercisable at the
Effective Time. See "Proposal for Interpore to Reincorporate in Delaware."
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Employee Benefits; Severance. The Merger Agreement provides that after the
Effective Time, Interpore's management will submit to Interpore's Board of
Directors for its approval an annual bonus plan for management employees for the
1998 fiscal year, which plan will replace the current Cross and Interpore annual
bonus plans, and will calculate the amounts payable to participants thereunder
in accordance with the terms of such plan. For purposes of determining
eligibility to participate, vesting, entitlement to benefits and in all other
respects where length of service is relevant (except for pension benefit
accruals) under any employee benefit plan or arrangement covering employees of
Interpore and its subsidiaries and employees of Cross and its subsidiaries
following the Effective Time, Interpore will cause such plans or arrangements to
recognize service credit for service with Interpore or Cross (as applicable) and
any of their respective subsidiaries to the same extent such service was
recognized under the applicable employee benefit plans immediately prior to the
Effective Time. Interpore also will use all reasonable efforts, including
obtaining any necessary employee consents, to prevent the automatic funding of
any escrow, trust or similar arrangement pursuant to any employment agreement,
arrangement or benefit plan that arises in connection with the execution of the
Merger Agreement or the consummation of any of the transactions contemplated
thereby.
Other Covenants. Pursuant to the Merger Agreement, each of Interpore and
Cross has also agreed: (a) to confer with the other party on a regular basis
regarding ongoing operations and to give prompt notice to the other of, and use
all commercially reasonable efforts to come before the Closing Date, any event,
transaction or circumstance which causes or will cause any breach, of any
representation, warranty covenant or agreement; (b) to file this Joint Proxy
Statement/Prospectus and the Registration Statement, and obtain all necessary
state securities laws permits or approvals; (c) to give (and to cause their
respective subsidiaries to give) the other such party and its representatives
access to all its personnel, properties, books, contracts, commitments and
records, and to furnish related information reasonably requested by the other;
(d) to use its best efforts to take all appropriate action to consummate the
transactions contemplated by the Merger Agreement as promptly as practical,
obtain any consents, licenses, permits, waivers, approvals, authorizations or
orders from governmental entities or other third parties required in connection
with the transactions contemplated by the Merger Agreement, and make all
necessary filings and submissions with respect to the transactions contemplated
by the Merger Agreement under federal, state and foreign securities laws,
antitrust laws and other applicable laws; (e) to consult with the other party
before issuing, and use all reasonable efforts to agree upon, any press release
or other public statement concerning the transactions contemplated by the Merger
Agreement; (f) to not take any action, or knowingly fail to take any action,
that is reasonably likely to jeopardize the tax or accounting treatment of the
Merger; (g) to use all reasonable efforts to obtain and deliver to Interpore the
Cross Affiliate Agreements and the Interpore Affiliate Agreements; (h) to use
all reasonable efforts to cause the Interpore Common Stock to be issued in the
Merger to be authorized for inclusion on the Nasdaq National Market, prior to
the Effective Time; and (i) to cooperate in the preparation and filing of all
returns and other documents regarding the Merger Agreement and pay any real
property transfer or gains, sales, use, transfer, value added, stock transfer
and stamp taxes, any transfer, recording, registration and other fees or any
taxes which become payable in connection with the transactions contemplated by
the Merger Agreement, and to pay, on behalf of their respective stockholders,
any similar taxes imposed on the stockholders of Interpore and Cross,
respectively, by any State of the United States which become payable in
connection with the transactions contemplated by the Merger Agreement.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of Interpore and Cross to effect the Merger are
subject to the satisfaction (or waiver) of the following conditions: (a) the
Merger Agreement and the Merger shall have been approved in the manner required
under the CGCL and the DGCL by the respective holders of the issued and
outstanding shares of capital stock of Interpore and Cross; (b) all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity (as
defined in the Merger Agreement) the failure of which to file, obtain or occur
is reasonably likely to have a Material Adverse Effect on Interpore or a
Material Adverse Effect on Cross shall have been filed, been obtained or
occurred; (c) the Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order; (d) no Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment, injunction, statute, rule, or regulation which is in effect and which
has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger; (e) that Interpore shall have received a letter from
Ernst & Young LLP, Interpore's independent auditors, to the effect that they
concur with the conclusions of Interpore's and Cross' management as to the
propriety of using pooling of interests accounting for the transaction
contemplated; (f) Cross shall have received from Coopers & Lybrand L.L.P.,
Cross' independent accountants, a letter to the effect that they concur with the
conclusions of Cross' management that no conditions exist with respect to Cross
which would preclude Cross from being a party to a merger accounted for as a
pooling of interests; and (g) the shares of Interpore Common Stock to be issued
in the Merger and upon exercise and the Cross Options shall have been authorized
for inclusion on the Nasdaq National Market, subject to official notice of
issuance.
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The obligation of Interpore to effect the Merger are subject to the
satisfaction (or waiver) of the following conditions: (a) the representations
and warranties of Cross set forth in the Merger Agreement shall be true and
correct as of the date of the Merger Agreement and (except to the extent such
representations speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date, except for, (i) changes contemplated by the
Merger Agreement and (ii) inaccuracies or changes which, individually or in the
aggregate, have not had and are not reasonably likely to have a Material Adverse
Effect on Cross or a material adverse effect upon the consummation of the
transactions contemplated hereby; and Interpore shall have received a
certificate signed on behalf of Cross by the chief executive officer and the
chief financial officer of Cross to such effect (the "Interpore Representation
Bringdown Condition"); (b) Cross shall have performed in all material respects
all obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date, and Interpore shall have received a certificate
signed on behalf of Cross by the chief executive officer and the chief financial
officer of Cross to such effect; (c) Edward R. Funk shall have resigned his
employment with Cross and its subsidiaries, and Cross shall have terminated (i)
Mr. Funk's current employment agreements with Cross and its subsidiaries, (ii)
that certain Split Dollar Insurance Plan between Cross and Edward R. Funk
Irrevocable Trust life Insurance Trust #1 as the Owner dated 11/10/88 and (iii)
that certain Split Dollar Insurance Plan between Cross and Edward R. Funk
Irrevocable Trust Life Insurance Trust #2 as the Owner dated 11/10/88; (d) Cross
shall have obtained products liability insurance policies covering any Cross
spinal fixation products used in surgeries on or after January 1, 1995 and on or
before December 31, 1996, for claims brought on or before December 31, 2003,
without regard to the date of injury, with coverage in an amount equal to $5
million per occurrence and $5 million in the aggregate per calendar year, for a
total purchase price not to exceed $400,000; provided such policies shall not
contain exclusions other than those reasonably acceptable to Interpore. Such
insurance coverage shall be in addition to Cross' existing coverage; (e)
Stockholders of Cross making written demand pursuant to Section 262(d)(1) of the
DGCL to exercise appraisal rights with respect to the Merger shall hold fewer
than five percent (5%) of the outstanding shares of Cross Common Stock; and (f)
shareholders of Interpore making written demand pursuant to Chapter 13 of the
CGCL to exercise dissenters' rights with respect to the Merger shall hold fewer
than five percent (5%) of the outstanding shares of Interpore Common Stock.
The obligation of Cross to effect the Merger are subject to the satisfaction
(or waiver) of the following conditions: (a) the representations and warranties
of Interpore set forth in the Merger Agreement shall be true and correct as of
the date of the Merger Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date, except for (i) changes contemplated by the
Merger Agreement and (ii) inaccuracies or changes which, individually or in the
aggregate, have not had and are not reasonably likely to have a Material Adverse
Effect on Interpore, or a material adverse effect upon the consummation of the
transactions contemplated hereby; and Cross shall have received a certificate
signed on behalf of Interpore by the chief executive officer and the chief
financial officer of Interpore to such effect (the "Cross Representation
Bringdown Condition"); (b) Interpore shall have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date; and Cross shall have received a
certificate signed on behalf of Interpore by the chief executive officer and the
chief financial officer of Interpore to such effect; (c) Cross shall have
received the opinion of Porter, Wright, Morris & Arthur, counsel to Cross, based
upon reasonably requested representation letters and dated the Closing Date, to
the effect that the Merger will be treated as a reorganization described in
Section 368(a) of the Code; provided, however, that this condition shall be
deemed to have been waived by Cross if Cross fails to take all reasonable steps,
including making all necessary representations, to enable Porter, Wright, Morris
& Arthur to issue their opinion and provided, further, that in rendering such
tax opinion, Porter, Wright, Morris & Arthur shall be entitled to make certain
reasonable qualifications and assumptions and to rely upon the representations
contained in Sections 3.16 and 4.16 of the Merger Agreement and such other
representations as it reasonably deems necessary, including, without limitation,
representations of Cross' officers and stockholders holding in excess of five
percent (5%) of the outstanding Cross Common Stock, and representations of
officers of Interpore in each case reasonably satisfactory in form and substance
to Porter, Wright, Morris & Arthur; and (d) no event shall have occurred that
has or would result in the triggering of any right or entitlement of
shareholders of Interpore under the Interpore Rights Plan, or will occur as a
result of the consummation of the Merger.
A "Material Adverse Effect" means a material adverse effect on the business,
properties, financial condition or results of operations of the referenced
corporation and its subsidiaries, taken as a whole.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of Interpore and Cross:
(a) by mutual written consent of Interpore and Cross; or
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(b) by either Interpore or Cross if the Merger has not been consummated by
June 30, 1998 (provided that (i) either Interpore or Cross may extend such date
to August 31, 1998 by providing written notice thereof to the other party on or
prior to June 30, 1998 (August 31, 1998, as it may be so extended, will be
referred to herein as the "Outside Date") and (ii) the right to terminate the
Merger Agreement under this clause (b) will not be available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date); or
(c) by either Interpore or Cross if a court of competent jurisdiction or
other Governmental Entity has issued a nonappealable final order, decree or
ruling or taken any other nonappealable final action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; or
(d) (i) by Interpore or Cross, if, at the Cross Stockholders' Meeting (as
defined below) (including any adjournment or postponement), the requisite vote
of the stockholders of Cross in favor of the approval and adoption of the Merger
Agreement and the Merger has not been obtained; or (ii) by Cross or Interpore
if, at the Interpore Shareholders' Meeting (as defined below) (including any
adjournment or postponement), the requisite vote of the shareholders of
Interpore in favor of the approval and adoption of the Merger Agreement and the
Merger has not been obtained; or
(e) by Interpore, if (i) the Cross Board of Directors has withdrawn or
modified its recommendation of the Merger Agreement or the Merger (provided that
Interpore's right to terminate the Merger Agreement under such clause (i) will
not be available if at such time Cross would be entitled to terminate the Merger
Agreement by reason of a breach by Interpore); (ii) after the receipt by Cross
of an Acquisition Proposal, Interpore requests in writing that the Cross Board
of Directors reconfirm its recommendation of the Merger Agreement and the Merger
to the stockholders of Cross and the Cross Board of Directors fails to do so
within 10 business days after its receipt of Interpore's request; (iii) the
Cross Board of Directors has recommended to the stockholders of Cross an
Alternative Transaction (as defined in the Merger Agreement); (iv) a tender
offer or exchange offer for 20% or more of the outstanding shares of Cross
Common Stock is commenced (other than by Interpore or an Affiliate of Interpore)
and the Cross Board of Directors recommends that the stockholders of Cross
tender their shares in such tender or exchange offer; or (v) for any reason
Cross fails to call and hold a meeting of Cross' stockholders to consider the
Merger and the Merger Agreement (the "Cross Stockholders Meeting") by the
Outside Date (provided that Interpore's right to terminate the Merger Agreement
under such clause (v) will not be available if at such time Cross would be
entitled to terminate the Merger Agreement by reason of a breach by Interpore);
or
(f) by Cross, if (i) the Interpore Board of Directors has withdrawn or
modified its recommendation of the Merger Agreement or the Merger (provided that
Cross' right to terminate the Merger Agreement under such clause (i) will not be
available if at such time Interpore would be entitled to terminate the Merger
Agreement by reason of a breach by Cross); (ii) after the receipt by Interpore
of an Acquisition Proposal, Cross requests in writing that the Interpore Board
of Directors reconfirm its recommendation of the Merger Agreement and the Merger
to the stockholders of Cross and the Interpore Board of Directors fails to do so
within 10 business days after its receipt of Cross' request; (iii) the Interpore
Board of Directors has recommended to the shareholders of Interpore an
Alternative Transaction; (iv) a tender offer or exchange offer for 20% or more
of the outstanding shares of Interpore Common Stock is commenced (other than by
Cross or an Affiliate of Cross) and the Interpore Board of Directors recommends
that the shareholders of Interpore tender their shares in such tender or
exchange offer; or (v) for any reason Interpore fails to call and hold a meeting
of Interpore's shareholders to consider the Merger and the Merger Agreement (the
"Interpore Shareholders Meeting") by the Outside Date (provided that Cross'
right to terminate the Merger Agreement under such clause (v) will not be
available if at such time Interpore would be entitled to terminate the Merger
Agreement by reason of a breach of Cross); or
(g) by Interpore or Cross, prior to the approval of the Merger Agreement by
the stockholders of such party, if, as a result of a Superior Proposal received
by such party from a third party, the Board of Directors of such party
determines in good faith after consultation with outside legal counsel that
accepting such Superior Proposal is required for such Board of Directors to
comply with its fiduciary duties to stockholders under applicable law; provided,
however, that no such termination will be effective pursuant to this clause (g)
under circumstances in which a termination fee is payable by the terminating
party as described below, unless concurrently with such termination, such
termination fee is paid in full by the terminating party as described below; or
(h) by Interpore or Cross, if (A) there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in the Merger Agreement, which breach (i) will cause the Cross
Representation Bringdown Condition (in the case of termination by Interpore) or
the Interpore Representation Bringdown Condition (in the case of termination by
Cross) not to be satisfied, and (ii) has not been cured within 20 business days
following receipt by the breaching party of written notice of such breach from
the other party; or (B) any event has occurred which makes it impossible for the
conditions described above under " -- Conditions to Obligations to Effect the
Merger" (other than the conditions regarding stockholder approval of the Merger,
the
49
<PAGE> 55
absence of injunctions by Government Entities and the triggering of the
Interpore Rights Plan) to be satisfied, provided that any termination pursuant
to this clause (B) will not be effective until 20 business days after notice
thereof is delivered by the party seeking to terminate to the other party, and
will be automatically rescinded if (1) such condition is solely for the benefit
of the party receiving such notice and (2) such party, prior to such 20th
business day, irrevocably waives satisfaction of such condition based on such
event.
In the event of any termination of the Merger Agreement by either Interpore
or Cross as provided above, the Merger Agreement will become void and there will
be no liability or obligation (with limited exceptions) on the part of
Interpore, Cross, Interpore or their respective officers, directors,
stockholders or affiliates, except with respect to the respective obligations of
Interpore and Cross to Genesis and Piper Jaffray under the letter agreements
between Interpore and Genesis and between Cross and Piper Jaffray and as
provided below with respect to termination fees and except that such termination
will not limit liability for a willful breach of the Merger Agreement; provided
that, the indemnification provisions described above under " -- Director and
Officer Indemnification" and the termination fee provisions described below will
remain in full force and effect and survive any termination of the Merger
Agreement.
Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses.
Interpore will pay Cross a termination fee of $2.0 million (the "Interpore
Termination Fee") upon the earliest to occur of the following events: (i) the
termination of the Merger Agreement by either Cross or Interpore under the
circumstances described in paragraph (d) above, if a proposal for an Alternative
Transaction involving Interpore has been publicly announced prior to the
Interpore Annual Meeting and either a definitive agreement for an Alternative
Transaction is entered into, or an Alternative Transaction is consummated,
within eighteen months of such termination; (ii) the termination of the Merger
Agreement by Cross under the circumstances described in paragraph (f) above; or
(iii) the termination of the Merger Agreement by Interpore under the
circumstances described in paragraph (g) above. Interpore's payment of such
termination fee will be the sole and exclusive remedy of Cross against Interpore
and any of its subsidiaries and their respective directors, officers, employees,
agents, advisors or other representatives with respect to the occurrences giving
rise to such payment; provided that this limitation will not apply in the event
of a willful breach of the Merger Agreement by Interpore. Notwithstanding the
foregoing, the amount of the Interpore Termination Fee will be reduced to the
extent that the Interpore Total Profit (as defined below under "Other Agreements
- -- Interpore Stock Option Agreement") exceeds $2.0 million.
Cross will pay Interpore a termination fee of $2.0 million (the "Cross
Termination Fee") upon the earliest to occur of the following events: (i) the
termination of the Merger Agreement by either Cross or Interpore under the
circumstances described in paragraph (d) above, if a proposal for an Alternative
Transaction involving Cross has been publicly announced prior to the Cross
Annual Meeting and either an Alternative Transaction is entered into, or an
Alternative Transaction is consummated, within eighteen months of such
termination; (ii) the termination of the Merger Agreement by Interpore under the
circumstances described in paragraph (e) above; or (iii) the termination of the
Merger Agreement by Cross under the circumstances described in paragraph (g)
above. Cross' payment of such termination fee will be the sole and exclusive
remedy of Interpore against Cross and any of its subsidiaries and their
respective directors, officers, employees, agents, advisors or other
representatives with respect to the occurrences giving rise to such payment;
provided that this limitation will not apply in the event of a willful breach of
the Merger Agreement by Cross. Notwithstanding the foregoing, the amount of the
Cross Termination Fee will be reduced to the extent that the Cross Total Profit
(as defined below under "Other Agreements -- Cross Stock Option Agreement")
exceeds $2.0 million.
If applicable, the fees payable as described above will be paid concurrently
with the first to occur of the relevant termination events.
AMENDMENT AND WAIVER
The Merger Agreement provides that it may be amended by the parties thereto,
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Interpore or Cross, but, after any such approval,
no amendment shall be made which by law requires further approval by such
stockholders without such further approval. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. At any time prior to the Effective Time, the parties to the
Merger Agreement, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto, (ii) waive any inaccuracies in the representations
50
<PAGE> 56
and warranties contained herein or in any document delivered pursuant thereto
and (iii) waive compliance with any of the agreements or conditions contained
therein. Any agreement on the part of a party to the Merger Agreement to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
OTHER AGREEMENTS
The following is a brief summary of the terms of the Interpore Stock Option
Agreement, the Cross Stock Option Agreement, the Interpore Shareholder Agreement
and the Cross Stockholder Agreement, copies of which agreements are filed as
exhibits to Interpore's Current Report on Form 8-K, dated February 17, 1998 and
Cross' Current Report on Form 8-K, dated February 18, 1998. Stockholders are
encouraged to review the Stock Option Agreements and the Stockholder Agreements
in their entirety.
INTERPORE STOCK OPTION AGREEMENT
Pursuant to the Interpore Stock Option Agreement, Interpore has the right
(the "Interpore Option"), under the circumstances described below, to acquire
authorized but unissued shares of Cross Common Stock in an amount up to 19.9% of
the shares of authorized Cross Common Stock outstanding immediately prior to
giving effect to the exercise of such option (the "Interpore Option Shares"), at
a per share cash purchase price of $9.75 (the "Interpore Option Price"). The
Interpore Stock Option Agreement could have the effect of making an acquisition
of Cross by a third party more costly because of the need to acquire in any such
transaction the Interpore Option Shares issued under the Interpore Stock Option
Agreement, and could also jeopardize the ability of a third party to acquire
Cross in a transaction accounted for as a pooling of interests.
The Interpore Option may be exercised by Interpore, in whole or in part, at
any time or from time to time after the occurrence of an event which would
entitle Interpore, upon termination of the Merger Agreement, to payment of the
Cross Termination Fee (as described above in "The Merger Agreement --
Termination; Termination Fees and Expenses"); provided that the Interpore Option
may not be exercised if Interpore is in material breach of any of its material
representations, warranties, covenants or agreements contained in the Interpore
Stock Option Agreement or in the Merger Agreement. Interpore may exercise the
Interpore Option by either (a) paying the Interpore Option Price in cash and
receiving the Interpore Option Shares or (b) electing, in lieu of the payment of
the Interpore Option Price and the receipt of the Interpore Option Shares, to
receive a cash payment (the "Cash Exercise Payment") from Cross in the amount of
the excess of (i) the higher of the price paid for the Cross Common Stock in an
Alternative Transaction or the then current market price of the Cross Common
Stock over (ii) the Interpore Option Price.
In the event that Interpore exercises the Interpore Option in whole or in
part and a change in control event (as defined in the Interpore Stock Option
Agreement) with respect to Cross has not occurred prior to the first anniversary
of the termination of the Merger Agreement, Cross will have the right, during
the 30-day period beginning on such anniversary, to purchase all (but not less
than all) of the Interpore Option Shares at a purchase price equal to the
greater of (i) the Interpore Option Price or (ii) the average of the closing
sales prices for shares of Cross Common Stock on the 20 trading days ending five
days prior to the date Cross gives notice of its intention to exercise such
repurchase right.
The Interpore Stock Option Agreement further provides that if Interpore
desires to sell any of the Interpore Option Shares within three years after the
purchase of such shares and such sale requires the registration of such shares
under the Securities Act, Cross will be required to prepare and file (subject to
certain limitations) a registration statement under the Securities Act for the
purpose of permitting such sale of shares by Interpore. Cross will not be
required to have declared effective more than one such registration statement.
Notwithstanding any other provisions of the Interpore Stock Option
Agreement, in no event will the Interpore Total Profit (as defined below) exceed
$2.0 million. "Interpore Total Profit" means the aggregate amount (before taxes)
of (i) the Cross Termination Fee received by Interpore, (ii) the amount received
by Interpore for the repurchase of the Interpore Option Shares by Cross pursuant
to the second preceding paragraph, less the purchase price paid by Interpore for
such shares, and (iii) the amount received by Interpore in the sale of Interpore
Option Shares, less the purchase price paid by Interpore for such shares.
The Interpore Option will terminate upon the earlier of (i) the Effective
Time, (ii) the date on which Interpore realizes a Interpore Total Profit of $2.0
million, (iii) the date on which the Merger Agreement is terminated, provided
that the Interpore Option is not exercisable at such time and does not become
exercisable simultaneous with such termination, and (iv) 90 days after the date
the Interpore Option becomes exercisable, provided that if
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<PAGE> 57
the Interpore Option cannot be exercised, or the Interpore Option Shares cannot
be delivered to Cross upon such exercise, because of a preliminary or permanent
injunction or other court order or because the applicable waiting period under
the HSR Act has not expired or been terminated, the date referred to in clause
(iv) above will be extended until 30 days after such impediment to exercise has
been removed.
CROSS STOCK OPTION AGREEMENT
Pursuant to the Cross Stock Option Agreement, Cross has the right (the
"Cross Option"), under the circumstances described below, to acquire authorized
but unissued shares of Interpore Common Stock in an amount up to 19.9% of the
shares of Interpore Common Stock outstanding immediately prior to giving effect
to the exercise of such option (the "Cross Option Shares"), including the
associated rights under the Interpore Rights Plan, at a per share cash purchase
price of $8.25 (the "Cross Option Price"). The Cross Stock Option Agreement
could have the effect of making an acquisition of Interpore by a third party
more costly because of the need to acquire in any such transaction the Cross
Option Shares issued under the Cross Stock Option Agreement, and could also
jeopardize the ability of a third party to acquire Interpore in a transaction
accounted for as a pooling of interests.
The Cross Option may be exercised by Cross, in whole or in part, at any time
or from time to time after the occurrence of an event which would entitle Cross,
upon termination of the Merger Agreement, to payment of the Interpore
Termination Fee (as described above in "The Merger Agreement -- Termination;
Termination Fees and Expenses"); provided that the Cross Option may not be
exercised if Cross is in material breach of any of its material representations,
warranties, covenants or agreements contained in the Cross Stock Option
Agreement or the Merger Agreement. Cross may exercise the Cross Option by either
(a) paying the Cross Option Price in cash and receiving the Cross Option Shares
or (b) electing, in lieu of the payment of the Cross Option Price and the
receipt of the Cross Option Shares, to receive a Cash Exercise Payment from
Interpore in the amount of the excess of (i) the higher of the price paid for
the Interpore Common Stock in an Alternative Transaction or the then current
market price of the Interpore Common Stock over (ii) the Cross Option Price.
In the event Cross exercises the Cross Option in whole or in part and a
change in control event (as defined in the Cross Stock Option Agreement) with
respect to Interpore has not occurred prior to the first anniversary of the
termination of the Merger Agreement, Interpore will have the right, during the
30-day period beginning on such anniversary, to purchase all (but not less than
all) of the Cross Option Shares at a purchase price equal to the greater of (i)
the Cross Option Price or (ii) the average of the closing sales prices for
shares of Interpore Common Stock on the 20 trading days ending five days prior
to the date Interpore gives notice of its intention to exercise such repurchase
right.
The Cross Stock Option Agreement further provides that if Cross desires to
sell any of the Cross Option Shares within three years after the purchase of
such shares and such sale requires the registration of such shares under the
Securities Act, Interpore will be required to prepare and file (subject to
certain limitations) a registration statement under the Securities Act for the
purpose of permitting such sale of shares by Cross. Interpore will not be
required to have declared effective more than one such registration statement.
Notwithstanding any other provisions of the Cross Stock Option Agreement, in
no event will the Cross Total Profit (as defined below) exceed $2.0 million.
"Cross Total Profit" means the aggregate amount (before taxes) of (i) the
Interpore Termination Fee received by Cross, (ii) the amount received by Cross
for the repurchase of the Cross Option Shares by Interpore pursuant to the
second preceding paragraph, less the purchase price paid by Cross for such
shares, and (iii) the amount received by Cross in the sale of Cross Option
Shares, less the purchase price paid by Cross for such shares.
The Cross Option will terminate upon the earlier of (i) the Effective Time,
(ii) the date on which Cross realizes a Cross Total Profit of $2.0 million,
(iii) the date on which the Merger Agreement is terminated, provided that the
Cross Option is not exercisable at such time and does not become exercisable
simultaneous with such termination, and (iv) 90 days after the date the Cross
Option becomes exercisable, provided that if the Cross Option cannot be
exercised, or the Interpore Option Shares cannot be delivered to Interpore upon
such exercise, because of a preliminary or permanent injunction or other court
order or because the applicable waiting period under the HSR Act has not expired
or been terminated, the date referred to in clause (iv) above will be extended
until 30 days after such impediment to exercise has been removed.
INTERPORE SHAREHOLDER AGREEMENT
As an inducement and condition to the willingness of Cross and Interpore to
enter into the Merger Agreement and the Stock Option Agreements, Cross and the
Interpore Shareholders entered into the Interpore Shareholder
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<PAGE> 58
Agreement. The Interpore Shareholders are David C. Mercer and Burr, Egan Deleage
& Co. Collectively, the Interpore Shareholders held, at the record date for the
Interpore Annual Meeting and the record date for the Cross Annual Meeting,
respectively, approximately 9% of the combined voting power of the outstanding
capital stock of Interpore, and therefore, together, may be able to influence
the vote on the approval and adoption of the Merger Agreement and the
transactions contemplated thereby by the Interpore Shareholders.
Under the terms of the Interpore Shareholder Agreement, each Interpore
Shareholder has agreed, at the Interpore Annual Meeting or at any other meeting
of the shareholders of Interpore, however called, and in any action by written
consent of the shareholders of Interpore, to vote all of such Interpore
Shareholder's shares of Interpore Common Stock (a) in favor of the adoption of
the Merger Agreement and the approval of the Merger, and the other transactions
contemplated by the Merger Agreement, and (b) in favor of any other matter
necessary to the consummation of the transactions contemplated by the Merger
Agreement and considered and voted upon by the shareholders of Interpore (or any
class thereof). In addition, each Interpore Shareholder has agreed that it will,
upon request by Cross, furnish written confirmation, in form and substance
reasonably satisfactory to Cross, of such Interpore Shareholders' support for
the Merger Agreement and the Merger.
Pursuant to the terms of the Interpore Shareholder Agreement, each Interpore
Shareholder has agreed (a) that it will not, nor will it authorize or permit any
of its officers, directors, employees, agents and representatives to, directly
or indirectly, initiate or solicit any inquiries or the making of any
Acquisition Proposal and (b) that it will notify Cross as soon as possible (and
in any event within 48 hours) if any such inquiries or proposals are received
by, any information or documents is requested from, or any negotiations or
discussions are sought to be initiated or continued with, it or any of its
affiliates.
The Interpore Shareholder Agreement will terminate upon the earliest to
occur of the Effective Time or any termination of the Merger Agreement in
accordance with the terms thereof.
CROSS STOCKHOLDER AGREEMENT
As an inducement and condition to the willingness of Cross and Interpore to
enter into the Merger Agreement and the Stock Option Agreements, Interpore and
the Cross Stockholders entered into the Cross Stockholder Agreement. The Cross
Stockholders are Joseph A. Mussey, Edward R. Funk and Ingeborg V. Funk,
individually and as tenants in common and Curtis A. Loveland, as (i) Trustee of
the Edward R. Funk Irrevocable Generation Skipping Trust UA DTD 11/16/87, (ii)
Trustee of the Ingeborg V. Funk Irrevocable Generation Skipping Trust FBO Robert
H. Peitz, et al. UA DTD 12/30/87, and (iii) Trustee of the Irrevocable
Generation Skipping Trust FBO Christine A. Schultheis, et al. UA DTD 12/30/87.
Collectively, the Cross Stockholders held, at the record date for the Cross
Annual Meeting and the record date for the Interpore Annual Meeting,
respectively, approximately 27% of the combined voting power of the outstanding
capital stock of Cross, and therefore, together, are able to significantly
influence the vote on the approval and adoption of the Merger Agreement and the
transactions contemplated thereby by the Cross stockholders.
Pursuant to the terms of the Cross Stockholder Agreement, each Cross
Stockholder has agreed, at the Cross Annual Meeting or at any other meeting of
the stockholders of Cross, however called, and in any action by written consent
of the stockholders of Cross, to vote all of such Cross Stockholder's shares of
Cross Common Stock (a) in favor of the adoption of the Merger Agreement and the
approval of the Merger, and the other transactions contemplated by the Merger
Agreement, and (b) in favor of any other matter necessary to the consummation of
the transactions contemplated by the Merger Agreement and considered and voted
upon by the shareholders of Cross (or any class thereof). In addition, each
Cross Stockholder has agreed that it will, upon request by Cross, furnish
written confirmation, in form and substance reasonably satisfactory to Cross, of
such Cross Stockholders' support for the Merger Agreement and the Merger.
Pursuant to the terms of the Cross Stockholder Agreement, each Cross
Stockholder has agreed (a) that it will not, nor will it authorize or permit any
of its officers, directors, employees, agents and representatives to, directly
or indirectly, initiate or solicit any inquiries or the making of any
Acquisition Proposal and (b) that it will notify Cross as soon as possible (and
in any event within 48 hours) if any such inquiries or proposals are received
by, any information or documents is requested from, or any negotiations or
discussions are sought to be initiated or continued with, it or any of its
affiliates.
The Cross Stockholder Agreement will terminate upon the earliest to occur of
the Effective Time or any termination of the Merger Agreement in accordance with
the terms thereof.
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DEBENTURES
In the second quarter of 1996, Cross issued a total of $5,250,000 of its
8.5% Convertible Subordinated Debentures due 2003. The Debentures bear interest,
payable semi-annually on each June 1 and December 1, at a rate of 8.5%. In
connection with the Merger, Interpore has agreed, within a reasonable time after
the Effective Time, to enter into a Supplemental Indenture (the "Supplemental
Indenture") with Fifth Third Bank (the "Trustee") under that certain Indenture
between Cross and the Trustee, dated as of May 15, 1996 (the "Existing
Indenture"), in connection with the issuance of the Debentures. The Supplemental
Indenture shall provide that after the Effective Time, the holder of each
Debenture shall have the right to convert such Debenture into the same number of
shares of Interpore Common Stock that such holder would have been entitled to
receive in the Merger if such Debenture had been converted into Cross Common
Stock immediately prior to the Effective Time, subject to adjustment pursuant to
Section 5.04 of the Existing Indenture. Notice of the execution of the
Supplemental Indenture shall be given to the holders of the Debentures within 30
days of the execution of the Supplemental Indenture.
As of April 3, 1998, the outstanding aggregate principal amount of the
Debentures was $4,983,000. The Debentures are currently convertible at any time
before maturity, unless previously redeemed, into shares of Cross Common Stock
at a conversion price of $8.125 per share (the "Conversion Price"), subject to
adjustment in certain events, and, after the Merger, will be convertible into
Interpore Common Stock at an adjusted Conversion Price. Upon the occurrence of
certain changes in control of Cross (including the Merger), Cross or the
surviving company must provide the Debenture holders with notice of the change
in control and Cross or the surviving company will be obligated to purchase the
Debentures, at the option of the holder of the Debentures, at 101% of the
principal amount thereof plus accrued interest. Beginning July 1, 1999, the
combined company will be obligated to redeem Debentures tendered by June 1, 1999
or June 1 of any succeeding year at their fair amount plus accrued interest,
subject to an annual limitation of $25,000 per holder and an aggregate of
$262,500.
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COMPARATIVE MARKET PRICES AND DIVIDENDS
The following table sets forth, for the periods indicated, the range of high
and low sale prices of Interpore Common Stock on the Nasdaq National Market, and
the high and low bid prices for Cross Common Stock in the over-the-counter
market as reported by the Nasdaq SmallCap Market. The prices shown represent
quotations between dealers, without adjustment for retail markups, markdowns or
commissions, and may not represent actual transactions.
Effective March 21, 1997, Cross changed its name to Cross Medical Products,
Inc. and is currently trading under the symbol "CRSS". Cross Common Stock had
previously traded under the symbol "DANN".
<TABLE>
<CAPTION>
INTERPORE COMMON STOCK CROSS COMMON STOCK
---------------------- ---------------------
HIGH LOW HIGH LOW
------ ------ ----- -----
<S> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31, 1998
2nd Quarter(1)..................... $ 6.00 $5.50 $7.31 $6.63
1st Quarter ....................... 9.13 5.50 9.75 7.00
YEAR ENDED DECEMBER 31, 1997
4th Quarter........................ $12.25 $5.50 $9.75 $7.50
3rd Quarter........................ 9.00 4.17 8.88 6.88
2nd Quarter........................ 5.38 4.00 7.38 6.00
1st Quarter........................ 6.25 4.25 9.13 7.25
YEAR ENDED DECEMBER 31, 1996
4th Quarter........................ $ 6.00 $4.25 $9.00 $6.25
3rd Quarter........................ 6.13 4.25 7.50 5.25
2nd Quarter........................ 9.00 5.00 9.00 6.25
1st Quarter........................ 7.00 4.63 8.00 5.75
</TABLE>
(1) As of April 3, 1998.
On February 11, 1998, the last trading date prior to the date on which
Interpore and Cross publicly announced the signing of the Merger Agreement, the
high and low sales prices were $8.375 and $7.875 per share, respectively, for
Interpore Common Stock, and $9.75 and $8.625 per share, respectively, for Cross
Common Stock. The average closing price of Interpore Common Stock for the 30
consecutive trading days ending February 11, 1998 was $7.26 per share. The
average closing price of Cross Common Stock for the 30 consecutive trading days
ending February 11, 1998 was $8.88 per share. On April 3, 1998, the high and low
sales prices and last reported sales price on Nasdaq were $5.94, $5.50 and
$5.50 per share for Interpore Common Stock, and $7.00, $6.63 and $6.63 per
share, respectively, for Cross Common Stock. Stockholders of both Interpore and
Cross are urged to obtain current market quotations for Interpore Common Stock
and Cross Common Stock.
Interpore and Cross have not declared or paid any dividends with respect to
Interpore Common Stock or Cross Common Stock, respectively. Neither Interpore
nor Cross currently intends to declare or pay any cash dividends on its Common
Stock. Any determination to pay dividends in the future will be at the
discretion of the companies' Boards of Directors and will be dependent upon the
companies' results of operations, financial conditions, capital expenditures,
working capital requirements, any contractual restrictions and other factors
deemed relevant by the companies' Boards of Directors.
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UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combining Balance Sheet as of
December 31, 1997 presents the unaudited pro forma financial condition of the
combined companies as if the Merger had occurred as of December 31, 1997. The
following Unaudited Pro Forma Condensed Combining Statements of Operations for
the years ended December 31, 1997, 1996 and 1995 present unaudited pro forma
operating results for the combined companies as if the Merger had occurred as of
the beginning of the periods presented. The Unaudited Pro Forma Condensed
Combining Balance Sheet and the Unaudited Pro Forma Condensed Combining
Statements of Operations are collectively referred to as the "Pro Forma
Condensed Combining Financial Statements."
The unaudited pro forma adjustments are described in the accompanying notes.
The unaudited pro forma adjustments represent a preliminary determination of the
necessary adjustments and are based upon certain assumptions considered
reasonable under the circumstances. Final amounts may differ from those set
forth. The Unaudited Pro Forma Condensed Combining Financial Statements
presented do not consider any future events which may occur after the Merger,
other than those set forth in the accompanying notes. The Unaudited Pro Forma
Condensed Combining Statements of Operations do not give effect to any
transaction charges associated with the consummation of the Merger. The
Unaudited Pro Forma Condensed Combining Balance Sheet has been adjusted to
reflect these estimated obligations. All such costs are estimated to aggregate
$4.0 million ($2.4 million net of tax effects). The Unaudited Pro Forma
Condensed Combining Financial Statements have been prepared on the basis that
the Merger will be accounted for as a pooling of interests. There are no
intercompany transactions or balances included in the Unaudited Pro Forma
Condensed Combining Financial Statements and no material adjustments are
required to conform the accounting policies of Interpore and Cross.
THE UNAUDITED PRO FORMA FINANCIAL INFORMATION IS PRESENTED FOR INFORMATIONAL
PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING RESULTS OR
FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE MERGER BEEN CONSUMMATED AT
THE DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF FUTURE OPERATING
RESULTS OR FINANCIAL CONDITION OF THE COMBINED COMPANIES FOLLOWING THE MERGER.
The Unaudited Pro Forma Condensed Combining Financial Statements should be
read in conjunction with the consolidated financial statements of Interpore and
Cross appearing elsewhere in this Joint Proxy Statement/Prospectus.
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<PAGE> 62
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET AS OF DECEMBER 31, 1997
(in thousands)
PRO FORMA PRO FORMA
INTERPORE CROSS ADJUSTMENTS COMBINED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 10,221 $ 1,588 $ $ 11,809
Short-term investments ................................ 3,326 1,500 4,826
Accounts receivable, net .............................. 2,286 4,304 6,590
Inventories ........................................... 1,915 8,459 10,374
Prepaid expenses and other current .................... 1,194 207 1,401
assets
Deferred income taxes ................................. 571 883 1,454
-------- -------- -------- --------
Total current assets .............................. 19,513 16,941 36,454
Property, plant and equipment, net ...................... 580 970 1,550
Intangible assets, net .................................. -- 183 183
Deferred income taxes ................................... 2,639 -- 585 (1) 3,224
Other assets ............................................ 44 668 712
-------- -------- -------- --------
Total assets .................................... $ 22,776 $ 18,762 $ 585 $ 42,123
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion, term debt and
capital lease obligations.............................. $ -- $ 95 $ $ 95
Accounts payable and accrued expenses ................. 1,192 1,813 3,005
Accrued disposition costs ............................. -- 610 610
Accrued income taxes .................................. (52) 1,067 (1,015)(1) --
Accrued merger and restructuring charges............... -- -- 4,000 4,000
-------- -------- -------- --------
Total current liabilities ......................... 1,140 3,585 2,985 7,710
-------- -------- -------- --------
Term debt, net of current maturities .................... -- 5,080 5,080
Obligations under capital leases, net
of .................................................... -- 44 44
current maturities
Deferred income taxes ................................... -- 55 55
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock ........................... 208 -- 208
Common stock .......................................... 36,043 53 6,948 (2) 43,044
Additional paid-in capital ............................ -- 6,948 (6,948)(2) --
Retained earnings (deficit) ........................... (14,615) 2,997 (2,400)(1) (14,018)
-------- -------- -------- --------
Total shareholders' equity ........................ 21,636 9,998 (2,400) 29,234
-------- -------- -------- --------
Total liabilities and .............................
shareholders' equity $ 22,776 $ 18,762 $ 585 $ 42,123
======== ======== ======== ========
</TABLE>
See accompanying notes
57
<PAGE> 63
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share data)
PRO FORMA
INTERPORE CROSS COMBINED
-------- -------- --------
<S> <C> <C> <C>
Net sales ...................................................................... $ 15,511 $ 12,918 $ 28,429
Cost of goods sold ............................................................. 3,187 5,923 9,110
-------- -------- --------
Gross profit ................................................................. 12,324 6,995 19,319
-------- -------- --------
Operating expenses:
Selling, general and administrative .......................................... 9,569 6,689 16,258
Research and development ..................................................... 1,994 1,226 3,220
Loss on sale of dental business .............................................. 617 -- 617
-------- -------- --------
Total operating expenses ................................................... 12,180 7,915 20,095
-------- -------- --------
Income (loss) from continuing operations ....................................... 144 (920) (776)
Total interest and other income, net ......................................... 992 (426) 566
-------- -------- --------
Income (loss) from continuing operations before ................................ 1,136 (1,346) (210)
income taxes
Income tax benefit ............................................................. (1,635) (484) (2,119)
-------- -------- --------
Net income (loss) from continuing operations ................................... $ 2,771 $ (862) $ 1,909
======== ======== ========
Net income (loss) per share from continuing operations:
Basic ........................................................................ $ .40 $ (.17) $ .14
Diluted ...................................................................... $ .37 $ (.17) $ .13
======== ======== ========
Shares used in computing net income (loss) per share from continuing operations:
Basic ........................................................................ 7,002 5,065 13,460
Diluted ...................................................................... 7,401 5,065 14,908
</TABLE>
See accompanying notes
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share data)
PRO FORMA
INTERPORE CROSS COMBINED
-------- -------- --------
<S> <C> <C> <C>
Net sales ............................................................... $ 19,917 $ 8,572 $ 28,489
Cost of goods sold ...................................................... 5,643 3,854 9,497
-------- -------- --------
Gross profit ............................................................ 14,274 4,718 18,992
-------- -------- --------
Operating expenses:
Selling, general and administrative ................................. 12,378 4,330 16,708
Research and development ............................................ 2,001 687 2,688
-------- -------- --------
Total operating expenses ................................................ 14,379 5,017 19,396
-------- -------- --------
Loss from continuing operations ......................................... (105) (299) (404)
Total interest and other income, net .................................... 763 (439) 324
-------- -------- --------
Income (loss) from continuing operations before
income taxes .......................................................... 658 (738) (80)
Income tax benefit ...................................................... -- (788) (788)
-------- -------- --------
Net income from continuing operations ................................... $ 658 $ 50 $ 708
======== ======== ========
Net income per share from continuing operations:
Basic ............................................................... $ .09 $ .01 $ .05
Diluted ............................................................. $ .09 $ .01 $ .05
======== ======== ========
Shares used in computing net income per share from continuing operations:
Basic ............................................................... 6,996 4,772 13,080
Diluted ............................................................. 7,468 4,772 14,530
</TABLE>
See accompanying notes.
58
<PAGE> 64
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
INTERPORE CROSS COMBINED
-------- -------- --------
<S> <C> <C> <C>
Net sales ................................................... $ 17,103 $ 4,091 $ 21,194
Cost of goods sold .......................................... 4,798 1,995 6,793
-------- -------- --------
Gross profit ................................................ 12,305 2,096 14,401
-------- -------- --------
Operating expenses:
Selling, general and administrative ........................ 9,982 3,224 13,206
Research and development ................................... 1,939 859 2,798
Provision for distributor returns .......................... 411 -- 411
-------- -------- --------
Total operating expenses ................................. 12,332 4,083 16,415
-------- -------- --------
Loss from continuing operations ............................. (27) (1,987) (2,014)
Total interest and other income, net ..................... 661 (101) 560
-------- -------- --------
Income (loss) from continuing operations before ............. 634 (2,088) (1,454)
income taxes
Income tax benefit .......................................... (1,404) (646) (2,050)
-------- -------- --------
Net income (loss) from continuing operations ................ $ 2,038 $ (1,442) $ 596
======== ======== ========
Net income (loss) per share from continuing operations:
Basic .................................................... $ .30 $ (.31) $ .05
Diluted .................................................. $ .27 $ (.31) $ .04
======== ======== ========
Shares used in computing net income (loss) per share
from continuing operations:
Basic .................................................... 6,752 4,661 12,695
Diluted .................................................. 7,535 4,661 13,478
</TABLE>
See accompanying notes.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
(1) The Unaudited Pro Forma Condensed Combining Statements of Operations
exclude the nonrecurring costs of the Merger, which are estimated at
$4.0 million ($2.4 million net of tax effects). This estimate includes
$2.2 million for financial advisor, legal, and accounting fees related
to the Merger and $1.8 million of costs associated with combining
certain operations of the two companies. The Unaudited Pro Forma
Condensed Combining Balance Sheet has been adjusted to reflect these
estimated obligations. The nonrecurring cost estimate is an estimate
only, although management believes it is not likely that material
additional costs will be incurred. The nonrecurring expenses will be
charged to operations upon the consummation of the Merger. Accumulated
deficit as of December 31, 1997 has been adjusted to reflect the
after-tax impact of the estimated costs of the Merger ($2.4 million).
Accrued merger and restructuring reflects the accrual of the pre-tax
estimated nonrecurring costs of $4.0 million. Deferred taxes and income
taxes payable have been adjusted to reflect the estimated current and
deferred tax benefits associated with the estimated charge.
(2) Shareholders' equity as of December 31, 1997 has been adjusted to
reflect the issuance of 6,661,000 shares of Interpore Common Stock in
exchange for all of the issued and outstanding shares of Cross Common
Stock, resulting in 13,765,538 shares issued and outstanding on a pro
forma basis. Pro forma combined shareholders' equity does not give any
effect to the proposed reincorporation of Interpore from California to
Delaware that Interpore shareholders are being asked to approve in this
Joint Proxy Statement/Prospectus. Should this reincorporation be
approved and effected approximately $42.9 million will be transferred
from the common stock account to the additional paid-in capital account
to present the common stock account at the par value of issued and
outstanding shares as required by Delaware corporate law.
(3) The pro forma combined diluted net income per share is based on the
combined weighted average number of common and common equivalent shares,
after adjusting Cross' weighted average number of common shares
outstanding and dilutive common share equivalents for the conversion
into Interpore Common Stock at a conversion ratio of 1.275 shares of
Interpore Common Stock in exchange for each share of Cross Common Stock.
Common share equivalents consist of common stock issuable upon the
exercise of outstanding options and warrants and upon conversion of
convertible subordinated debentures.
59
<PAGE> 65
PRO FORMA SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF COMBINED COMPANY
The following table sets forth the beneficial ownership of Interpore common
stock on a pro forma basis, giving effect to the Merger, by (i) each person
expected by Interpore to be the beneficial owner of more than 5% of any of
Interpore's voting securities, (ii) each person expected to be a director of
Interpore, (iii) the persons expected to be the Named Executive Officers (as
defined on page 107 hereof) of Interpore and (iv) all persons expected to be
Interpore's executive officers and directors as a group, based on such person's
or entity's ownership of Interpore Common Stock and Cross Common Stock as of
April 3, 1998. Except as indicated by the notes to the following table, the
holders listed below will have sole voting power and investment power over the
shares beneficially held by them and the beneficial ownership is direct.
<TABLE>
<CAPTION>
PRO FORMA BENEFICIAL
OWNERSHIP(1)(2)
--------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
--------- ----
<S> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
William A. Eisenecher ...................... 39,188 *
Daniel A. Funk, M.D.(3) .................... 318,403 2.3%
Richard L. Harrison(4) ..................... 64,049 *
G. Bradford Jones .......................... 42,292 *
David C. Mercer(4) ......................... 345,250 2.4%
Paul A. Miller(4)(5) ....................... 24,480 *
Joseph A. Mussey(4) ........................ 243,525 1.7%
Maxwell R. Simmonds(4) ..................... 188,000 1.3%
Robert J. Williams ......................... 12,750 *
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (14 INDIVIDUALS) .............. 1,771,118 11.8%
5% BENEFICIAL HOLDERS:
Heartland Advisors, Inc.(6) ................ 1,417,100 10.2%
Edward R. Funk(7) .......................... 1,037,229 7.5%
Ingeborg V. Funk(7) ........................ 1,037,229 7.5%
Curtis A. Loveland(8) ...................... 733,606 5.3%
</TABLE>
*less than 1%
(1) Includes shares subject to options and warrants which are exercisable within
60 days after April 3, 1998. All percentages assume that the options or
warrants of the particular person or group in question, and no others, have
been exercised.
(2) Presumes conversion of Interpore's Series E Preferred Stock into shares of
Interpore's Common Stock.
(3) Includes 15,827 shares owned by Dr. Daniel A. Funk's spouse, as to which he
expressly disclaims beneficial ownership.
(4) Messrs. Harrison, Mercer, Miller, Mussey and Simmonds are Named Executive
Officers.
(5) Includes 400 shares owned by Mr. Miller's minor children, as to which he
expressly disclaims beneficial ownership.
(6) Based on Schedule 13G filed by Heartland Advisors, Inc.
(7) Edward R. Funk and Ingeborg V. Funk are husband and wife. Under the rules of
the Securities and Exchange Commission, each may be deemed to beneficially
own the shares of the other; consequently, the number reported in the table
above for each includes 428,930 and 579,611 shares held of record by Dr.
Funk and Mrs. Funk, respectively, and 28,687 shares which could have been
acquired by Dr. Funk under stock options exercisable within 60 days of
February 25, 1998. Dr. and Mrs. Funk each expressly disclaim beneficial
ownership of shares held by the other.
(8) Includes 42,661 shares held by Mr. Loveland directly or in a self-directed
retirement account; 662,257 shares held of record by Mr. Loveland as trustee
for various irrevocable trusts for the benefit of Dr. and Mrs. Edward R.
Funk's children and grandchildren.
60
<PAGE> 66
THE BUSINESS OF INTERPORE
GENERAL
Interpore is a biomaterials company that develops, manufactures and markets
synthetic bone graft material for the orthopaedic, oral and maxillofacial
markets. Using Interpore's proprietary manufacturing processes, the unique
skeletal structures of certain species of coral are converted into biocompatible
bone graft materials. These materials have interconnected porosity, architecture
and chemical composition similar to that of human cancellous bone, and
facilitate bone and tissue ingrowth. Interpore markets synthetic bone graft
products under the Pro Osteon(R) label in the orthopaedic marketplace, which is
currently its primary market. Interpore's Pro Osteon 500 Porous Bone Graft
Substitute ("Pro Osteon 500") was the first synthetic bone graft material to be
approved and marketed as a medical device for orthopaedic applications in the
United States.
BUSINESS STRATEGY
Interpore's strategy is to capture an increasing share of the market for
bone graft materials by aggressively marketing Pro Osteon, and to develop
technological advances in bone and soft tissue repair products. In furtherance
of this strategy, between 1995 and 1997, Interpore established 31 domestic
direct sales territories to replace distributors and agents in areas where they
were underperforming. In addition, in January 1996, Interpore created an
international division responsible for developing an organization of independent
dealers outside the United States. Interpore's strategy also includes adding
complementary products that relate to the repair of bone and soft tissue, which
Interpore believes will enhance sales of its bone graft materials by providing a
broader product base and by providing more compensation potential for its sales
representatives. Interpore is currently focusing its efforts on the development
of osteoinductive (bone growth accelerating) materials and the regulatory
approval and commercialization of a resorbable coralline bone graft substitute
which is now available for sale in certain areas outside of the United States.
When appropriate, Interpore has and may continue to enter into strategic
alliances, partnerships or license arrangements with other companies to develop
new products.
MARKET OVERVIEW
Interpore believes that the market for bone graft materials is significant.
It is estimated that there are approximately 5.6 million fractures per year in
the United States, and that about one in eleven requires that bone be grafted
for proper healing. A recent market research study commissioned by Interpore
indicates that the United States market for bone grafts totals over 490,000
procedures. This includes a wide variety of procedures, with approximately 49%
of the procedures in the spine, 39% in other orthopaedic procedures, and about
12% in maxillofacial applications. According to Interpore's internal estimates,
the approved indication for Pro Osteon represents approximately 100,000
procedures annually in the United States.
There are currently three major categories of bone grafts: autograft,
allograft, and bone graft substitutes. In an autograft procedure, bone material
is harvested from another part of the patient's skeleton and grafted to the site
of the bone deficit. This second surgical procedure, harvesting the patient's
own bone, increases total operating time and expense, and can lead to
complications such as infection, chronic pain, deformity and excess blood loss.
When an autograft is not feasible or desirable, allograft bone, obtained from a
cadaver, can be used. While allograft bone is available from numerous bone
banks, its use carries the risks of implant rejection and transmission of
infectious agents such as hepatitis and HIV. Also, allograft bone is not always
readily available due to the storage, processing and donor screening required.
The third bone graft option is the use of a bone graft substitute such as Pro
Osteon. Interpore estimates that approximately 58% of the U.S. bone graft
procedures are autograft procedures, 30% are allografts, and 12% are bone graft
substitutes.
Interpore's Pro Osteon 500 was the first synthetic bone graft material to be
approved by the FDA. Since its approval in 1992, several bone graft substitute
products have become available. (See "The Business of Interpore --
Competition"). Bone graft substitutes have the advantage of avoiding the second
surgical procedure and resultant complications associated with an autograft, or
the rejection or disease transmission risks associated with allografts.
Interpore believes that for more significant growth to occur in the bone graft
substitute market, osteoinductive materials must be developed and
commercialized. See "The Business of Interpore -- Research and Development" and
" -- Competition."
PRODUCTS
500, Pro Osteon 200 Porous Bone Graft Substitute ("Pro Osteon 200"), Pro Osteon
500R Resorbable Bone Graft Substitute ("Pro Osteon 500R"),
61
<PAGE> 67
Interpore 200(R) Porous Hydroxyapatite Bone Void Filler ("Interpore 200") and
orbital implants. These products are derived from coral using a proprietary
Replamineform manufacturing process. See "The Business of Interpore --
Proprietary Rights." Under this process, the exoskeleton of marine coral
(calcium carbonate) is either partially or fully converted to calcium phosphate
through a hydrothermal exchange reaction. These biocompatible materials have
interconnected porosity, architecture and chemical composition similar to that
of human bone, and facilitate bone and tissue ingrowth.
Orthopaedic Product Line
Pro Osteon 500. At the time it received PMA approval from the FDA in October
1992, Pro Osteon 500 was the first commercially available bone graft substitute
for orthopaedic applications in the United States. In clinical studies, the use
of Pro Osteon 500 was demonstrated, radiographically and clinically, to have
healing and complication rates comparable to autograft procedures. Interpore is
not aware of any material unfavorable results in the clinical studies for Pro
Osteon 500. Pro Osteon 500 is available in granular forms and a wide variety of
block configurations up to 30 cc's in total volume. Pro Osteon 500 uses a
specific genera of coral that results in an average nominal pore size of 500
microns, approximately the same as human cancellous bone. With approximately
$700 of material used in an average procedure, Pro Osteon 500 provides an
attractive alternative to autograft and allograft bone graft materials. The FDA
approved indication is for treatment of certain metaphyseal defects. Outside the
United States, Pro Osteon 500 is approved for a very broad range of bone
grafting applications.
Pro Osteon 200. Pro Osteon 200 uses a specific genera of coral that results
in an average nominal pore size of 200 microns, thus is slightly stronger and
more dense than Pro Osteon 500. It is available in granular forms and a wide
variety of block configurations up to 15 cc's in total volume. In the United
States, Pro Osteon 200 is approved for use in oral surgery, periodontal defects,
craniofacial and orthognathic indications pursuant to 510(k) clearances received
in 1982, 1984, 1985 and 1986. Outside the United States, Pro Osteon 200 is
approved for a very broad range of bone grafting applications.
Pro Osteon 500R. Pro Osteon 500R is a more resorbable bone graft substitute.
It is manufactured under a patented, modified version of the Replamineform
manufacturing process in which the conversion process is interrupted before the
material is completely converted, yielding a composite of calcium carbonate and
calcium phosphate. The final product is composed primarily of calcium carbonate,
the more rapidly resorbing of the two materials, which is covered throughout the
interconnected porosity by a thin layer of calcium phosphate, the slower
resorbing of the two materials. The thin layer of calcium phosphate resorbs
slowly, allowing sufficient time for bony ingrowth, and once the calcium
phosphate layer is partially resorbed, the inner composition of calcium
carbonate resorbs much more quickly. Pro Osteon 500R typically resorbs within
six months.
In certain cases, physicians would prefer to have the bone graft substitute
material completely replaced over time by the patient's own bone to improve
radiographic assessment of bone growth and to improve biomechanics for cortical
reconstruction. Interpore believes that Pro Osteon 500R addresses these needs.
Interpore has received confirmation that it can market Pro Osteon 500R in
Europe, under the "CE" mark, and in Australia. Interpore is currently developing
a strategy for approval to market Pro Osteon 500R in the United States.
OEM Products
Interpore 200. Interpore 200 is the same material as Pro Osteon 200.
Interpore manufactures Interpore 200 in block and granular form for use in oral
surgery, periodontal defects, craniofacial and orthognathic indications pursuant
to 510(k) clearances received in 1982, 1984, 1985 and 1986. Interpore 200 is
sold to and marketed worldwide into the dental marketplace by a single customer
under an exclusive distribution agreement which expires in 2001, with provision
for automatic renewals.
Orbital Implants. Orbital implants are used to replace damaged or diseased
eyes, to replace existing artificial eyes that have extruded or migrated and to
replace existing artificial eyes to improve tracking and movement. Since 1989,
Interpore has manufactured orbital implants for artificial eyes using its
hydroxyapatite material. Interpore believes that these orbital implants provide
a superior alternative to other artificial eyes because the implant is
physically attached to the patient's soft tissue. Because of the attributes of
Interpore's hydroxyapatite material, the patient typically experiences
integration of the soft tissue into the orbital implant. The result is improved
tracking of the artificial eye with the patient's companion eye. Interpore
manufactures this product solely on an OEM basis under a manufacturing and
licensing agreement which expires in 2001.
62
<PAGE> 68
Arthroscopic Instruments
During 1996 and 1997, Interpore distributed a line of manual arthroscopic
instruments. Revenues were not significant, and accordingly, Interpore notified
the OEM supplier in January 1998 that it would no longer be distributing these
instruments.
Dental Implants
Prior to May 1997, Interpore manufactured and distributed titanium dental
implant systems for the rehabilitation of partially and totally toothless
patients. The dental business had begun to decline as a percentage of
Interpore's overall business, and accordingly, Interpore decided to pursue its
divestiture. In May 1997, Interpore sold its dental implant business to
Steri-Oss Inc. of Yorba Linda, California. The divestiture of the dental
business has allowed Interpore to focus its efforts on penetrating the
orthopaedic market with its existing products and developing products which
address this market.
RESEARCH AND DEVELOPMENT
Interpore's research and development department consists of nine full-time
employees who conduct research and product development with respect to
biomaterials for bone reconstruction. Interpore also engages outside consultants
and academic research facilities for assistance with its new product
development. Interpore plans to continue to use outside resources for product
research prior to the developmental phase. Interpore's engineers also assist in
the design of manufacturing improvements and support validation procedures for
the FDA's requirements for Good Manufacturing Practices ("GMP") and ISO 9001,
the quality management system which is a regulatory requirement of the European
Community. Interpore's expenditures for research and development were $2.0
million, $2.0 million and $1.9 million in 1997, 1996 and 1995, respectively.
New Bone Graft Substitute Products. To enter segments of the bone graft
market not addressed by Interpore's current products, Interpore must develop new
bone graft materials. Interpore is currently focusing its efforts on the
development of osteoinductive or bone growth accelerating materials as well as
the regulatory approval and commercialization of a resorbable bone graft
substitute.
Interpore is investigating the development of osteoinductive bone graft
materials which will induce bone growth in the area where the product is
implanted. Interpore is studying methods of combining growth factors (proteins
that promote healing and bone growth) with Pro Osteon. Two projects are
currently underway involving the use of synthetically derived bone growth
factors. The first involves the evaluation of a bovine-derived (from a cow)
purified bone protein used in conjunction with Pro Osteon. The bone protein is
supplied by a strategic partner, and is currently being tested in preclinical
animal studies. The second project is the development of a recombinant human
bone morphogenetic fusion protein. This is a collaboration between Interpore and
its university-based consultants in molecular engineering and biochemistry. The
studies are being conducted at a leading research institute. The material is
currently being evaluated in animal studies, and initial results have been
encouraging. The inventors have applied for patent protection and have licensed
rights to Interpore. Both of these projects, if successful in preclinical
studies, would require FDA approval of Investigational Device Exemptions
("IDE's") involving human clinical studies, and therefore Interpore can give no
assurance concerning when or whether FDA approval to market these products will
be received.
In addition to the two projects involving biochemically derived bone growth
factors, Interpore has a project involving the extraction and concentration of
autologous growth factors. In 1996, Interpore secured rights to a proprietary
technology from a small biomedical company. Blood from the patient is processed
in a commercially available cell saver device, routinely used in orthopedic
surgery, which separates the blood into different component layers.
Platelet-rich plasma is extracted and then processed through a proprietary
filtering technology which super-concentrates the platelets and fibrinogen. The
platelets release Platelet-Derived Growth Factor (PDGF) and Transforming Growth
Factor Beta (TGF-B). The fibrinogen converts to fibrin, which generates a
gel-like material with favorable handling characteristics. It is Interpore's
opinion that the devices involved require only FDA 510(k) clearances, some of
which have been received and some of which have been applied for and are
pending. Interpore is currently evaluating the use of this material in
combination with Pro Osteon for its ability to promote or accelerate bone growth
into the Pro Osteon material. If successful, Interpore believes the technology
would provide a cost-effective product that produces a mitogenic
(growth-accelerating) response, enhances the handling characteristics of Pro
Osteon granules and blocks, and provides the surgeon with an autologous option
which may be preferable to biochemically derived growth factors.
In certain cases, physicians would prefer to have the bone graft substitute
material completely replaced over time by the patient's own bone to improve
radiographic assessment of bone growth and to improve biomechanics
63
<PAGE> 69
for cortical reconstruction. Although Pro Osteon and Interpore 200 have some
resorptive capability, neither product is completely replaced over time with the
patient's own bone. To address this need, Interpore has developed Pro Osteon
500R, which is currently marketed outside the United States.
Additional Pro Osteon Indications. Interpore is currently conducting
clinical studies on the safety and efficacy of Pro Osteon as a bone graft
material for use in spinal fusion and iliac crest backfill procedures. In
January 1995, Interpore received FDA approval of its IDE application to begin
clinical trials for the use of Pro Osteon 200 in cervical spine interbody fusion
procedures. Pro Osteon 200 is being used in conjunction with a rigid titanium
bone plate to fuse vertebrae in the neck. This initial FDA approval covers 60
patients at up to six investigational sites in the United States. In May 1996,
the FDA approved Interpore's IDE to commence clinical trials for the use of Pro
Osteon 500 to fill the void left by autograft harvesting procedures in the iliac
crest region of a patient's hip. This pilot study will be performed in
conjunction with lumbar spine fusion procedures involving twenty patients, with
ten receiving Pro Osteon 500 as a backfill material, and ten receiving no
backfill material. Interpore is also providing Pro Osteon on a non-exclusive OEM
basis to a company that is developing spine fusion cages. The implants are being
evaluated in a multi-center clinical trial under an IDE received by this
company. The FDA approval process can be very lengthy and Interpore can give no
assurance concerning when or whether it will receive FDA approval to market Pro
Osteon for these or any other indications. Also, Interpore may determine that
the costs of proceeding to full-scale clinical trials may outweigh the benefits
expected to be derived from obtaining the additional indications, and therefore
may elect not to proceed.
CUSTOMERS, SALES AND MARKETING
The decision to use bone graft material is made by the orthopaedic surgeon.
There are approximately 14,000 practicing orthopaedic surgeons in the United
States in private practice, hospitals and orthopaedic treatment centers, to
which Interpore directs its domestic marketing efforts for Pro Osteon.
Interpore's domestic sales organization consists of a combination of direct
sales representatives, agents and distributors. Direct sales representatives are
employees of Interpore, and both agents and distributors are independent
contractors. There are currently 31 territories in the direct sales force of
which 27 have been filled with direct sales representatives, and there are
approximately 18 independent distributor and agent organizations, each employing
a number of sales representatives ranging from 3 to 22. Distribution by direct
sales representatives and agents entails Interpore invoicing the customer
generally at suggested list prices, and the payment of commissions to the direct
sales representatives and agents. Direct sales representatives and agents
maintain Interpore-provided consignment inventories of Pro Osteon. This
arrangement contrasts with distributors which purchase products from Interpore
at a discount off of suggested list prices and invoice the hospital directly.
The domestic sales organization is managed by a director of sales and five
division managers. During 1995 through 1997, Interpore restructured its
distribution channels for the sale of Pro Osteon. Distribution agreements with
certain distributors that were not achieving satisfactory market penetration
were terminated, and direct sales representatives were recruited and hired for
the respective territories. Interpore selects these direct sales representatives
and dealer or agent organizations for their expertise in orthopaedic or medical
device sales, their reputation with the orthopaedic surgeon community and their
sales coverage within a geographic area. Each direct sales representative and
dealer or agent organization is given an exclusive sales territory and is
subject to periodic performance reviews and sales and product training.
Interpore intends to continue to restructure its distribution channels
during 1998, and perhaps beyond, by converting to all direct sales
representatives and agents. Thus, many, if not all, of the distributors are
intended to be converted to agent organizations or, if performance is
unacceptable, replaced by another agent organization or direct sales
representatives. The primary advantage of direct sales representatives and
agents is that Interpore directly invoices the hospital, which enables Interpore
to identify the end user and which causes reported revenues to more closely
match hospital usage. The process of converting distributor territories to
direct sales or agent territories has had and may continue to have an adverse
effect on sales during the conversion period, because the distributors involved
are either returning their unexpired inventory to Interpore for credit (to the
extent that Interpore is obligated to accept such return) or selling their
inventories to depletion, during which time Interpore would not expect to
receive additional orders from these distributors.
Outside of the United States, Interpore distributes Pro Osteon through
independent orthopaedic products distributors. The Company has three
international sales manager positions and has set up distribution arrangements
with 46 distributors in 53 countries covering Europe, South America and Asia.
For fiscal years 1997, 1996 and 1995, Interpore's international sales
represented approximately 12%, 10% and 10% of net sales, respectively.
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In January 1998, Interpore entered into an agreement with a contract
warehouse in the Netherlands to distribute its products to customers in
countries outside of North America. Interpore believes that this arrangement
will improve shipping efficiencies and service to its international customers.
Interpore participates in numerous professional meetings including the
American Academy of Orthopaedic Surgeons Meeting, the North American Spine
Society Meeting and the Annual Meeting of the Orthopaedic Trauma Association.
Interpore also participates in scientific presentations and professional
seminars at hospitals.
RAW MATERIALS AND MANUFACTURING
Coral is the primary raw material used by Interpore in the manufacture of
its bone graft substitute products. The coral used in Interpore's products is
sourced from two genera located in a wide variety of geographic locations.
Interpore presently harvests coral in tropical areas of the Pacific and Indian
Oceans. Interpore believes it has an adequate supply of coral for the
foreseeable future. Coral is covered under an international treaty entitled
Convention on International Trade of Endangered Species of Wild Fauna and Flora
("CITES"), which regulates the import/export of raw coral and products derived
therefrom in approximately 140 nations around the world. To date, the
limitations imposed by this treaty have not negatively affected Interpore's
ability to source raw coral. See "The Business of Interpore -- Government
Regulation."
The manufacturing process for Interpore's bone graft substitute products
involves coral qualification and cutting, hydrothermal conversion, testing,
packaging and sterilization of the product, all of which, with the exception of
sterilization, are performed at Interpore's facilities. In the hydrothermal
exchange process, a chemical reaction is initiated whereby the calcium carbonate
exoskeleton of the coral is partially or fully converted to calcium phosphate.
This results in a biocompatible material which has interconnected porosity,
architecture and chemical composition similar to that of human bone.
COMPETITION
Orthopaedic Bone Graft Substitute Market. Interpore's synthetic bone
products compete with natural bone obtained from autograft procedures and
allograft sources and with three other synthetic bone products. Autograft and
allograft bone have been used for graft material for a much longer period of
time than synthetic bone graft materials, and in order to maintain and increase
its future sales of Pro Osteon, Interpore will have to continue to demonstrate
to the medical community the surgical and patient advantages, safety, efficacy,
cost effectiveness and clinical results of Pro Osteon.
Interpore believes that Pro Osteon provides an attractive alternative to
autograft and allograft bone graft materials. In an autograft, a second surgical
procedure is required. Bone material is harvested from another part of the
patient's skeleton and then grafted to the site of the bone deficit. The
harvesting procedure increases total operating time and expense, and can lead to
complications such as infection, excessive blood loss, chronic pain and
deformity. When an autograft is not feasible or desirable, allograft bone,
obtained from a cadaver, can be used. To maintain mechanical and biological
properties, some allograft bone is not sterilized. Therefore, unlike Pro Osteon,
which is a sterile and biocompatible material, allograft bone carries the risks
of implant rejection and the transmission of infectious agents such as hepatitis
and HIV. The use of Pro Osteon entails none of these risks, and provides
clinical results comparable to those of autograft material.
In May 1993, a second bone graft substitute for orthopaedic applications was
approved by the FDA. This product, Collagraft, consists of
hydroxyapatite/tri-calcium phosphate and bovine collagen, which must be mixed
with patients' own bone marrow. The manufacturer of this product received a PMA
supplemental approval from the FDA for a second generation freeze-dried product
which is pre-mixed and requires no refrigeration. Collagraft has been marketed
by Zimmer, Inc., a subsidiary of Bristol-Myers Squibb, a competitor with
significantly greater resources and distribution capabilities than Interpore.
In July 1996, the FDA issued 510(k) clearance to Wright Medical Technology,
Inc. for OsteoSet(TM), a plaster of paris (calcium sulfate) bone void filler.
Interpore believes that there is very little clinical data available documenting
the safety and efficacy of this product.
Grafton(R) is a bone product manufactured by Osteotech, Inc. It is a
processed allograft gel available in a variety of forms. Because it is derived
from allograft, Grafton is not regulated as a medical device under the federal
Food, Drug and Cosmetic Act, as amended, and as such, can be promoted for a wide
variety of surgical indications. While Interpore believes that Grafton has many
of the same disadvantages as allograft, it is perceived by some surgeons to be
osteoinductive.
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<PAGE> 71
Numerous other companies are pursuing additional synthetic bone graft
materials for orthopaedic applications which could ultimately compete with Pro
Osteon in the United States. To the best of Interpore's knowledge, none have yet
progressed beyond clinical trials.
Tissue Engineering Market. While no osteoinductive materials (i.e., growth
factors) have yet been introduced to the market, there is significant
development activity ongoing that if successful would potentially produce
products competitive with Interpore's osteoinductive bone graft material
projects. Genetics Institute, Inc. has a recombinant human bone morphogenetic
protein (rhBMP-2) in human clinical studies. Creative Biomolecules also has a
recombinant human bone morphogenetic protein (OP-1), which is in human clinical
studies under an FDA-approved IDE. Sulzer Orthopedics Biologics, a subsidiary of
SulzerMedica of Switzerland, has an extract of bovine (cow)-derived bone growth
protein that is in preclinical animal studies.
Oral and Maxillofacial Market. Interpore 200 competes with autograft,
allograft and xenograft as well as other bone substitute products for repair or
reconstruction of oral and maxillofacial bone structures. In addition, Interpore
200 competes with silicone implants for maxillofacial applications. Companies
selling competitive products sometimes also sell dental implants and attempt to
bundle the products as part of a sales strategy.
Interpore competes in all of its markets primarily on the basis of product
performance and price, as well as customer loyalty and service.
GOVERNMENT REGULATION
Interpore's products are regulated by the FDA under the federal Food, Drug
and Cosmetic Act, as well as other federal, state and local governmental
authorities and similar regulatory agencies in other countries. The FDA permits
commercial distribution of a new medical device only after the FDA has cleared a
510(k) premarket notification or has approved a Premarket Approval application
for such medical device. In general, the FDA will clear marketing of a medical
device through the 510(k) premarket notification process if it is demonstrated
that the new product is substantially equivalent (in terms of safety, efficacy
and intended use) to certain 510(k) cleared products which are already
commercially available and legally sold on the market.
The PMA approval process is lengthier and more burdensome than the 510(k)
premarket notification process. The PMA process generally requires detailed
animal and clinical studies, as well as manufacturing data and other
information. If clinical studies are required by the FDA, an IDE is also
required. An IDE restricts the investigational use of the device to a limited
number of investigational sites, investigators and patients. Its purpose is to
prove safety and efficacy of the device. FDA approval of a PMA application
indicates that the FDA concurs that a device has been scientifically proven,
through the completion and submission of animal data, a completed IDE and other
pertinent information, to be safe and effective for its intended use.
The PMA application for Pro Osteon was first accepted for filing by the FDA
in February 1988. In October 1992, Interpore received FDA approval of its PMA
application which allows Interpore to market Pro Osteon 500 for certain acute
metaphyseal defects (defects in the wide part of long bones). In December 1993,
Interpore received a PMA Supplement approval from the FDA to market Pro Osteon
500 in granular forms and a wide variety of block configurations up to 30 cc's
in total volume. Interpore's Pro Osteon 200 and Interpore 200 were cleared for
marketing for certain oral surgery, periodontal defects, craniofacial and
orthognathic indications through 510(k) premarket notifications in 1982, 1984,
1985 and 1986. Orbital implants were also cleared through 510(k) notification by
the patent holder of the device in 1989.
The FDA approved indication for Pro Osteon 500 is for the repair of acute
metaphyseal defects in conjunction with rigid internal fixation (plates and
screws) as dictated by the clinical use requirements in skeletally mature
individuals when there is no autogenous bone donor site available. Pro Osteon
500 is contraindicated (1) for fractures of the growth plate at the end of the
bone, (2) in sites with vascular impairment proximal to the graft site, (3) in
the presence of metabolic or systemic bone disorders, (4) where stabilization of
the fracture is not possible, (5) where soft tissue coverage is not possible,
and (6) in infected wounds. These contraindications, which were specified by the
FDA as part of the approval for Pro Osteon 500, are generally applicable to the
use of all synthetic bone graft materials, rather than to Pro Osteon 500 in
particular. Interpore does not believe that these contraindications materially
limit the use of Pro Osteon 500 for its approved indication, or Interpore's
ability to market Pro Osteon 500.
In July 1997, the FDA cleared the use of Wright Medical Osteoset Plaster of
Paris as a bone void filler. This product was deemed substantially equivalent to
a preamendment device (i.e., a device sold and distributed in the United States
prior to May 28, 1976) sold by the Ethicon division of Johnson and Johnson.
Prior to clearance of this device, all bone void fillers were required to obtain
marketing approval for bone graft substitutes via the PMA
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<PAGE> 72
process. There is now a possibility that some clearances of other bone graft
substitute products potentially competing with Pro Osteon may be obtained
through the less burdensome 510(k) premarket notification process.
Present and future governmental regulation may prevent or substantially
delay the marketing of Interpore's proposed new products, cause Interpore to
undertake costly procedures and/or furnish a competitive advantage to more
substantially capitalized companies with which Interpore competes. After
approval, the FDA may require post-marketing approval surveillance programs to
monitor the effects of newly-approved medical devices. FDA approval may be
withdrawn for noncompliance with regulatory standards or the occurrence of
unforeseen problems following initial market introduction. In addition, the
extent of potentially adverse government regulations which might arise from
future administrative action or legislation cannot be predicted. Finally,
product modifications may require the submission of a new 510(k) premarket
notification or a PMA Supplement prior to marketing introduction. In addition,
future products may require a new PMA submission. There can be no assurance that
marketing clearances or approvals will be obtained on a timely basis, or at all.
Delays in receiving, or the failure to receive, such approvals or clearances
could have a material adverse effect on Interpore.
Interpore is registered as a medical device manufacturer with the FDA and
with state agencies such as the Food and Drug Branch of the California
Department of Health Services (the "California DHS"). The FDA and state agencies
inspect Interpore from time to time to determine whether Interpore is in
compliance with various regulations relating to medical device manufacturing,
including the FDA's GMP regulation, which govern design, manufacturing, testing,
quality control, sterilization and labeling of medical devices. Interpore
believes it is in compliance with the regulations established by the FDA and the
California DHS applicable to its business. The FDA and the California DHS have
inspected Interpore's manufacturing facilities and quality assurance procedures
in the past. In addition, the FDA actively enforces regulations prohibiting the
promotion of medical devices for unapproved indications. Off-label promotion is
also prohibited by Interpore policy. The Company is aware that certain of its
products are used in indications for which they are not approved to be promoted.
However, it is not a violation of FDA regulations for surgeons to use the
product in these indications. Material violation of FDA and similar state
regulations could lead to the imposition of injunctions, suspensions or loss of
regulatory approvals, product recalls, termination of distribution, or product
seizures. In the most egregious cases, criminal sanctions or closure of
Interpore's manufacturing facility are possible.
Interpore must also comply with the requirements of CITES. This is an
international agreement signed by approximately 140 nations which regulates the
import and export of products which are derived from endangered wildlife.
Although the coral used by Interpore is not an endangered species, all harvested
coral is subject to regulation under CITES. As a result, Interpore must register
and obtain licensure from the U.S. Department of Fish and Wildlife for both the
import of raw coral and the export of finished product. Because each shipment of
product exported outside of the United States or its possessions requires
individual permitting, and also to improve shipping efficiencies and service to
its international customers, Interpore has entered into an agreement with a
contract warehouse in the Netherlands for the purpose of international
distribution of Interpore's products. In the future, regulations could make the
import or export of coral or coral-derived products prohibitive and could
interrupt Interpore's ability to supply product. Interpore does maintain several
years' supply of coral to minimize the risk of this possibility. However, there
can be no assurance that this supply of raw coral is sufficient, that Interpore
will be able to obtain sufficient quantities of coral in the future or that
future regulations will not prohibit its use altogether.
Interpore must also comply with registration requirements of foreign
governments and with import and export regulations when distributing its
products to foreign nations. Each foreign country's regulatory requirements for
product approval and distribution are unique and may require the expenditure of
substantial time, resources and effort to obtain and maintain approvals for
marketing. In September 1995, Interpore received approval to use the "CE" mark
for its entire line of orthopaedic and oral/maxillofacial synthetic bone graft
materials. The CE mark indicates that the products are approved for sale within
18 countries in the EC (European Community) and EFTA (European Free Trade
Association) and that Interpore is in compliance with the ISO 9001 and EN 46001
standards which govern medical device manufacturers that are marketing products
in Europe. Pro Osteon 500, Pro Osteon 200, and Pro Osteon 500R are all approved
in Europe for a broad range of grafting applications and carry the "CE" mark.
Interpore does not anticipate that compliance with federal, state and local
environmental laws will have any material adverse effect on Interpore's
business, results of operations or capital expenditures.
PROPRIETARY RIGHTS
Hydroxyapatite Materials. In September 1976, Interpore was granted a license
with respect to five United States patents and related foreign patents covering
the Replamineform technology. The license provided Interpore
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with exclusive rights to manufacture and distribute the licensed products until
expiration of the patents. The most significant patent concerned the right to
manufacture a hydroxyapatite bone graft substitute material from marine coral,
and it expired in December 1994. The remaining patents expired in 1997.
Interpore does not anticipate any significant impact on its business as a result
of the expiration of the Replamineform patents, because it believes the lengthy
FDA approval process and Interpore's proprietary manufacturing processes are
more significant barriers to entry than patent protection.
Interpore owns five United States patents related to improvements on the
process for manufacturing biomaterials for bone reconstruction: two of the
patents relate to Pro Osteon 500R, and three of the patents relate to a
non-coral based synthetically produced porous hydroxyapatite. These patents
expire between 2006 and 2013.
Patents and Personnel. As part of its ongoing research, development and
manufacturing activities, Interpore has a policy of seeking patent protection.
Patents relating to particular products, uses or procedures, however, do not
preclude other manufacturers from employing alternative processes or from
successfully marketing substitute products. There can be no assurance that any
pending or future patent applications will be granted or that any current or
future patent will provide adequate protection for Interpore's technology and
products. There can also be no assurance that others will not independently
develop similar technologies or duplicate any technology developed by Interpore
or that Interpore's technology will not infringe patents or other rights owned
by others, licenses to which may not be available to Interpore or available on
favorable terms. Interpore believes that although the patents often are
necessary to protect its technology and products, the lengthy FDA approval
process and certain manufacturing processes are more significant barriers to
entry. Moreover, much of the proprietary technology and manufacturing processes
developed by Interpore reside in its key scientific and technical personnel and
such technology and processes are not easily transferable to other scientific
and technical personnel. The loss of the services of key scientific, technical
and manufacturing personnel could have a material adverse effect on Interpore's
business and results of operations.
Trademarks. "Pro Osteon," "Interpore" and "Interpore 200" are registered
trademarks of Interpore. The Company has trademark registrations pending for
various terms to be used in marketing.
EMPLOYEES
As of February 28, 1998, Interpore had 85 full-time employees, of whom 46
were engaged in marketing and sales, 15 in manufacturing, nine in regulatory
affairs and quality assurance, six in general administration and finance and
nine in research and development. None of these employees is represented by a
union, and Interpore has never experienced a work stoppage. Management considers
its employee relations to be good.
PROPERTIES
Interpore leases a 36,830 square foot facility in Irvine, California. This
facility was approved in March 1994 by the FDA for the manufacture of Pro
Osteon. The average annual lease expense over the ten year term of the lease,
which expires January 31, 2003, is $387,000. The lease provides a right to
extend the term for an additional five years at the fair market lease rate of
the facility on the extension date, but not less than the rate paid by Interpore
during the month immediately preceding the commencement of the extension period.
Interpore also leases a 2,700 square foot facility in Santa Ana, California to
provide additional warehousing, and two sales offices with approximately 1,175
and 200 square feet in Plano, Texas and Miami, Florida, respectively. Interpore
believes the facilities will be adequate to serve its operational needs over the
next one to two years.
LEGAL PROCEEDINGS
Interpore is subject to an inherent risk of product liability and other
liability claims which may involve significant claims and defense costs. To
date, all claims against Interpore have been covered by insurance policies,
except for deductible limits and self-insured retentions. Interpore currently
has primary product liability insurance with coverage limits of $10 million per
occurrence and $10 million in the aggregate per year. Product liability
insurance is expensive and in the future may not be available in acceptable
amounts, on acceptable terms, or at all. If Interpore were to be held liable for
damages exceeding the limits or outside of the scope of its insurance coverage,
the business and results of operations of Interpore could be materially
adversely affected. Interpore's reputation and business could be adversely
affected by product liability claims, regardless of their merit or eventual
outcome. Interpore is and from time to time has been party to commercial
litigation relating to its business. Interpore believes that none of these
matters is material and intends to defend itself vigorously.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF INTERPORE
Pursuant to his resignation as an officer of Interpore, George W. Smyth,
Jr., who is a director of Interpore, and Interpore entered into a Consulting
Agreement dated as of April 18, 1997. Mr. Smyth's consulting agreement expires
on December 31, 1998 and pursuant to such consulting agreement, Mr. Smyth will
receive aggregate compensation of $45,000 in return for the performance of
certain consulting services.
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF INTERPORE
The selected financial data as of and for the years ended December 31, 1997,
1996, 1995, 1994 and 1993 set forth below have been derived from the
consolidated financial statements of Interpore. This data is qualified in its
entirety by, and should be read in conjunction with, Interpore Financial
Statements and related notes thereto appearing elsewhere herein. See "Financial
Information of Interpore" and "Interpore Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales(1) .................... $ 15,511 $ 19,917 $ 17,103 $ 18,458 $ 14,315
Cost of goods sold .............. 3,135 5,394 4,520 5,648 4,898
Royalty expense ................. 52 249 278 761 612
-------- -------- -------- -------- --------
Gross profit .................... 12,324 14,274 12,305 12,049 8,805
Total operating expenses ........ 12,180(1) 14,379 12,332(3) 10,137 8,246
-------- -------- -------- -------- --------
Income (loss) from operations.... 144 (105) (27) 1,912 559
Total interest and other income
(expense), net ................ 992 763 661 601 (9)
-------- -------- -------- -------- --------
Income before taxes ............. 1,136 658 634 2,513 550
Income tax (benefit) provision... (1,635)(2) -- (1,404)(2) 101 14
-------- -------- -------- -------- --------
Net income ...................... $ 2,771 $ 658 $ 2,038 $ 2,412 $ 536
======== ======== ======== ======== ========
Net income per share:
Basic ......................... $ .40 $ .09 $ .30 $ .37 $ .11
======== ======== ======== ======== ========
Diluted ....................... $ .37 $ .09 $ .27 $ .32 $ .10
======== ======== ======== ======== ========
Shares used in computing net
income per share:
Basic ......................... 7,002 6,996 6,752 6,576 5,081
Diluted ....................... 7,401 7,468 7,535 7,568 5,279
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets .................... $ 22,776 $ 20,323 $ 21,705 $ 20,177 $ 15,667
Long-term debt, including
current portion ............... -- 5 191 369 712
Preferred and common stock ...... 36,251 35,917 37,101 37,219 34,963
Accumulated deficit ............. (14,615) (17,386) (18,044) (20,082) (22,494)
</TABLE>
- ---------------------------------
(1) Interpore's dental implant business was sold in May 1997. The transaction,
including associated costs, resulted in a net charge to operating expenses
of $617,000. Net sales of dental implants were approximately $1.7 million,
$7.1 million, $8.1 million, $9.8 million and $10.0 million in 1997, 1996,
1995, 1994 and 1993, respectively.
(2) In fiscal years 1997 and 1995, Interpore recognized deferred tax assets of
$1.7 million and $1.5 million, respectively, which had previously been fully
reserved in accordance with Statement of Financial Accounting Standards No.
109.
(3) In 1995, Interpore recorded a $411,000 provision for distributor returns to
reflect the estimated value of product returns it would accept from
distributors terminated as of December 31, 1995.
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INTERPORE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
In February 1998, Interpore entered into an agreement to merge with Cross
Medical Products, Inc., ("Cross") an Ohio-based worldwide supplier of spinal
implant systems used to treat degenerative conditions and deformities of the
spine. If the Merger is consummated, approximately 6.7 million shares of
Interpore's common stock will be exchanged for all of the common stock of Cross.
Consummation of the merger is subject to customary conditions, including
regulatory approvals and approvals by the shareholders of each company. The
Merger is intended to be accounted for as a pooling of interests and is expected
to be completed in the second quarter of 1998.
In February 1998, the Board of Directors of Interpore approved a proposal
for Interpore to reincorporate from California to Delaware. The proposed
reincorporation is subject to approval by Interpore's shareholders and is
expected to be completed in the second quarter of 1998.
In April 1997, Interpore entered into a definitive agreement for the sale of
its dental business to Steri-Oss Inc. of Yorba Linda, California. In May 1997,
the sale was completed, and Interpore received an initial cash payment of $1.5
million. A deferred cash payment of $749,000 is due in March 1998. As part of
the transaction, Interpore and Steri-Oss negotiated a distribution agreement
whereby Interpore manufactures and provides Interpore 200 for distribution by
Steri-Oss in the dental market. The transaction, including associated costs,
resulted in a net charge of $617,000 which was recorded in the quarter ended
June 30, 1997.
RESULTS OF OPERATIONS
The following table presents Interpore's results of operations as
percentages:
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage Change
------------------------------------------- -----------------------
1997 vs. 1996 vs.
Year ended December 31, 1997 1996 1995 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales ..................... 100.0% 100.0% 100.0% (22.1%) 16.5%
Cost of goods sold ............ 20.2% 27.1% 26.4% (41.9%) 19.3%
Royalty expense ............... .3% 1.2% 1.7% (79.1%) (10.4%)
-------- -------- -------- -------- --------
Gross profit ................ 79.5% 71.7% 71.9% (13.7%) 16.0%
-------- -------- -------- -------- --------
Operating expenses:
Research and development .... 12.9% 10.1% 11.3% (.4%) 3.2%
Selling and marketing ....... 47.3% 49.3% 44.1% (25.3%) 30.3%
General and administrative .. 14.4% 12.8% 14.3% (12.7%) 4.7%
Loss on sale of dental
business................... 4.0% 0% 0% N/A N/A
Provision for distributor
returns.................... 0% 0% 2.4% N/A (100.0%)
-------- -------- -------- -------- --------
Total operating expense ... 78.6% 72.2% 72.1% (15.3%) 16.6%
-------- -------- -------- -------- --------
Income (loss) from operations . .9% (.5%) (.2%) N/A N/A
======== ======== ======== ======== ========
</TABLE>
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1997 Compared to 1996
For the year ended December 31, 1997, net sales of $15.5 million were $4.4
million or 22.1% lower than sales of $19.9 million for the previous year. The
following table presents sales by category (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, Change
--------------------- -------------------
1997 1996 Amount %
------- ------- ------- ----
<S> <C> <C> <C> <C>
Orthopaedic product sales $12,662 $11,660 $ 1,002 8.6%
OEM product sales ....... 1,143 1,113 30 2.7%
------- ------- ------- ----
Sub-total ............... 13,805 12,773 1,032 8.1%
Dental product sales .... 1,706 7,144 (5,438) (76.1%)
======= ======= ======= ====
Total sales ............. $15,511 $19,917 $(4,406) (22.1%)
======= ======= ======= ====
</TABLE>
Sales of orthopaedic products, primarily Pro Osteon(R) bone graft substitute
material for orthopaedic applications, increased by $1.0 million or 8.6% to
$12.7 million compared to $11.7 million for the year ended December 31, 1996.
Domestic sales of orthopaedic products increased 2.0% during the year. Domestic
sales through direct sales representatives in 1997 increased 33.7% while
domestic sales through distributors decreased 34.6% compared to 1996. Sales by
direct representatives have generally increased and sales by domestic
distributors have generally decreased since Interpore created a domestic direct
sales force and terminated distribution agreements with certain domestic
distributors that were not achieving satisfactory market penetration.
Additionally, in late 1997, Interpore began an initiative to convert all of its
domestic distributors into agency relationships. Instead of purchasing products
from Interpore and reselling them to hospitals, agents receive commissions on
sales in their territories which are billed directly to the hospitals by
Interpore. With agency relationships, Interpore is able to identify the end
user, and Interpore's reported revenues more closely match hospital usage. The
initiation of this process in late 1997 resulted in reduced sales to domestic
distributors while they minimize their inventory levels in preparation for this
conversion. This process is expected to be substantially completed, and may have
a continued adverse effect on sales, in 1998. International sales of orthopaedic
products, made exclusively to distributors, increased 109.0% in 1997 versus
1996.
Sales of Interpore's OEM products, which consist mostly of porous
hydroxyapatite material for dental applications and for orbital implants,
increased by 2.7% to $1.14 million for the year ended December 31, 1997 versus
$1.11 million for the prior year.
Sales of Interpore's oral/maxillofacial products (titanium dental implant
systems and Interpore 200) declined by $5.4 million or 76.1% from $7.1 million
in 1996 to $1.7 million in 1997. This reflects the discontinuance of dental
product sales effective April 18, 1997. Sales of Interpore 200 for dental use
subsequent to the sale of the dental business are now classified as OEM product
sales.
For the years ended December 31, 1997 and 1996, gross margins were 79.5% and
71.7% of sales, respectively. The improvement reflects the discontinuance of
dental product sales which had lower gross margins than Interpore's remaining
orthopaedic and OEM products, and which also had associated royalty expense.
Total operating expenses for the year ended December 31, 1997 decreased by
15.3% or $2.2 million as compared to 1996. Research and development expenses
remained relatively constant. Selling and marketing expenses decreased $2.5
million or 25.3% compared to 1996. Selling and marketing expenses directly
related to the dental business accounted for this decline while selling and
marketing expenses in the orthopaedic business remained relatively constant.
General and administrative expenses decreased $325,000 or 12.7%, mostly the
result of cost reductions following the sale of the dental business.
The increase in interest income resulted from higher cash and investments
balances while the increase in other income primarily relates to higher royalty
income.
The income tax benefit in 1997 of $1.6 million reflects recognition of $1.7
million of deferred tax assets, primarily consisting of net operating loss
carryforwards, which had previously been fully reserved in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Management believes it is more likely than not that those tax benefits
will be realized. No provision for income taxes was recorded in 1996, as a
result of Interpore's utilization of net operating loss carryforwards.
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<PAGE> 78
1996 Compared to 1995
For the year ended December 31, 1996, net sales of $19.9 million were $2.8
million or 16.5% higher than sales of $17.1 million for the previous year. The
following table presents sales by category (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, Change
--------------------- -------------------
1996 1995 Amount %
------- ------- ------- ----
<S> <C> <C> <C> <C>
Orthopaedic product sales $11,660 $ 7,954 $ 3,706 46.6%
OEM product sales ....... 1,113 1,071 42 3.9%
------- ------- ------- ----
Sub-total ............... 12,773 9,025 3,748 41.5%
Dental product sales .... 7,144 8,078 (934) (11.6%)
======= ======= ======= ====
Total sales ............. $19,917 $17,103 $ 2,814 16.5%
======= ======= ======= ====
</TABLE>
Sales of orthopaedic products, primarily Pro Osteon bone graft substitute
material for orthopaedic applications, increased by $3.7 million or 46.6% to
$11.7 million compared to $8.0 million for the year ended December 31, 1995.
During 1995, Interpore began to restructure 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. In the first quarter of 1996, Interpore continued its restructuring
of domestic distribution channels and established an international sales
management group. In 1996, Pro Osteon sales through domestic direct sales
representatives increased by 146% over 1995, and sales of Pro Osteon to
international distributors increased 181% over 1995. These increases were
partially offset by a 5.1% decrease in sales to domestic distributors.
Sales of Interpore's OEM products, which consist mostly of porous
hydroxyapatite material for orbital implants manufactured for a single customer,
increased by 3.9% to $1.11 million for the year ended December 31, 1996 versus
$1.07 million for the prior year.
Sales of Interpore's oral/maxillofacial products (titanium dental implant
systems and Interpore 200) declined by $934,000 or 11.6% from $8.1 million in
1995 to $7.1 million in 1996. Continued strong competition in this slow growth
market along with an absence of the introduction of major new dental product
lines contributed to this decline.
For the years ended December 31, 1996 and 1995, gross margins were 71.7% and
71.9% of sales, respectively.
Total operating expenses for the year ended December 31, 1996 increased by
16.6% or $2.0 million as compared to the same twelve month period of 1995.
Research and development expenses increased by 3.2% but declined as a percentage
of sales from 11.3% in 1995 to 10.1% in 1996. The $2.3 million or 30.3% increase
in selling and marketing expenses from $7.5 million in 1995 to $9.8 million in
1996 primarily related to costs associated with Interpore's expanded orthopaedic
direct sales force and the orthopaedic international sales management group.
General and administrative expenses increased $114,000 or 4.7% but decreased as
a percentage of sales to 12.8% in 1996 from 14.3% in 1995. Operating expenses
for 1995 included a $411,000 provision for distributor returns to reflect the
estimated value of product returns Interpore would accept from distributors
terminated as of December 31, 1995.
The decrease of $116,000 in interest income relates to lower average
combined cash, cash equivalents and short-term investments primarily resulting
from Interpore's $1.3 million repurchase of its common stock in 1996. Other
income increased $201,000, primarily the result of royalty payments earned on
sales of a product line which Interpore sold in 1993.
No provision for income taxes was recorded in 1996, as a result of
Interpore's utilization of net operating loss carryforwards. The credit for
income taxes in 1995 of $1.4 million reflects recognition of $1.5 million of
deferred tax assets, primarily consisting of net operating loss carryforwards,
which had previously been fully reserved in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, cash, cash equivalents and short-term investments
totaled $13.5 million as compared to $10.3 million at the end of 1996. Total
working capital increased to $18.4 million from $16.9 million and the current
ratio improved to 17.1 from 10.4 at December 31, 1997 and 1996, respectively.
The increase in cash, cash
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<PAGE> 79
equivalents and short-term investments of $3.2 million was the result of the net
proceeds from the sale of the dental business and positive cash flow from
operations in 1997.
Interpore's $13.5 million total of cash, cash equivalents and short-term
investments remains available to support Interpore's continued investment in the
development of its business, including the pursuit of regulatory approvals for
additional indications for the use of Pro Osteon, development or acquisition of
new bone graft products or complementary products, and possible acquisitions of
businesses. Additionally, Interpore has a $5 million revolving line of credit
which expires in July 1998 and which had no amount outstanding at December 31,
1997.
At December 31, 1997, there were no material commitments for capital
expenditures.
Interpore believes it currently possesses sufficient resources to meet the
cash requirements of its operations for at least the next year.
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<PAGE> 80
OWNERSHIP OF INTERPORE STOCK
The following table sets forth the amount and percentage of the outstanding
shares of Interpore Common Stock which, according to the information supplied to
Interpore, are beneficially owned by (i) each person who, to the knowledge of
Interpore, is the beneficial owner of more than 5% of Interpore's outstanding
Common Stock, (ii) each person who is currently a director of Interpore (each of
whom is also a nominee for election as a director of Interpore), (iii) each
Named Executive Officer (as defined on page 107 hereof) of Interpore and (iv)
all current directors and executive officers of Interpore as a group. Except to
the extent indicated in the footnotes to the following table, the person or
entity listed has sole voting or dispositive power with respect to the shares
which are deemed beneficially owned by such person or entity.
<TABLE>
<CAPTION>
TOTAL PERCENT OF
OPTIONS OUTSTANDING SHARES OF
OUTSTANDING EXERCISABLE COMMON STOCK COMMON STOCK
NAME AND ADDRESS COMMON WITHIN BENEFICIALLY BENEFICIALLY
OF BENEFICIAL OWNER(1) STOCK(2)(3) 60 DAYS OWNED(2)(3) OWNED(2)(3)(4)
----------- ------- ----------- --------------
DIRECTORS/NOMINEES AND NAMED
EXECUTIVE OFFICERS:
<S> <C> <C> <C> <C>
William A. Eisenecher ............... 4,500 34,688 39,188 *
William A. Franklin, Jr.(5).......... 46,000 119,000 165,000 2.3%
Richard L. Harrison(5) .............. 3,299 60,750 64,049 *
G. Bradford Jones ................... 28,042 14,250 42,292 *
David C. Mercer(5) .................. 23,000 322,250 345,250 4.6%
Guy Nohra(6) ........................ 619,759 14,125 633,884 8.9%
Edwin C. Shors, Ph.D(5) ............. 43,000 158,750 201,750 2.8%
Maxwell R. Simmonds(5) .............. 33,000 155,000 188,000 2.6%
George W. Smyth, Jr.(5) ............. 86,962 182,625 269,587 3.7%
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP
(9 PERSONS)(7)..................... 887,562 1,061,438 1,949,000 23.8%
5% BENEFICIAL HOLDERS:
Heartland Advisors, Inc.(8).......... 1,417,100 0 1,417,100 19.9%
790 North Wilwaukee Street
Milwaukee, WI 53202
Burr, Egan, Deleage & Co(6).......... 619,759 0 619,759 8.7%
One Post Office Square
Suite 3800
Boston, MA 02109
Hambrecht & Quist Capital
Management Incorporated (9).......... 380,000 0 380,000 5.3%
50 Rowes Wharf, 4th Floor
Boston, MA 02110-3328
</TABLE>
- ------------------------
* less than 1%
(1) The address of each of the directors and officers listed in this table is
181 Technology Drive, Irvine, California 92618.
(2) Except for information based on Schedules 13G, as indicated in the footnotes
hereto, beneficial ownership is stated as of February 25, 1998.
(3) Presumes conversion of Interpore's Series E Preferred Stock into shares of
Interpore's Common Stock.
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<PAGE> 81
(4) Percentage of beneficial ownership as of February 25, 1998, for each person
includes shares subject to options held by such person, which options are
exercisable within 60 days after February 25, 1998, as if such shares were
outstanding on February 25, 1998.
(5) Messrs. Franklin, Harrison, Mercer, Shors and Simmonds are Named Executive
Officers.
(6) Based on Schedule 13G filed by Burr, Egan, Deleage & Co. ("Burr Egan").
Represents shares held by Alta IV Limited Partnership (524,132 shares) and
by C.V. Sofinnova Partners Five (95,627 shares) (collectively, the "Burr
Egan Funds"). Burr Egan serves as an advisor to the Burr Egan Funds. The
Burr Egan Funds exercise sole voting and investment power with respect to
their respective shares. Mr. Nohra is a partner of Burr Egan and thus may be
deemed to have the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the shares owned by Burr
Egan. Burr Egan and Mr. Nohra disclaim beneficial ownership of the shares
held by the Burr Egan Funds.
(7) Includes shares held by the Burr Egan Funds (see footnote 6).
(8) Based on Schedule 13G filed by Heartland Advisors, Inc.
(9) Based on Schedule 13G filed by Hambrecht & Quist Capital Management
Incorporated, which disclaims beneficial ownership of these shares.
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<PAGE> 82
THE BUSINESS OF CROSS
Cross Medical Products is a medical device company that develops and
distributes spinal implant products. Cross' stainless steel and titanium spinal
implants are used by surgeons to obtain fusion of the vertebral body in areas of
the spine affected by degenerative diseases, deformities, trauma and tumors. The
spinal implant stabilizes the spine while fusion occurs, and assists in
preventing the bone graft material (which is typically used in the areas of the
spine where the disc has been removed) from collapsing or migrating.
Cross, formerly known as Danninger Medical Technology, Inc. and
subsidiaries, has historically been engaged in two distinct business segments of
the orthopedic device industry: (1) the development and distribution of spinal
implant products ("Spinal Implants") and (2) the design, manufacture,
distribution and rental of orthopedic rehabilitation products ("Recovery
Products"). On March 12, 1997, Cross sold substantially all of the assets and
the buyer assumed substantially all of the liabilities of the Recovery Products
segment. Cross is currently focused exclusively on increasing market penetration
both domestically and internationally for its Spinal Implant business and on the
development of new products.
Unless the context otherwise requires, the following discussion relates only
to the continuing operations of the Spinal Implant business. On March 21, 1997,
Cross formally changed its name to Cross Medical Products, Inc.
SPINAL IMPLANT PRODUCTS
Cross' principal product line is the SYNERGY(TM) Spinal Implant System.
Cross formed its Medical Advisory Board and began development of the SYNERGY(TM)
Spinal Implant System in 1992. The SYNERGY(TM) Spinal Implant System is a
"universal" implant system that allows surgeons to treat both the thoracic
(middle) and lumbar (lower) portions of the spine, allowing use of the
SYNERGY(TM) Spinal Implant System in approximately 70% of all instrumented
spinal fusion surgeries in the United States. The SYNERGY(TM) Spinal Implant
System is flexible, strong, and easy for surgeons to use. The SYNERGY(TM) Spinal
Implant System does not demand that surgeons follow a single surgical protocol,
rather, it provides several options. Implants come in various sizes and types to
meet the surgeon's preferences and the patient's anatomy, providing a secure
anatomic fit for virtually any pathology. The SYNERGY(TM) Spinal Implant System
features unique implant locking mechanism designs that, combined with the use of
nitrogen-strengthened stainless steel, allow surgeons to assemble constructs of
exceptional strength while keeping the profile extremely low. The SYNERGY(TM)
Spinal Implant System was engineered to be easy for surgeons to use, reducing
surgical time and requiring less manipulation. The screws and hooks are top
tightening, the rods do not require pre-loading of additional components, and
all implants allow for free rod rotation.
Cross received 510(k) clearance from the FDA to market the anterior portion
of the SYNERGY(TM) Spinal Implant System in October 1994 and for the posterior
portion of the system in July 1995. In September 1996, Cross developed a
titanium version of the SYNERGY(TM) Spinal Implant System for international
distribution. Cross received FDA marketing clearance for the anterior portion of
the titanium version in October 1995 and the posterior portion in January 1997.
Titanium implant systems are preferred in many foreign markets and are used in
the United States in cases where magnetic resonance imaging of the spinal area
is anticipated to be needed. Cross is currently developing a cervical version of
the SYNERGY(TM) Spinal Implant System. The cervical implant version will permit
surgeons to treat the cervical (upper) portion of the spine and, if successful,
will expand Cross' product line to cover 100% of instrumental spinal fusion
surgeries. Cross believes that the SYNERGY(TM) Spinal Implant System is one of
the few "universal" spinal implant systems on the market.
In March 1997, Cross entered into a license agreement with Polaris
Biotechnology, Inc. to develop and market a spinal cage implant. Spinal cage
implants provide a supporting framework for bone in-growth for patients with
trauma, tumors, or degenerative diseases. Distribution of the spinal cage
implant within the United States is subject to regulatory approval which will
involve clinical trials, while international distribution is expected to begin
in the second half of 1998.
The initial spinal implant system offered by Cross in 1988 was the
Puno/Winter/Byrd Screw/Rod System (the "PWB Screw/Rod System") for fusion of the
lumbar spine. Cross elected to market the PWB Screw/Rod System in the United
States for clinical studies under an IDE. The IDE allowed Cross to develop a
clinical study in order to gather the data necessary to assess safety and
efficacy of the PWB Screw/Rod System. The IDE did not permit commercial
distribution and limited use of the PWB Screw/Rod System to a small number of
surgeons participating in the study. The study and patient follow-up has been
completed and Cross is considering filing a Pre-Market Application ("PMA") with
the FDA.
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After developing the PWB Screw/Rod System, Cross also developed lumbar hooks
for the treatment of unstable, degenerative conditions of the lumbar spine. The
lumbar hooks, when used in conjunction with rods and sacral screws, comprise the
Puno/Winter/Byrd Lumbosacral System (the "PWB Lumbosacral System"). The PWB
Lumbosacral System did not require clinical study and Cross received 510(k)
clearance from the FDA in April 1992, permitting marketing, sale and use of the
PWB Lumbosacral System. In May 1993, Cross received 510(k) clearance from the
FDA to market the INTEGRALTM Screw System. The INTEGRALTM Screw System was
developed to be used with the PWB Lumbosacral System, allowing surgeons the
option of additional diameters as well as a more rigid construct. It also
allowed Cross to expand its potential market penetration as spinal surgeons
sought more rigid constructs, while Cross developed its next generation of
implants.
Spinal Implant Marketing. Cross markets its spinal implant products to
orthopedic and neurological spine surgeons throughout the world. Cross estimates
that more than 2,000 physicians perform spinal surgery in the United States,
primarily in major metropolitan areas. Typically, the surgeon selects the type
of spinal implant system used in procedures performed by the surgeon. Cross
believes that the key to its marketing success in the United States is to
convince spinal surgeons of the efficacy of its implant system. This is done
through direct selling and marketing efforts by Cross' independent sales
representatives to the surgeons, participation by Cross in sponsoring symposiums
and training workshops, and through the education and training efforts of the
members of Cross' Medical Advisory Board.
Cross markets its spinal implant products through a network of thirty
independent commissioned sales agencies. Cross considers the quality of its
independent sales agencies and the level of training and service they provide to
surgeons to be a very important factor in its success, second only to the
technological advantages of its spinal implant products. The independent sales
agencies are prohibited from marketing competing spinal implant products.
However, they are permitted to market non-competing implants and other
orthopedic products. Spinal implant device inventories are consigned to the
independent sales agencies. The SYNERGYO Spinal Implant System contains a
variety of related implantable devices from which the surgeon can choose during
each surgical procedure. After each procedure, the hospital is invoiced by Cross
for the implant devices actually used, and the consigned inventory is
replenished.
Foreign sales of spinal implants and instrumentation represented
approximately $5.1 million, or 39.7%, of Cross' total sales of spinal implants
and instruments in fiscal 1997. Cross has been able to market the SYNERGYO
Spinal Implant System in those countries where governmental approval either is
not required or is obtained more quickly than in the United States. Cross
markets its spinal implants through the individual distributors in each country
who purchase implants and instrumentation directly from Cross. Cross has
distributors in approximately twenty-two countries and intends to continue to
seek qualified distributors in other foreign markets.
Medical Advisory Board. Cross has established a Medical Advisory Board
consisting of prominent spinal surgeons. The Medical Advisory Board meets
periodically to review and evaluate Cross' research and development efforts and
to identify promising new technologies for Cross. Individual members of the
Medical Advisory Board also meet and consult informally with employees of Cross
and assist Cross in training other surgeons in the use of Cross' products.
Members of the Medical Advisory Board receive a fixed quarterly payment from
Cross and share an annual royalty payment based on sales of certain of Cross'
spinal implant products. Cross is obligated to pay a royalty, subject to certain
limitations, to its Medical Advisory Board in an amount equal to 6.5% (and
increasing 1/2% annually, up to 8%) of the net revenues generated from the sales
of certain spinal implant products. Cross' aggregate royalty expense will
increase, if and to the extent, sales of implants increase. The following
doctors are members of the Medical Advisory Board:
Robert B. Winter, M.D. Chairman Minneapolis, MN
J. Abbott Byrd, M.D. Norfolk, VA
Rolando M. Puno, M.D. Louisville, KY
John Lonstein, M.D. Minneapolis, MN
Joseph Perra, M.D. Minneapolis, MN
Manual Pinto, M.D. Minneapolis, MN
Michael Smith, M.D. Minneapolis, MN
COMPETITION
Many companies compete in the spinal implant market and competition is
intense. Cross believes that its largest competitors in the United States
offering spinal implant systems are Sofamor Danek Group, Inc. and Acromed, Inc.,
each of which has substantially greater sales and financial resources than
Cross. Cross also competes with many other companies that offer similar
products. Other companies have developed and are
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<PAGE> 84
marketing products based on technologies that are different from Cross',
including spinal fusion cages, spinal implants designed to be used with
minimally invasive or laparoscopic surgery, biodegradable polymer inserts and
artificial bone implants. Cross believes that it competes on the following
basis: (a) the technological design and functional performance of its implant
products, (b) the level of training and service support provided to spinal
surgeons, (c) the professional reputation of members of its Medical Advisory
Board and the design and training assistance they provide, and (d) the ability
of its research and development personnel to produce technologically superior
products. Many of Cross' competitors have capital resources, research and
development staff, facilities, experience in clinical trials and obtaining
regulatory approvals, physician relationships and experience in manufacturing
and marketing significantly greater than those of Cross. Because of intense
competition, there can be no assurance that Cross will be able to successfully
market its spinal implant products. Additionally, there can be no assurance that
other competing products or technologies will not be technologically superior to
those offered or developed by Cross.
RESEARCH AND DEVELOPMENT
Cross continually strives to improve existing products and develop new
products in the spinal implant market. Cross conducts its research and
development activities primarily through its engineering department and with the
assistance of outside consultants. Cross employs six professional engineers and
a technician engaged exclusively in research and development.
In addition to research and development conducted by Cross, the Medical
Advisory Board plays an active role in the development of new spinal implant
products. Cross will continue to work with the members of its Medical Advisory
Board to develop new spinal systems which address spinal deformities and
degenerative disease in the cervical spine to be used with the SYNERGYO Spinal
Implant System as well as a minimally invasive device. Cross' spinal implant
research and development is concentrated on the design of these new systems, and
it expects to submit 510(k) applications to the FDA in 1998 for the cervical
version. Cross also intends to continue to develop the spinal implant cage which
it licensed in March 1997 under a license agreement with Polaris Biotechnology,
Inc.
Cross' research and development expenditures during the fiscal years ended
December 31, 1997, 1996, and 1995 were $1,226,000, $687,000, and $859,000
respectively. Cross intends to continue to invest in the development of new
spinal implant products in 1998.
INTELLECTUAL PROPERTY
Cross holds the patent, manufacturing and marketing rights to certain
specialty orthopedic products. The SYNERGYO Spinal Implant System is covered by
numerous pending U.S. and international patent applications belonging to Cross.
These applications concern various aspects of the SYNERGYO Spinal Implant System
including the bone anchor, the rod/anchor interface, instrumentation and
transverse connectors. CROSS(R), CROSS MEDICAL(R), INTEGRALO, and SYNERGYO are
trademarks of Cross.
Cross intends to file patent applications on future products as appropriate.
The mere filing and prosecution of patent applications, however, cannot
guarantee the ultimate issuance of patents. To the extent that Cross is
unsuccessful in securing patents for its devices or for certain features of its
devices which are easily reverse-engineered, there is little to prevent a
competitor from copying Cross' products, although Cross would have "lead time"
in the marketplace during the period needed by its competitors to copy and
secure FDA approval for a duplicate product. Even where patents are issued,
third parties may contest the validity of the patents or design around the
patents. Enforcement of patents can be expensive and time consuming for the
patent holder. Thus, while Cross believes that its patents are valid and have
value, Cross believes that they are of lesser significance than the innovative
skills, technical competence, and marketing ability of Cross' personnel.
GOVERNMENTAL REGULATION
The health care industry is subject to extensive government regulation on
both the federal and state levels. In particular, the FDA Act provides for
regulation by the FDA of the manufacture and sale of medical devices.
Under the FDA Act, all medical devices are to be classified as Class I,
Class II, or Class III devices, depending upon the risk they present. Many Class
I and all Class II and III medical devices must be reviewed or approved for
marketing prior to their distribution unless they are specifically excluded from
the requirement to do so. The review/approval process is more or less difficult
depending upon the product class. In general, Class I devices must comply with
labeling and recordkeeping requirements and are subject to other general
controls and periodic inspection. In addition to general controls, Class II
devices must comply with performance standards established
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by the FDA. Manufacturers of Class II devices also are subject to periodic
inspection by the FDA. Class III devices must receive pre-market approval from
the FDA before they can be commercially distributed in the United States, and
manufacturers of Class III devices are also subject to periodic inspection. The
FDA Act and FDA regulations also cover all incoming materials control,
processing control, traceability of input materials and components, traceability
of product servicing and other quality and safety controls. All of these
requirements are covered in the broad FDA specifications known as "good
manufacturing practice" regulations. To date, all FDA clearances of Cross'
products have been obtained under Section 510(k) of the U.S. Food, Drug and
Cosmetics Act, as amended, and regulations promulgated thereunder (collectively,
the "FDA Act"), which provides for FDA marketing clearance on an expedited basis
for products that can be shown to be substantially equivalent to devices in
interstate commerce prior to May 1976, the date of enactment of the FDA Act.
Cross anticipates that substantially all of the products currently being
developed by Cross will qualify for marketing clearance under Section 510(k).
The PWB Screw/Rod System implantable devices and the spinal implant cage are
Class III devices. Class III devices require pre-market approval from the FDA
before full distribution of the device may begin. The FDA allows only devices
proven to be both safe and effective to be offered for full distribution. The
FDA bases its judgment of both safety and effectiveness on information gathered
during studies conducted pursuant to an IDE. Cross is following the premarket
approval process for the PWB Screw/Rod System and having completed the IDE, is
considering submitting its PMA to the FDA. In addition, Cross plans to pursue an
IDE for multiple versions of the spinal implant cage.
The PWB Lumbosacral System and SYNERGYO Spinal Implant System are Class II
devices. Cross has received 510(k) marketing clearance for the PWB Lumbosacral
System and the SYNERGYO Spinal Implant System. The 510(k) notification is a
document submitted to demonstrate that the device in question is "substantially
equivalent" to an already legally marketed device, thus allowing faster
clearance by the FDA than the PMA procedure.
DISCONTINUED OPERATIONS
On March 12, 1997, Cross, Danninger Healthcare, Inc. ("DHI"), an Ohio
corporation and wholly-owned subsidiary of Cross, and OrthoLogic Corp.
("OrthoLogic"), a Delaware corporation, entered into an Asset Purchase
Agreement, whereby OrthoLogic purchased from Cross and DHI certain assets and
assumed certain liabilities related to Cross' Recovery Products business. Under
the Asset Purchase Agreement, Cross and DHI, collectively, sold substantially
all of their accounts receivables, inventory, fixed assets, intangible assets
and other assets related to the Recovery Products business to OrthoLogic for
approximately $8,200,000 in cash plus the assumption by OrthoLogic of
substantially all of the liabilities of Cross and DHI including accounts
payable, lease payable, bank debt and seller financing debt. Assumed liabilities
totaled approximately $5,000,000. In addition, OrthoLogic acquired 30,000
restricted shares of Cross' Common Stock for $242,000. The transaction was
accomplished through arms-length negotiations between Cross, DHI and OrthoLogic.
There was no material relationship between Cross, DHI and OrthoLogic or any
affiliates, directors or officers or associates of such directors or officers of
any party to the transaction. The following discussion describes Cross' Recovery
Products business prior to the sale.
Technology Overview. Continuous passive motion ("CPM") rehabilitation
therapy technology in the orthopedic field employs devices to slowly and
continuously move an injured joint without assistance of the patient's muscle
power. This therapy is most commonly used after joint surgery to improve blood
flow, reduce swelling, increase the range of motion, maintain muscle tone and
speed healing.
Prior to the development of CPM therapy, physicians generally believed that
it was necessary to immobilize a bone and adjacent joints in a cast or splint
subsequent to an injury or an operation during the healing process. This
immobilization resulted in muscle atrophy, cartilage degeneration, and tendon
and ligament stiffening, and often required additional rehabilitation to restore
the pre-injury range of motion and strength. Beginning in the early 1970s,
experiments were conducted to determine the rehabilitative benefits of joint
exercise following surgery. These experiments led to the development of CPM
machines to provide the desired exercise with no effort on the part of the
patient. Clinical research has established that CPM therapy can significantly
reduce post-operative joint pain and swelling and increase arterial blood flow,
thus increasing range of motion and reducing the length of hospitalization and
rehabilitation.
The major market for CPM devices is for use immediately following knee and
hip joint replacement surgeries. The primary function of this therapy is to
rehabilitate injured or diseased joints and to prevent injury to joints that
would otherwise occur through immobilization. The success that CPM has enjoyed
in post-operative knee and hip therapy has generated demand for CPM devices for
the elbow, shoulder, hand, wrist, ankle and toe joints.
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Cross Recovery Products. The majority of Cross' line of recovery products
were marketed under the trade name DanniflexO. Cross offered a full range of CPM
devices: three leg models, a shoulder model, hand and finger model, wrist model
and toe model. Cross periodically refined and updated its various CPM devices
with the addition of new models to expand its existing line or replace prior
models. In addition to CPM devices, Cross offered product accessories that made
CPM devices easier to use and apply.
Recovery Products Marketing. CPM devices are used primarily by post-surgery
orthopedic patients in hospitals and in their homes. CPM devices are also used
in nursing homes, sports medicine clinics and private practice physical therapy
clinics.
Cross sold the majority of its CPM devices to independent durable medical
equipment ("DME") dealers. Typically, DME dealers purchase and inventory CPM
devices in sufficient quantity for their rental markets. Dealers purchased the
unit outright from Cross or financed the purchase through a third party lessor.
Upon receiving a rental order, the dealer transports the unit to and from the
hospital, institution, or home (usually within a 20 to 50 mile radius), aids in
setting up the unit and bills the customer for the service at a daily, weekly or
monthly rental rate.
In recent years, the DME market has experienced a number of changes.
National DME dealers are consolidating while new dealers are entering the market
at the local level. In response to these changes, Cross was committed to an open
distribution policy for its products and, working with independent financing
companies, offered financing programs tailored to the DME marketplace. In
addition, in 1994, Cross formed Recovery Services, Inc. ("RSI") as a
wholly-owned subsidiary to rent recovery products directly to end users. RSI was
formed to expand the geographic scope of Cross' recovery products market in
those areas without suitable DME dealers, to explore alternative distribution
methods for new and existing products, and to assist Cross in assessing the
product needs and requirements of the recovery products market.
In September 1996, Cross acquired Surgical and Orthopedic Specialties, Inc.
("SOS"), a durable medical equipment dealer that rented orthopedic
rehabilitation equipment primarily to home-care patients in Michigan, Indiana
and Ohio. Upon completion of the merger, RSI and SOS operated under the DHI
name.
Recovery Products Manufacturing. Cross assembled its recovery products,
fabricating some of the mechanical parts and purchasing the remaining mechanical
and all of the electrical components from a variety of vendors. All of Cross'
DanniflexO line of lower extremity CPM devices shared certain basic structural
elements. CPM devices were sold with a limited one year warranty. Claims under
Cross' CPM device warranty have been nominal.
LEGAL PROCEEDINGS
The nature of Cross' business subjects Cross to product liability and
related claims from time to time. Cross maintains a claims made product
liability insurance policy with per occurrence ($100,000) and aggregate
($500,000) retention limits. Beyond these retention limits, the policy covers
aggregate insured claims made during each policy year up to $5,000,000. Cross
believes that it has adequate insurance for its business, however, there can be
no assurance that future operating results will not be materially adversely
affected by the formal resolution of pending cases or future claims.
Cross and other spinal implant manufacturers were named as defendants in
various purported class action product liability lawsuits alleging that the
plaintiffs were injured by spinal implants supplied by Cross and others. All
such lawsuits were consolidated for pretrial proceedings in the Federal District
Court for the Eastern District of Pennsylvania and, on February 22, 1995, Chief
Judge Emeritus Lewis C. Bechtle denied class certification. The federal court
lawsuits before Judge Bechtle will remain coordinated for further pretrial
purposes, but are individual lawsuits. In response to the denial of class
certification, a large number of additional individual lawsuits have been filed
alleging, in addition to damages from spinal implants, a conspiracy among
manufacturers, physicians, and other spinal implant industry members to market
products without the proper regulatory approvals. Cross has been named as a
defendant, among others, in approximately 750 such lawsuits. None of the 750
cases involve products manufactured by Cross. Cross cannot estimate precisely at
this time the number of such lawsuits that may eventually be filed. Most of such
lawsuits are pending in federal courts and are in preliminary stages. Discovery
proceedings, including the taking of depositions, have commenced in certain of
the lawsuits. Plaintiffs in these cases typically seek relief in the form of
monetary damages, often in unspecified amounts. While the aggregate monetary
damages eventually sought in all of such individual actions is substantial and
exceeds the limits of Cross' products liability insurance policies, Cross
believes that it has affirmative defenses, including, without limitation,
preemption, and that these individual lawsuits are otherwise without merit.
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<PAGE> 87
In addition, Cross has been named as a defendant in 16 cases alleging claims
of products liability for allegedly defective products manufactured by Cross.
All pending cases are being defended by Cross' insurance carrier, in some cases
under a reservation of rights. There can be no assurance, however, that the
$5,000,000 per policy year limit of Cross' coverage will be sufficient to cover
the cost of defending all lawsuits or the payment of any amounts that may be
paid in satisfaction of any settlements or judgments. Further, there can be no
assurance that Cross will continue to be able to obtain sufficient amounts of
products liability insurance coverage at commercially reasonable premiums.
In addition, in the ordinary course of business Cross has been named as a
defendant in various other legal proceedings. Cross has denied liability in all
such lawsuits and is vigorously defending the same. Cross believes that it has
adequate insurance for its business, however, there can be no assurance that
future operating results will not be materially adversely affected by the formal
resolution of these matters.
EMPLOYEES
As of February 25, 1998, Cross employed 45 full-time employees. Cross has no
part-time employees. None of Cross' employees are subject to collective
bargaining agreements, and Cross considers its relationship with its employees
to be good.
PROPERTY
On February 8, 1996, Cross entered into a lease for its office and
production facilities in Dublin, Ohio. The lease term began on April 1, 1996,
and terminates on June 1, 2001. The lease covers 27,680 square feet, of which
Cross plans to use approximately 13,680 square feet for office and production
and Cross is attempting to sublease the remaining space. The facility is located
at 5160-A Blazer Memorial Parkway, Dublin, Ohio 43017-1339.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CROSS
Mr. Loveland, Secretary, a director and stockholder of Cross, is a partner
in the law firm of Porter, Wright, Morris & Arthur, Columbus, Ohio, which firm
serves as general counsel to Cross.
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF CROSS
The selected consolidated financial data presented below for, and as of the
end of, each of the years in the five year period ended December 31, 1997 is
derived from the financial statements of the Cross which have been audited by
Coopers & Lybrand L.L.P. The following selected consolidated financial data
should be read in conjunction with the Cross' consolidated financial statements
and related notes and with "Cross Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(In thousands, except per share data)
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ................................. $ 12,918 $ 8,572 $ 4,091 $ 2,880 $ 1,360
Cost of goods sold ...................... 5,923 3,854 1,995 1,189 358
Gross margin ............................ 6,995 4,718 2,096 1,691 1,002
Selling, general and administrative
expenses ................................ 6,689 4,330 3,224 2,483 1,984
Research and development expenses ....... 1,226 687 859 977 800
Operating loss .......................... (920)(1) (299) (1,987) (1,769) (1,782)
Interest expense, net ................... 426 439 101 3 15
Loss before income taxes ................ (1,346) (738) (2,088) (1,772) (1,797)
Net income (loss) from continuing
operations .............................. (862) 50(2) (1,442) (1,176) (1,194)
Net income (loss) per share from
operations (basic and
continuing diluted) ................... $ (0.17) $ 0.01 $ (0.31) $ (0.25) $ (0.27)
Weighted average shares used in basic and
diluted earnings per share calculations . 5,065 4,772 4,661 4,704 4,422
BALANCE SHEET DATA:
Working Capital ......................... $ 13,356 $ 8,241 $ 3,135 $ 2,599 $ 2,032
Total assets ............................ 18,762 19,590 9,498 7,413 5,782
Short-term obligations .................. 95 1,659 3,081 6 7
Long-term obligations ................... 5,124 5,482 7 -- 6
Total shareholders' equity .............. 9,998 5,648 3,522 3,390 3,008
</TABLE>
(1) In 1997, Cross recognized $925,000 of inventory valuation adjustment for
obsolete and slow moving inventory related to market acceptance of certain
improvements and modifications to its spinal implant system.
(2) In 1996 Cross recognized income of $459,000 from the reversal of a valuation
allowance provided against deferred tax assets.
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<PAGE> 89
CROSS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
At December 31, 1996, Cross had two primary business segments: Recovery
Products focused on orthopedic rehabilitative treatment; and Spinal Implant
focused on the development and marketing of spinal implant devices. On March 12,
1997, Cross sold substantially all of the assets and the buyer assumed
substantially all of the liabilities of its Recovery Products segment. The
results of Cross have been reported so as to segregate the discontinued
operations from continuing operations. The management discussion that follows
pertains to Cross' continuing operations.
Shown below for the years indicated are the percentages that certain items
in Cross' Consolidated Statement of Operations bear to total revenue.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenue ......................... 100.0% 100.0% 100.0%
Cost of goods sold .............. 45.9 45.0 48.8
Sales, general and administrative 51.8 50.5 78.8
expense
Research and development expense 9.5 8.0 21.0
Interest expense ................ 3.3 5.1 2.5
Loss before taxes ............... (10.4) (8.6) (51.0)
Income tax benefit .............. 3.7 9.2 15.8
Net income (loss) ............... (6.7) 0.6 (35.2)
----- ----- -----
</TABLE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997
AND 1996
For 1997 net sales increased 51% to $12,918,000 from $8,572,000 for 1996.
This increase was primarily a result of Cross' increased penetration into the
spinal implant market as Cross continued to increase its distribution network,
the number of surgeons using the SYNERGY(TM) Spinal Implant System and its
offering of spinal implant products. Cross received FDA marketing clearance for
the posterior portion of the titanium version of the SYNERGY(TM) Spinal Implant
System for sale in the United States in January 1997.
Cost of goods sold was $5,923,000 or 45.9% of net sales for 1997 compared to
$3,854,000 or 45.0% for 1996. The 1997 cost of goods sold increased as a result
of adjustments to inventory valuation of $700,000 recognized in the fourth
quarter of 1997 for products that became obsolete or slow-moving due to the
widespread acceptance of certain improvements and modifications to Cross'
SYNERGY(TM) Spinal Implant System. Before the inventory allowance, the cost of
goods sold as a percentage of net sales decreased from 1996 to 1997. The
decrease was primarily due to Cross increasing its sales prices in 1997, while
the cost of the spinal implant products remained relatively stable from 1996 to
1997.
Selling, general and administrative expenses increased to 51.8% from 50.5%
as a percentage of net sales, an increase to $6,689,000 from $4,330,000, for
1997 and 1996, respectively. Except for commissions and product liability
insurance premiums, most of the selling, general and administrative expenses are
relatively fixed expenses and as net sales increase, these expenses as a
percentage of net sales decrease. Cross intends to continue to invest in the
development of additional markets domestically and internationally, which
expenditures will tend to keep selling, general and administrative expenses at a
relatively high percentage of sales until sales increase.
Research and development expenses increased to 9.5% from 8.0% as a
percentage of net sales, an increase to $1,226,000 from $687,000, for 1997 and
1996, respectively. In March 1997, Cross entered a license agreement to develop
a spinal cage, the development of which is ongoing. The cage is expected to open
new market segments for Cross. Cross also is developing a cervical spinal
system. Cross continues to explore ways to expand its product lines either
through internal development or acquisition.
In 1997, interest expense, net, decreased to $426,000 or 3.3% of net sales
from $439,000 or 5.1% of net sales, for 1997 and 1996, respectively. The
decrease was primarily attributable to the interest income earned on the
investment of the proceeds from the sale of Cross' Recovery Products business in
March, 1997.
Cross recorded a tax benefit of $484,000 and $788,000 for 1997 and 1996,
respectively, as Cross had a tax loss from continuing operations in 1997 and
1996.
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<PAGE> 90
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995
For 1996 net sales increased 110% to $8,572,000 from $4,091,000 for 1995.
This increase was primarily a result of Cross' increased penetration into the
spinal implant market as Cross continued to increase its distribution network,
the number of surgeons using the SYNERGY(TM) Spinal Implant System and its
offering of spinal implant products. In the third quarter of 1996, Cross began
marketing internationally the titanium version of the SYNERGY(TM) System. Cross
received FDA marketing clearance for the posterior portion of the titanium
version for sale in the United States in the first quarter of 1997.
Cost of goods sold was $3,854,000 or 45.0% of net sales for 1996 compared to
$1,995,000 or 48.8% for 1995. This decrease as a percentage of sales was
primarily related to an inventory allowance established for Cross'
Puno/Winter/Byrd spinal implant systems in 1995. Cost of goods sold is affected
by the amount of international sales as a percentage of total sales since such
sales are sold at a lower margin to international distributors. On sales of
spinal products in the United States, Cross pays a commission to its independent
sales representatives, however, this commission is recorded as a selling
expense.
Selling, general and administrative expenses decreased to 50.5% of sales in
1996 from 78.8% in 1995. The decrease is primarily attributable to an increase
in sales.
Research and development expenses decreased by $172,000 and as a percentage
of sales to 8.0% in 1996 from 21.0% in 1995. The decrease was due to investments
in 1995 relating to the FDA approval of the SYNERGY(TM) Spinal Implant System
for marketing clearance. In 1996, Cross focused its financial resources in
expanding its distribution network in the United States and internationally.
In 1996, interest expense increased to 5.1% of sales from 2.5% in 1995 as a
result of a $5,250,000 Convertible Subordinated Debenture Offering in May 1996.
Cross recorded a tax benefit of $788,000 in 1996 compared to a tax benefit
of $646,000 in 1995. The 1996 effective income tax rate is below statutory tax
rates primarily as a result of the reversal of the valuation allowance used to
reduce the tax benefit of research and development tax credits and net operating
losses. Management believes that the reversal of the valuation allowance is
appropriate due to the improved performance of Cross during 1996 and
expectations of future profitability. Research and development credit
carryforwards were $455,000 at December 31, 1996 and expire at various times
through December 31, 2011. Net operating loss carryforwards were approximately
$232,000 and expire in 2010.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $13,356,000 at December 31, 1997 from
$8,241,000 at December 31, 1996. The current ratio (ratio of current assets to
current liabilities) increased to 4.7 to 1.0 at December 31, 1997 from 2.4 to
1.0 at December 31, 1996. The increase in working capital is principally
attributable to the net cash received from the sale of the Recovery Products
segment of approximately $6,010,000 after paying off Cross' line of credit of
$2,190,000, cash received from the sale of common stock to the buyer of the
Recovery Products segment of $242,000, cash received from the sale of common
stock to its Japanese distributor of $2,000,000, and cash generated from
operations until the sale of the Recovery Products segment on March 12, 1997 of
$92,000.
Cash flows used in operating activities were $5,250,000 in 1997 compared to
$3,181,000 in 1996. The reason for continued use of cash flows from operating
activities in 1997 relates to the increases in accounts receivable and
inventories and decreases in accounts payable and accrued liabilities.
Inventories increased 87% to $8,459,000 at December 31, 1997 from $4,529,000 at
December 31, 1996 reflecting an increase in inventory to support the higher
level of sales of the SYNERGY(TM) Spinal Implant System. Cash flows used in
investing activities were $1,968,000 in 1997 compared to $544,000 in 1996
primarily related to the purchase of a $1,500,000 certificate of deposit. Cash
flows provided by financing activities were $609,000 in 1997 compared to
$3,325,000 in 1996. The primary source of cash from financing activities in 1996
was the proceeds from the Convertible Subordinated Debenture offering of
$5,250,000, exclusive of offering costs of $557,000.
The nature of Cross' business subjects Cross to product liability and
related claims from time to time. Cross believes that it has adequate insurance
for its business, but there can be no assurance that Cross' liquidity will not
be materially adversely affected by the final resolution of pending cases or
future claims.
Cross utilizes various PC based computer software packages as tools in
running its daily operations. Cross Management does not believe that Cross will
encounter any material problems with this software as a result of the change of
the millennium on January 1, 2000.
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<PAGE> 91
Cross believes that the funds generated by the divestiture of the Recovery
Products segment, funds received from the sale of common stock, its bank loan
facility, working capital, and funds anticipated to be generated by operations
will be sufficient to fund Cross' growth plans through at least the end of
fiscal year 1998.
OWNERSHIP OF CROSS STOCK
The following table sets forth the amount and percentage of the outstanding
shares of Cross Common Stock which, according to the information supplied to
Cross, are beneficially owned by (i) each person who, to the knowledge of Cross,
is the beneficial owner of more than 5% of Cross' outstanding Common Stock, (ii)
each person who is currently a director of Cross (of whom Edward R. Funk,
Herbert J. Kahn and Curtis A. Loveland are also nominees for election as
directors of Cross), (iii) each Named Executive Officer (as defined on page 107
hereof) of Cross and (iv) all current directors and executive officers of Cross
as a group. Except to the extent indicated in the footnotes to the following
table, the person or entity listed has sole voting or dispositive power with
respect to the shares which are deemed beneficially owned by such person or
entity.
<TABLE>
<CAPTION>
TOTAL PERCENT OF
OPTIONS OUTSTANDING SHARES OF
OUTSTANDING EXERCISABLE COMMON STOCK COMMON STOCK
NAME AND ADDRESS COMMON WITHIN BENEFICIALLY BENEFICIALLY
OF BENEFICIAL OWNER(1) STOCK(2) 60 DAYS OWNED(2) OWNED(2)(3)
--------- ------- --------- ----
<S> <C> <C> <C> <C>
DIRECTORS/NOMINEES AND NAMED
EXECUTIVE OFFICERS:
Ira Benson(4)(5) ................. 7,000 43,000 50,000 *
Daniel A. Funk, M.D.(6) .......... 228,728 21,000 249,728 4.7%
Edward R. Funk(7) ................ 791,013 22,500 813,513 15.4%
Daniel A. Gregorie, M.D .......... 0 10,000 10,000 *
Herbert J. Kahn .................. 36,100 22,500 58,600 1.1%
Curtis A. Loveland (8) ........... 552,878 22,500 575,378 10.9%
Philip A. Mellinger(4) ........... 19,098 10,720 29,818 *
Paul A. Miller(4)(9) ............. 400 18,800 19,200 *
Joseph A. Mussey(4) .............. 116,500 74,500 191,000 3.6%
C. Craig Waldbillig(10) .......... 76,600 22,500 99,100 1.9%
Peter H. Williams ................ 32,600 22,500 55,100 1.0%
Robert J. Williams ............... 0 10,000 10,000 *
Thomas E. Zimmer(4) .............. 10,624 8,720 19,344 *
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (13 PERSONS)
(5)(6)(7)(8)(9)(10) ............ 1,873,541 314,240 2,187,781 39.3%
5% BENEFICIAL HOLDERS:
Ingeborg R. Funk(7) .............. 791,013 22,500 813,513 15.4%
5160-A Blazer Memorial Parkway
Dublin, Ohio 43017-1339
</TABLE>
- --------------------------------------
* less than 1%
(1) The address of each of the directors and officers listed in the table is
5160-A Blazer Memorial Parkway, Dublin, Ohio 43017-1339.
(2) Except for information based on Schedules 13G, as indicated in the footnotes
hereto, beneficial ownership is stated as of February 25, 1998.
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<PAGE> 92
(3) Percentage of beneficial ownership as of February 25, 1998, for each person
includes shares subject to options held by such person, which options are
exercisable within 60 days after February 25, 1998, as if such shares were
outstanding on February 25, 1998.
(4) Messrs. Benson, Mellinger, Miller, Mussey and Zimmer are Named Executive
Officers.
(5) Includes 3,000 shares owned by Mr. Benson's spouse, as to which he expressly
disclaims beneficial ownership.
(6) Includes 12,414 shares owned by Dr. Daniel A. Funk's spouse, as to which he
expressly disclaims beneficial ownership.
(7) Edward R. Funk and Ingeborg V. Funk are husband and wife. Under the rules of
the Securities and Exchange Commission, each may be deemed to beneficially
own the shares of the other; consequently, the number reported in the table
above for each includes 336,416 and 454,597 shares held of record by Dr.
Funk and Mrs. Funk, respectively, and 22,500 shares which could have been
acquired by Dr. Funk under stock options exercisable within 60 days of
February 25, 1998. Dr. and Mrs. Funk each expressly disclaim beneficial
ownership of shares held by the other.
(8) Includes 33,460 shares held by Mr. Loveland directly or in a self-directed
retirement account; 519,418 shares held of record by Mr. Loveland as trustee
for various irrevocable trusts for the benefit of Dr. and Mrs. Edward R.
Funk's children and grandchildren.
(9) Includes 400 shares owned by Mr. Miller's minor children, as to which he
expressly disclaims beneficial ownership.
(10) Includes 70,600 shares held in a revocable trust created by Mr. Waldbillig.
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<PAGE> 93
DESCRIPTION OF INTERPORE CAPITAL STOCK
The following summary description of the capital stock of Interpore is
qualified in its entirety by the complete text of Interpore's Third Amended and
Restated Articles of Incorporation and Bylaws which are incorporated herein by
reference and copies of which are available to investors upon request to
Interpore. Interpore's shareholders are being asked to consider a proposal to
change the state of the company's incorporation from California to Delaware. If
the proposal is adopted it will affect certain changes in the Interpore capital
stock. See "Proposal for Interpore to Reincorporate in Delaware."
Interpore's authorized capital stock currently consists of 20,000,000 shares
of Interpore Common Stock, no par value, and 890,358 shares of Interpore
Preferred Stock, no par value.
INTERPORE COMMON STOCK
As of April 3, 1998, there were 7,110,898 shares of Interpore Common Stock
outstanding held of record by approximately 356 shareholders.
Holders of Interpore Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Interpore Preferred Stock, if
any, the holders of Interpore Common Stock are entitled to receive such lawful
dividends as may be declared by the Board of Directors. In the event of
liquidation, dissolution or winding up of Interpore, and subject to the rights
of the holders of outstanding shares of Interpore Preferred Stock, if any, the
holders of shares of Interpore Common Stock shall be entitled to receive pro
rata all of the remaining assets of Interpore available for distribution to its
shareholders. There are no redemption or sinking fund provisions applicable to
the Interpore Common Stock. All outstanding shares of Interpore Common Stock are
fully paid and nonassessable.
INTERPORE PREFERRED STOCK
Of the total number of authorized shares of Interpore Preferred Stock,
594,000 shares constitute a separate series designated as Interpore Series E
Preferred Stock. There are presently outstanding 32,906 shares of Interpore
Series E Preferred Stock held by 9 holders of record. Except as otherwise
required by the CGCL, each share of Interpore Series E Preferred Stock is
entitled to 1.0045 or 1.0058 votes (depending on issuance date), voting together
with the Interpore Common Stock as a class, on all matters to be voted on by
Interpore's shareholders. The terms of the Interpore Series E Preferred Stock
provide for noncumulative dividends to be paid at the times and in the amounts
paid per share on the Interpore Common Stock, and set the liquidation preference
at an amount no greater than $7.50 per share. The Interpore Series E Preferred
Stock has no redemption rights (although Interpore may redeem the stock in
certain circumstances) and is convertible into Interpore Common Stock at a
conversion ratio of 1.0045 or 1.0058 shares of Interpore Common Stock (depending
on issuance date) for each share of Interpore Preferred Stock, subject to
certain anti-dilution protections. In addition, all of the outstanding shares of
the Interpore Series E Preferred Stock will automatically convert into 33,067
shares of Interpore Common Stock (subject to certain anti-dilution protections)
at such time as the closing sale price of Interpore Common Stock, as reported on
the Nasdaq National Market, has been at least $10.00 per share for at least 20
out of 30 consecutive trading days.
The Interpore Board of Directors has the authority, without further action
by the shareholders of Interpore, to issue up to 296,358 shares of Interpore
Preferred Stock in one or more series and to fix the rights, preferences and
privileges thereof, including the dividend rights, dividend rates, conversion
rights, voting rights terms of redemption (including sinking fund provisions),
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series. Although it presently has no
intention to do so, the Interpore Board of Directors, without shareholder
approval, could issue Interpore Preferred Stock with voting and conversion
rights that could adversely affect the voting powers of the holders of Interpore
Common Stock and the market price of the Interpore Common Stock. Issuance of
Interpore Preferred Stock may also have the effect of delaying, deferring or
preventing the change of control of Interpore without further action by the
shareholders and may discourage bids for the Interpore Common Stock at a premium
over the market price.
PREFERRED STOCK PURCHASE RIGHTS
On August 29, 1995, the Interpore Board of Directors declared a dividend of
one preferred stock purchase right (the "Rights") for each share of Interpore
Common Stock outstanding at the close of business on September 22, 1995 (the
"Record Date"). Each Right will entitle the registered holder thereof, after the
Rights become exercisable and until August 28, 2005 (or the earlier redemption,
exchange or termination of the Rights),
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<PAGE> 94
to purchase from Interpore one one-hundredth (1/100th) of a share of Series F
Junior Participating Preferred Stock, no par value per share (the "Preferred
Shares"), at a price of $33.00 per one one-hundredth (1/100th) of a Preferred
Share, subject to certain anti-dilution adjustments (the "Purchase Price"). The
Rights will be represented by the Interpore Common Stock certificates and will
not be exercisable or transferable apart from the Interpore Common Stock until
the earlier to occur of (i) the tenth day after a public announcement that a
Person or group of affiliated or associated Persons has become an Acquiring
Person (a Person or group of affiliated or associated Persons who has acquired,
or obtained the right to acquire, beneficial ownership of 20% or more of the
Interpore Common Stock), or (ii) the tenth day after a Person or group
commences, or announces an intention to commence, a tender or exchange offer,
the consummation of which would result in the beneficial ownership by a Person
or group of 20% or more of the Interpore Common Stock (the earlier of (i) and
(ii) being called the "Distribution Date," whether or not either such date
occurs prior to the Record Date). Separate certificates representing the Rights
will be mailed to holders of record of the Interpore Common Stock as of the
close of business on the Distribution Date. The Rights will first become
exercisable on the Distribution Date, unless earlier redeemed or exchanged, and
may then begin trading separately from the Interpore Common Stock. The Rights
will at no time have any voting rights.
Each Preferred Share purchasable upon exercise of the Rights will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend of 100 times the dividend, if any,
declared per share of Interpore Common Stock. In the event of liquidation, the
holders of the Preferred Shares will be entitled to a minimum preferential
liquidation payment of $100 per share but will be entitled to an aggregate
payment of 100 times the payment made per share of Interpore Common Stock. Each
Preferred Share will have 100 votes and will vote together with the Interpore
Common Stock. Finally, in the event of any merger, consolidation or other
transaction in which Interpore Common Stock are exchanged, each Preferred Shares
will be entitled to receive 100 times the amount received per share of Interpore
Common Stock. These Rights are protected by customary anti-dilution provisions.
Because of the nature of the Preferred Share's dividend, liquidation and voting
rights, the value of one one-hundredth of a Preferred Share purchasable upon
exercise of each Right should approximate the value of one share of Interpore
Common Stock.
In the event that a Person becomes an Acquiring Person (except pursuant to
certain cash offers for all outstanding Interpore Common Stock approved by the
Interpore Board of Directors) or if Interpore were the surviving corporation in
a merger with an Acquiring Person or any affiliate or associate of an Acquiring
Person and the Interpore Common Stock were not changed or exchanged, each holder
of a Right, other than Rights that are or were acquired or beneficially owned by
the Acquiring Person (which Rights will thereafter be void), will thereafter
have the right to receive upon exercise that number of shares of Interpore
Common Stock having a market value of two times the then current Purchase Price
of one Right. With certain exceptions, in the event that, following the time
that a Person has become an Acquiring Person, Interpore were acquired in a
merger or other business combination transaction or more than 50% of its assets
or earning power were sold, proper provision shall be made so that each holder
of a Right shall thereafter have the right to receive, upon the exercise thereof
at the then current Purchase Price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction would have
a market value of two times the then current Purchase Price of one Right.
At any time after a Person becomes an Acquiring Person and prior to the
acquisition by such Acquiring Person (except pursuant to certain cash offers for
all outstanding Interpore Common Stock approved by the Interpore Board of
Directors) of 50% or more of the then outstanding Interpore Common Stock, the
Board of Directors may cause Interpore to acquire the Rights (other than Rights
owned by an Acquiring Person which have become void), in whole or in part, in
exchange for that number of shares of Interpore Common Stock having an aggregate
value equal to the Spread (the excess of the value of the shares of Interpore
Common Stock issuable upon exercise of a Right after a Person becomes an
Acquiring Person over the Purchase Price) per Right (subject to adjustment).
The Rights may be redeemed in whole, but not in part, at a price of $.01 per
Right (the "Redemption Price") by the Board of Directors at any time prior to
the first date that a Person has become an Acquiring Person (except pursuant to
certain cash offers for all outstanding Interpore Common Stock approved by the
Interpore Board of Directors). The redemption of the Rights by the Board of
Directors may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Interpore may, at its option, pay the Redemption Price in cash, Interpore Common
Stock (based on the current per share market price at the time of the
redemption) or any other form of consideration deemed appropriate by the Board
of Directors. Immediately upon the action of the Interpore Board of Directors
electing to redeem the Rights, Interpore shall make an announcement thereof, and
upon such election, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
The Rights will expire on August 28, 2005 (the "Final Expiration Date")
(unless earlier redeemed, exchanged or terminated). U.S. Stock Transfer
Corporation is the Rights Agent.
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The Purchase Price payable, and the number of one one-hundredths of a
Preferred Share or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) upon the grant to holders of the
Preferred Shares of certain rights or warrants to subscribe for or purchase
Preferred Shares or convertible securities at less than the current market price
of the Preferred Shares or (iii) upon the distribution to holders of the
Preferred Shares of evidences of indebtedness, cash, securities or assets
(excluding regular periodic cash dividends at a rate not in excess of 125% of
the rate of the last regular periodic cash dividend theretofore paid or, in case
regular periodic cash dividends have not theretofore been paid, at a rate not in
excess of 50% of the average net income per share of Interpore for the four
quarters ended immediately prior to the payment of such dividend, or dividends
payable in Preferred Shares (which dividends will be subject to the adjustment
described in clause (i) above)) or of subscription rights or warrants (other
than those referred to above).
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Interpore beyond those as an existing stockholder,
including, without limitation, the right to vote or to receive dividends.
Any of the provisions of the Interpore Rights Plan may be amended by the
Interpore Board of Directors prior to the Distribution Date. After the
Distribution Date, Interpore and the Rights Agent may amend or supplement the
Interpore Rights Plan without the approval of any holders of Right Certificates
to cure any ambiguity, to correct or supplement any provision contained therein
which may be defective or inconsistent with any other provisions therein, to
shorten or lengthen any time period under the Interpore Rights Plan (so long as,
under certain circumstances, a majority of Continuing Directors (as defined
below) approve such shortening or lengthening) or so long as the interests of
the holders of Rights Certificates (other than an Acquiring Person or an
affiliate or associated of an Acquiring Person) are not adversely affected
thereby, to make any other provisions in regard to matters or questions arising
thereunder which Interpore and the Rights Agent may deem necessary or desirable,
including but not limited to extending the Final Expiration Date. Interpore may
at any time prior to such time as any Person becomes an Acquiring Person amend
the Interpore Rights Plan to lower the thresholds described above to not less
than the greater of (i) any percentage greater than the largest percentage of
the outstanding Interpore Common Stock then known by Interpore to be
beneficially owned by any Person or group of affiliated or associated Persons
and (ii) 10%.
The term "Continuing Directors" means any member of the Interpore Board of
Directors who was a member of the Board prior to the time that any Person
becomes an Acquiring Person, and any person who is subsequently elected to the
Board if such person is recommended or approved by a majority of the Continuing
Directors. Continuing Directors do not include an Acquiring Person, or an
affiliate or associated of an Acquiring Person, or any representative of the
foregoing.
One Right was distributed to stockholders of Interpore for each share of
Interpore Common Stock owned of record by them on September 22, 1995. As long as
the Rights are attached to the Interpore Common Stock, Interpore will issue one
Right with each new share of Interpore Common Stock so that all such shares will
have attached Rights. Interpore has agreed that, from and after the Distribution
Date, Interpore will reserve 140,000 Preferred Shares initially for issuance
upon exercise of the Rights. If the Reincorporation is approved, Interpore will
redeem all Rights outstanding under the Interpore Rights Plan immediately prior
to the Reincorporation Effective Time.
The Rights will cause substantial dilution to a person or group that
acquires 20% or more of Interpore's stock on terms not approved by Interpore's
Board of Directors. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors at any time prior to the
first date that a Person or group has become an Acquiring Person. Because the
Interpore Board of Directors has approved both the Merger and the
Reincorporation, all Rights available under the Rights Agreement will be
terminated automatically at the earlier of the Effective Time or the
Reincorporation Effective Time.
REGISTRATION RIGHTS
The holders of Interpore's Series E Preferred Stock are entitled to certain
rights with respect to the registration of the approximately 33,067 shares of
Interpore Common Stock issuable upon the conversion of the Series E Preferred
Shares (at December 31, 1997) (the "Registrable Shares") under the Securities
Act. Under the terms of purchase agreements between Interpore and the purchasers
named therein, if Interpore proposes to register an offering of any of its
Interpore Common Stock under the Securities Act, the holders of Registrable
Shares are entitled to require Interpore to include all or a portion of their
shares in such registration, subject to certain conditions. The underwriters of
such offering have the right to limit the number of shares included in the
registration. All fees, costs and expenses of the registration, other than
underwriting discounts, will be paid by Interpore. Additionally, under the terms
of the purchase agreements, the holders of at least 33 1/3% (or a lesser
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percentage if the aggregate offering price of such shares would exceed
$5,000,000) of the Registrable Shares then outstanding may demand that Interpore
file a registration statement under the Securities Act with respect to such
shares. Interpore is required to effect such registration, subject to certain
conditions and limitations. All fees, costs and expenses of such registration,
other than underwriting discounts, will be paid by Interpore.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The CGCL provides that California corporations may include provisions in
their articles of incorporation relieving directors of monetary liability for
breach of their fiduciary duty as directors, except for the liability of a
director resulting from (1) any transaction from which the director derives an
improper personal benefit, (ii) acts or omissions involving intentional
misconduct or a knowing and culpable violation of law, (iii) acts or omissions
that a director believes to be contrary to the best interests of Interpore or
its shareholders or that involves the absence of good faith on the part of the
director, (iv) acts or omissions constituting an unexcused pattern of
inattention that amounts to an abdication of the director's duty to Interpore or
its shareholders, (v) acts or omissions showing a reckless disregard for the
director's duty to Interpore or its shareholders in circumstances in which the
director was aware or should have been aware in the ordinary course of
performing a director's duties, of a risk of serious injury to Interpore or its
shareholders, (vi) any improper transaction between a director and Interpore in
which the director has a material financial interest, or (vii) the making of an
illegal distribution to shareholders or an illegal loan or guaranty. The
Interpore Articles provide that Interpore's directors are not liable to
Interpore or its shareholders for monetary damages for breach of their fiduciary
duties to the fullest extent permitted by California law.
The inclusion of the above provision in the Articles of Incorporation may
have the effect of reducing the likelihood of shareholder derivative suits
against directors and may discourage or deter shareholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited Interpore
and its shareholders. At present, there is no litigation or proceeding pending
involving a director of Interpore as to which indemnification is being sought,
nor is Interpore aware of any threatened litigation that may result in claims
for indemnification by any director.
The Interpore Articles provide that Interpore shall indemnify its directors
and officers to the fullest extent permitted by California law, including
circumstances in which indemnification is otherwise discretionary under
California law. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Interpore, Interpore has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable.
Interpore believes the foregoing provisions are necessary to attract and
retain qualified persons as directors and officers.
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Interpore Common Stock is
U.S. Stock Transfer Corporation, Glendale, California.
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COMPARATIVE RIGHTS OF CROSS STOCKHOLDERS AND
INTERPORE SHAREHOLDERS
GENERAL
Upon consummation of the Merger, holders of Cross Common Stock will become
holders of Interpore Common Stock. The rights of such holders will then be
governed by the Interpore Articles and the Interpore Bylaws. Cross is a Delaware
corporation, subject to the provisions of the DGCL. Interpore is currently a
California corporation, subject to the provisions of the CGCL. Set forth below
are the material differences between the rights of a holder of Cross Common
Stock under the Cross Amended and Restated Certificate of Incorporation (the
"Cross Certificate of Incorporation"), the Cross Bylaws, and the DGCL, on the
one hand, and the rights of a holder of Interpore Common Stock under the current
Interpore Articles, the current Interpore Bylaws and the CGCL, on the other
hand.
At the Interpore Annual Meeting, the Interpore shareholders are being asked
to approve the reincorporation of Interpore into Delaware. If the
Reincorporation is approved, all persons owning Interpore Common Stock will be
subject to Delaware corporate law rather than California corporate law. The
Reincorporation is scheduled to occur prior to the Merger, and accordingly, if
the Reincorporation is approved, upon consummation of the Merger, Cross
stockholders will receive stock of a Delaware corporation. Accordingly, although
certain differences between the rights of the Cross stockholders under the DGCL
and the Interpore shareholders under the CGCL before and after the Merger are
discussed below, the discussion assumes that the Reincorporation does not occur.
If the Reincorporation does occur, the Cross stockholders receiving Interpore
Common Stock in the Merger and the Interpore shareholders should note that
Delaware corporate law will govern Interpore. A discussion of the rights of
shareholders and corporate governance following the Reincorporation is set forth
in "Proposal for Interpore to Reincorporate in Delaware."
The following summary does not reflect any rules of Nasdaq that may apply to
Interpore or Cross in connection with the matters discussed. This summary does
not purport to be a complete discussion of, and is qualified in its entirety by
reference to, the DGCL, the CGCL and the constituent documents of each
corporation.
AUTHORIZED CAPITAL
Interpore. Interpore's authorized capital stock is set forth under
"Description of Interpore Capital Stock."
Cross. The authorized capital stock of Cross consists of 40,000,000 shares
of Cross Common Stock, $.01 par value and 10,000,000 shares of Cross Preferred
Stock, $.01 par value. As of April 3, 1998, 5,273,252 shares of Cross Common
Stock were issued and outstanding, and no shares of Cross Preferred Stock were
issued and outstanding. As of April 3, 1998, there were approximately 384
holders of record of Cross Common Stock.
AMENDMENT OF CHARTER OR BYLAWS
Interpore. Under the CGCL, unless otherwise specified in the Interpore
Articles, an amendment to the Interpore Articles requires the approval of the
Interpore Board of Directors and the affirmative vote of a majority of
shareholders entitled to vote thereon, either before or after the board
approval. Under the CGCL, the holders of the outstanding shares of a class are
entitled to vote as a class if a proposed amendment to the articles of
incorporation would: (i) increase or decrease the aggregate number of authorized
shares of such class; (ii) effect an exchange, or create a right of exchange, of
all or part of the shares of another class into the shares of such class; (iii)
effect an exchange, reclassification, or cancellation of all or part of the
shares of such class, other than a stock split; (iv) change the rights,
preferences, privileges, or restrictions of the shares of such class; (v) create
a new class of shares having rights, preferences or privileges prior to the
shares of such class, or increase the rights, preferences or privileges or the
number of authorized shares having rights, preferences or privileges prior to
the shares of such class; (vi) in the case of preferred shares, divide the
shares of any class into series having different rights, preferences, privileges
or restrictions or authorize the Interpore Board of Directors to do so; or (vii)
cancel or otherwise affect dividends on the shares of such class which have
accrued but have not been paid. The Interpore Articles do not require a greater
level of approval for an amendment of the Interpore Articles.
The CGCL also provides that the power to adopt, amend or repeal the
Interpore Bylaws shall be in both the Interpore Board of Directors and the
shareholders entitled to vote thereon. The Interpore Articles and the Interpore
Bylaws confer the power to amend the Interpore Bylaws on the Interpore Board,
provided, however, that after the issuance of shares, a bylaw specifying or
changing a fixed number of directors or the maximum or
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minimum number or changing from a fixed to a variable board or vice versa may
only be adopted by approval of the majority of shareholders entitled to vote
thereon.
Cross. Under the DGCL, unless a greater vote is required by the Cross
Certificate of Incorporation, an amendment to the Cross Certificate of
Incorporation requires the approval of the Cross Board of Directors and the
approval of the majority of stockholders entitled to vote thereon, voting as
classes only if required by the DGCL. The Cross Certificate of Incorporation
requires an 80% vote for an amendment of certain articles of the Cross
Certificate of Incorporation.
The DGCL also provides that the power to adopt, amend or repeal the Cross
Bylaws shall be in the stockholders entitled to vote thereon, provided that
Cross in the Cross Certificate of Incorporation may confer such power on the
Cross Board of Directors in addition to the stockholders. The Cross Certificate
of Incorporation confers the power to amend the Cross Bylaws by the Cross Board
of Directors subject to the power of the Cross Stockholders to alter, amend,
change or repeal the Cross Bylaws.
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Interpore. Under the CGCL, adoption of the principal terms of a merger by
Interpore requires approval of an affirmative vote of a majority of shareholders
entitled to vote thereon, except that, unless required by the Interpore
Articles, no authorizing shareholder vote is required of Interpore in a merger
in which it is the surviving entity if the shareholders of Interpore shall own,
immediately after the merger, more then five-sixths of the voting power of
Interpore. The Interpore Articles do not require a greater than majority vote
for approval of such extraordinary transactions.
The CGCL also provides that the affirmative vote of a majority of
shareholders entitled to vote thereon is required of Interpore in a merger in
which it is the surviving entity if: (i) the Interpore Articles will be amended
and would otherwise require shareholder approval; or (ii) shareholders of
Interpore will receive shares of Interpore surviving the merger having different
rights, preferences, privileges or restrictions (including shares in a foreign
corporation) than the shares surrendered. Under the CGCL, shareholder approval
is not required for merger or consolidation in which a parent corporation merges
or consolidates with a subsidiary of which it owns at least 90% of the
outstanding shares of each class of stock.
Cross. Under the DGCL, adoption of the principal terms of a merger or
consolidation by Cross requires the affirmative vote of a majority of
stockholders entitled to vote thereon, except that, unless required by the Cross
Certificate of Incorporation, no authorizing stockholder vote is required in a
merger in which Cross is the surviving entity if: (i) the Cross Certificate of
Incorporation is not amended in any respect by the merger; (ii) each share of
stock of Cross outstanding immediately prior to the effective date of the merger
will be an identical outstanding or treasury share of Cross after the effective
date of the merger; and (iii) the number of shares to be issued in the merger
does not exceed 20% of Cross Common Stock outstanding immediately prior to the
effective date of the merger. The Cross Certificate of Incorporation does not
require a greater than majority vote for approval of such extraordinary
transactions. Under the DGCL, stockholder approval is also not required for a
merger or consolidation in which a parent corporation merges or consolidates
with a subsidiary of which it owns at least 90% of the outstanding shares of
each class of stock.
DERIVATIVE ACTIONS
Interpore. Under the CGCL a shareholder bringing a derivative action on
behalf of, and for the benefit of the corporation need not have been a
shareholder at the time of the transaction of which he or she complains,
provided that certain tests are met. The CGCL also provides that the corporation
or defendant in a derivative action may make a motion to the court for an order
requiring the plaintiff shareholder to furnish a security bond.
Cross. Under the DGCL, a stockholder bringing a derivative action on behalf
of, and for the benefit of the corporation must aver in the complaint that he or
she was a stockholder at the time of the transaction of which he or she
complains. The DGCL also provides that a stockholder may not bring a derivative
action unless he or she first makes a demand on the corporation that it bring
suit and such demand has been refused, unless it is shown that such demand would
have been futile.
DISSENTERS' AND APPRAISAL RIGHTS
Interpore. Under the CGCL, shareholders of a California corporation whose
shares are listed on a national securities exchange or on a list of
over-the-counter margin stocks issued by the Board of Governors of the Federal
Reserve System generally do not have appraisal rights unless the holders of at
least 5% of the class of outstanding
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shares claim the right or unless the corporation or any law restricts the
transfer of such shares. Dissenters' rights are unavailable, however, if the
shareholders of a Corporation or the corporation itself, or both, immediately
prior to the reorganization will own immediately after the reorganization equity
securities constituting more than five-sixths of the voting power of the
surviving or acquiring corporation or its parent entity, and if the shares of
the surviving corporation have the same rights, preferences, privileges and
restrictions as the shares of the disappearing corporation that are surrendered
in exchange.
Cross. Under the DGCL, holders of shares of any class or series have the
right, in certain circumstances, to dissent from a merger or consolidation by
demanding payment, in cash, for their shares in an amount equal to the fair
value (excluding any appreciation or depreciation as a consequence of, or in
expectation of, the transaction) of such shares, as determined by agreement with
the corporation or by an independent appraiser appointed by a court in an action
timely brought by the corporation or dissenters. The DGCL provides dissenters'
appraisal rights only in the case of mergers or consolidations and not in the
case of a sale or transfer of assets or a purchase of assets for stock
regardless of the number of shares being issued. The DGCL also provides that no
appraisal rights are available for shares of any class or series listed on a
national securities exchange or designated as a national market system security
on Nasdaq or held of record by more than 2,000 stockholders, unless the
agreement of merger or consolidation converts such shares into anything other
than: (i) stock of the surviving corporation; (ii) stock of another corporation
which is either listed on a national securities exchange or designated as a
national market system security on Nasdaq or hold of record by more than 2,000
stockholders; (iii) cash in lieu of fractional shares; or (iv) some combination
of the above. The DGCL also provides that appraisal rights are not available for
any shares of the surviving corporation if the merger did not require the vote
of the stockholders of the surviving corporation.
For a description of additional differences between appraisal rights under
the DGCL and CGCL, see "Proposal for Interpore to Reincorporate in Delaware --
Dissenters' Rights" and " -- Comparison of Rights of Shareholders of Interpore
and Stockholders of the Delaware Company -- Dissenters' Rights."
DIRECTOR LIABILITY
The DGCL and the CGCL each provide that the charter documents of the
corporation may include provisions which limit or eliminate the liability of
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty an a director, providing such liability does not arise from
certain prescribed conduct, including in the case of the DGCL, acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, breach of the duty of loyalty, the payment of unlawful dividends or
expenditure of funds for unlawful stock purchases or redemptions or transactions
for which such director derived an improper personal benefit, or in the case of
the CGCL, intentional misconduct or knowing and culpable violation of law, acts
or omissions that a director believes to be contrary to the best interests of
the corporation or its shareholders or that involve the absence of good faith on
the part of the director, the receipt of an improper personal benefit, acts or
omissions that show reckless disregard for the director's duties to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders, acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the directors
duty to the corporation and its shareholders, interested transactions between
the corporation and a director in which a director has a material financial
interest and liability for improper distributions, loans or guarantees.
Interpore. The Interpore Articles contain certain provisions that eliminate,
to the fullest extent possible under the CGCL, the liability of its directors to
Interpore for monetary damages. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission. See
"Description of Interpore Capital Stock -- Limitation of Liability of Directors
and Indemnification of Directors and Officers."
Cross. The Cross Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. The provisions
eliminate a director's liability for monetary damages for a breach of fiduciary
duty, except in certain circumstances involving wrongful acts, such as a breach
of a director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law.
For a description of additional differences between the applicable
provisions under the DGCL and CGCL, see "Proposal for Interpore to Reincorporate
in Delaware -- Comparison of Rights of Shareholders of Interpore and
Stockholders of the Delaware Company -- Limitation on Directors' Liability."
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INDEMNIFICATION
The DGCL and the CGCL each allow a corporation to advance funds for payment
of the legal expenses of an Indemnitee (as defined below) prior to the final
disposition of an action, provided that the Indemnitee undertakes to repay any
of the amount so advanced if it is later determined that the Indemnitee is not
entitled to indemnification with regard to the action for which the expenses
were advanced.
Interpore. Under the CGCL, a corporation may indemnify Indemnitees against
expenses, judgments, fines and settlements (other than in connection with
actions by or in the right of the corporation) if that person acted in good
faith and in a manner the Indemnitee reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the Indemnitee was unlawful, and may
indemnify, with certain exceptions, any person who is a party to any action by
or in the right of the corporation, against expenses actually and reasonably
incurred by that person in connection with the defense or settlement of the
action if the person acted in good faith and in a manner the person believed to
be in the beat interests of the corporation and its shareholders. The Interpore
Bylaws provide that Interpore shall indemnify its directors and officers to the
fullest extent permitted by the CGCL, including in circumstances in which
indemnification is otherwise discretionary under the CGCL. See "Description of
Interpore Capital Stock -- Limitation of Liability of Directors and
Indemnification of Directors and Officers."
Interpore has entered into indemnification Agreements with its officers and
directors containing provisions which may require Interpore, among other things,
to indemnify the officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. See "Description of Interpore Capital Stock --
Limitation of Liability of Directors and Indemnification of Directors and
Officers."
Cross. Under the DGCL, a corporation may indemnify its present and former
directors, officers, employees and agents against all reasonable expenses
(including attorneys' fees) and, except in actions initiated by or in the right
of the corporation, against all judgments, fines and amounts paid in settlement
in actions brought against them, if such individual acted in good faith, and in
a manner which he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation and, in the case of any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Under the DGCL, a corporation shall Indemnify a present or former director or
officer to the extent that he or she is successful on the merits or otherwise in
the defense of any claim, issue or matter associated with an action. The Cross
Bylaws contain certain provisions obligating Cross to indemnify its directors
and officers to the fullest extent permitted by the DGCL.
Cross has entered into indemnification agreements with certain of its
officers and directors containing provisions which may require Cross, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. See "Description of
Interpore Capital Stock -- Limitation of Liability of Directors and
Indemnification of Directors and Officers."
For an additional discussion comparing the differences between the
applicable provisions of the DGCL and CGCL, see "Proposal for Interpore to
Reincorporate in Delaware -- Comparison of Rights of Shareholders of Interpore
and Stockholders of Delaware Company -- Limitation on Directors' Liability."
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PROPOSAL FOR INTERPORE TO REINCORPORATE IN DELAWARE
GENERAL
The Interpore Board of Directors has unanimously approved a proposal to
change Interpore's state of incorporation from California to Delaware.
Interpore's Board of Directors believes the Reincorporation is in the best
interests of Interpore and its shareholders.
The primary reason for the proposed change in domicile is to cause Interpore
to be governed by Delaware law, which over the years has undertaken to maintain
a modern and flexible corporation law which frequently is revised to meet
changing business conditions. As a result, Delaware has become a preferred
domicile for many major U.S. corporations. Because of Delaware's significance as
the state of incorporation of major corporations, the Delaware judiciary has
become particularly familiar with matters of corporation law, and Delaware has a
well-developed body of court decisions interpreting its law. As a consequence,
Delaware law is comparatively well-known and understood.
A number of changes will be effected as a result of the Reincorporation.
Such changes are described below under the heading "Comparison of Rights of
Shareholders of Interpore and Stockholders of the Delaware Company." A vote
"FOR" the Reincorporation proposal will constitute approval of (i) the change in
Interpore's state of incorporation through a merger of Interpore into a newly
formed Delaware subsidiary, which is currently named Interpore Delaware, Inc.
(the "Delaware Company"), (ii) the Certificate of Incorporation of the Delaware
Company (the "Delaware Certificate"), (iii) the Bylaws of the Delaware Company
(the "Delaware Bylaws"), and (iv) all other aspects of the Reincorporation
proposal.
In the event this proposal is not adopted, Interpore will continue to
operate as a California corporation. The Reincorporation is not conditioned on
or a prerequisite of the Merger. The Reincorporation may be abandoned or the
Reincorporation Agreement may be amended (with certain exceptions), either
before or after stockholder approval has been obtained, if in the opinion of the
Board, circumstances arise that make such action advisable. Such circumstances
may include the failure of the Interpore shareholders or the Cross stockholders
to approve the Merger.
REINCORPORATION OF INTERPORE INTERNATIONAL INTO NEWLY FORMED DELAWARE SUBSIDIARY
The proposed Reincorporation would be accomplished by merging Interpore into
the Delaware Company, pursuant to an Agreement and Plan of Merger (the
"Reincorporation Agreement"), substantially in the form which is attached as
Annex VI to this Joint Proxy Statement/Prospectus. The Delaware Company was
incorporated in Delaware in March 1998 specifically for purposes of the
Reincorporation and has conducted no business and has no material assets or
liabilities. After completion of the Reincorporation, the Delaware Company
intends to change its name to Interpore Cross International, Inc. The Delaware
Company's principal executive offices are located at 181 Technology Drive,
Irvine, California 92618, telephone (714) 453-3200. The Reincorporation would
not result in any change in Interpore's business, assets or liabilities and
would not result in any relocation of management or other employees.
CERTAIN CONSEQUENCES OF THE REINCORPORATION
Effective Time. The Reincorporation will take effect on the later of the
times (the "Reincorporation Effective Time") at which a Certificate of Ownership
and Merger is filed with the Secretary of State of Delaware and Articles of
Merger are filed with the California Department of Corporations, which filings
are anticipated to be made as soon as practicable after the Reincorporation
proposal is approved by the shareholders of Interpore. At the Reincorporation
Effective Time, the separate corporate existence of Interpore will cease and
shareholders of Interpore will become stockholders of the Delaware Company.
Shareholder Rights. Certain differences in stockholder rights exist under
the CGCL and DGCL and the Third Amended and Restated Articles of Incorporation
of Interpore and the Bylaws of Interpore (the "Interpore Articles" and
"Interpore Bylaws," respectively) and the Delaware Certificate and the Delaware
Bylaws. In particular, the Delaware Certificate includes certain provisions
different from those in the Interpore Articles and Interpore Bylaws which could
make more difficult a change in control of the Delaware Company. See " --
Comparison of Rights of Shareholders of Interpore and Stockholders of the
Delaware Company" for a discussion of the effects of these and other differences
between the rights of stockholders under the CGCL and the DGCL.
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Rights Plan. The Rights Agreement provides that the Rights will terminate at
the closing of any merger of Interpore with a Person if that merger has been
approved by the Interpore Board of Directors prior to such person's becoming an
Acquiring Person. Because the Interpore Board of Directors has approved the
Reincorporation, all preferred stock purchase rights available under the Rights
Agreement will be terminated automatically at the Reincorporation Effective
Time. The termination of the Rights Agreement could increase Interpore's
exposure to the potential disadvantages of hostile takeover attempts. Takeover
attempts that have not been negotiated or approved by the board of directors of
a corporation can seriously disrupt the business and management of a corporation
and generally present the risk of terms which are less favorable to all of the
stockholders of the corporation than would be available in a negotiated,
board-approved transaction.
Conversion of Interpore Common Stock and Interpore Series E Preferred Stock.
As a result of the Reincorporation, each outstanding share of Interpore Common
Stock will automatically be converted into one share of Common Stock, $.01 par
value per share, of the Delaware Company (the "Delaware Company Common Stock")
and each outstanding share of Interpore Series E Preferred Stock will
automatically be converted into one share of Series E Preferred Stock, par value
$.01 per share, of the Delaware Company (the "Delaware Company Series E
Preferred Stock"). The Reincorporation will result in certain material changes
in the rights and obligations of holders of the Interpore Common Stock and
Interpore Series E Preferred Stock due to the differences between California and
Delaware law and certain differences between Interpore Articles and Interpore
Bylaws and the Delaware Certificate and Delaware Bylaws The Delaware Company
Common Stock will be listed on the Nasdaq National Market under the same symbol
as the Interpore Common Stock.
Employee Plans. Interpore's employee benefit plans (the "Plans"), including
Interpore's 1995 Stock Option Plan, will each be continued by the Delaware
Company following the Reincorporation. Approval of the proposed Reincorporation
will result in the adoption and assumption of the Plans by the Delaware Company.
Outstanding Options. In addition to the assumption by the Delaware Company
of all options outstanding under the Plans, any and all other outstanding
options and other rights to acquire shares of Interpore Common Stock will be
converted into options or rights to acquire shares of Delaware Company Common
Stock.
Federal Income Tax Consequences. The Reincorporation is intended to be tax
free under the Code. Accordingly, no gain or loss will be recognized by the
holders of shares of Interpore Common Stock as a result of the Reincorporation,
and no gain or loss will be recognized by Interpore or the Delaware Company.
Each former holder of shares of Interpore Common Stock will have the same tax
basis in the Delaware Company Common Stock received by such holder pursuant to
the Reincorporation as such holder has in the shares of Interpore Common Stock
held by such holder at the Reincorporation Effective Time. Each stockholder's
holding period with respect to the Delaware Company Common Stock will include
the period during which such holder held the shares of Interpore Common Stock,
so long as the latter were held by such holder as a capital asset at the
Reincorporation Effective Time. Interpore has not obtained, and does not intend
to obtain, a ruling from the Internal Revenue Service with respect to the tax
consequences of the Reincorporation.
Interpore believes no gain or loss should be recognized by the holders of
outstanding options to purchase shares of Interpore Common Stock, so long as (i)
such options (a) were originally issued in connection with the performance of
services by the optionee and (b) lacked a readily ascertainable value (for
example, were not actively traded on an established market) when originally
granted and (ii) the options to purchase the Delaware Company Common Stock into
which Interpore's outstanding options will be converted in the Reincorporation
also lack a readily ascertainable value when issued. Notwithstanding the
foregoing, optionees seeking more specific tax advice should consult their own
tax advisors regarding the tax consequences to them of the Reincorporation.
The foregoing is only a summary of certain federal income tax consequences.
Shareholders should consult their own tax advisers regarding the federal tax
consequences of the Reincorporation as well as any consequences under the laws
of any other jurisdiction.
DISSENTERS' RIGHTS
California law provides that shareholders of a corporation involved in a
reorganization are not entitled to dissenters' rights if the corporation, or its
shareholders immediately before the reorganization, or both, own (immediately
after the reorganization) certain equity securities possessing more than
five-sixths of the voting power of the surviving or acquiring corporation or a
parent party. Consequently, because Reincorporation is a reorganization in which
the shareholders of Interpore will own, immediately after the reorganization,
equity securities possessing more than five-sixths of the voting power of the
Delaware Company, dissenters' rights are not available to shareholders of
Interpore with respect to the Reincorporation.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF INTERPORE AND STOCKHOLDERS OF THE
DELAWARE COMPANY
General. Upon consummation of the Reincorporation, the shareholders of
Interpore will become stockholders of the Delaware Company, and their rights as
stockholders will be governed by the Delaware Certificate and Delaware Bylaws.
The Delaware Certificate and Delaware Bylaws differ in certain respects from the
Interpore Articles and Interpore Bylaws. In addition, the rights of Delaware
Company stockholders will be governed by the DGCL, while the rights of Interpore
shareholders are currently governed by the CGCL. The DGCL and the CGCL differ in
many respects, and consequently it is not practical to summarize all of such
differences. It should be noted that certain aspects of the DGCL have been
publicly criticized because they do not afford minority shareholders the same
substantive rights and protections as are available under the CGCL.
The following is a summary of significant differences between the Interpore
Articles, Interpore Bylaws and applicable provisions of the CGCL, on the one
hand, and the Delaware Certificate, Delaware Bylaws and applicable provisions of
the DGCL, on the other. This discussion is not intended to be complete and is
qualified in its entirety by reference to Delaware Certificate and Delaware
Bylaws, attached as Annexes VII and VIII hereto. Copies of the Interpore
Articles and Interpore Bylaws have been attached as exhibits to Interpore's
filings with the SEC, are available for inspection at the principal executive
officers of Interpore and will be sent to holders of shares of Interpore Common
Stock upon request.
Number of Directors. The Delaware Certificate and Delaware Bylaws fix the
number of directors at not less than five nor more than nine, with the specific
number of directors to be set by the Delaware Company Board of Directors. The
size of the Delaware Company Board of Directors may not be increased without the
approval of 75% of the members of the Delaware Company Board of Directors. The
Interpore Bylaws provide for a Board of Directors consisting of not less than
five nor more than nine members, with the specific number of directors to be set
by the Interpore Board of Directors.
Classes and Terms of Directors. The DGCL permits, but does not require, the
adoption of a classified Board of Directors with staggered terms, with each
class having a term of office longer than one year but not longer than three
years. Under the CGCL, corporations whose outstanding shares are listed on the
New York Stock Exchange or the American Stock Exchange, and certain corporations
whose outstanding shares are authorized for quotation on the Nasdaq, are
permitted to have a classified board. The Delaware Certificate provides for a
classified Board of Directors consisting of three classes of directors, two
Class I directors, two Class II directors and two Class III directors. After
initial one, two and three year terms for Class I, Class II and Class III
directors, respectively, each director will be elected for a term expiring at
the third succeeding annual meeting of stockholders after his or her election.
The Interpore Articles and Bylaws do not provide for a classified Board of
Directors.
Cumulative Voting. Cumulative voting, which enhances the ability of minority
stockholders to elect directors, is not available under the DGCL unless
otherwise provided in a corporation's certificate of incorporation. Under
cumulative voting, each stockholder is entitled to the number of votes equal to
the number of shares owned by the stockholder multiplied by the number of
directors to be elected. All such votes may be cast for a single nominee or
distributed among several nominees. In the absence of cumulative voting, the
holders of a majority of the shares present or represented at a meeting to elect
directors may elect all directors, and no director could be elected without the
support of a majority of the stockholders. The Delaware Certificate does not
provide for cumulative voting. Under the CGCL, corporations whose outstanding
shares are listed on the New York Stock Exchange or the American Stock Exchange,
and certain corporations whose outstanding shares are authorized for quotation
on the Nasdaq, are permitted to eliminate cumulative voting. The Interpore
Bylaws provide for cumulative voting.
Removal of Directors; Filling Vacancies on the Board of Directors. Under the
DGCL, directors generally may be removed, with or without cause, by the holders
of a majority of voting shares. Under the CGCL, a director may be removed for
cause by the directors or a court, upon suit by holders of at least 10% of the
outstanding shares. A director also may be removed without cause, under the
CGCL, by the holders of a majority of voting shares, unless the number of shares
voting against removal would be sufficient to elect such director if voted
cumulatively.
Under the Delaware Bylaws, any vacancies on the Delaware Company Board of
Directors may be filled by a majority of the directors then in office whether or
not less than a quorum, or by a sole remaining director. In addition, the
Delaware Bylaws provide that a director elected to fill a vacancy on the
Delaware Company Board of Directors will serve for the unexpired portion of the
term of the director whose place has been filled. Under the DGCL, however, if at
the time of filling any vacancy or newly created directorship, the directors
then in office constitute less than a majority of the entire Delaware Company
Board of Directors (as constituted immediately prior to any increase in their
number), the Delaware Chancery Court may, under certain circumstances, order an
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election to be held to fill any such vacancies or newly created directorships or
to replace the directors chosen by the directors then in office.
Under the CGCL, a vacancy created by removal of a director may be filled by
a corporation's board of directors only if so authorized by the corporation's
articles of incorporation or by a bylaw approved by the corporation's
shareholders. Under the Interpore Bylaws, vacancies on the Interpore Board of
Directors may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, except that a vacancy created by
the removal of a director by the vote or written consent of the shareholders or
by court order may be filled only by the vote of a majority of the shares
entitled to vote represented at a duly held meeting at which a quorum is
present, or by the written consent of holders of a majority of the outstanding
shares entitled to vote.
Stockholder Action by Written Consent; Special Meetings. Unless otherwise
provided in the certificate of incorporation, stockholders of a Delaware
corporation may take action without a meeting, without prior notice and without
a vote, upon the written consent of stockholders having not less than the
minimum number of votes that would be necessary to authorize the proposed action
at a meeting at which all shares entitled to vote were present and voted. The
Delaware Certificate provides that stockholders may not take any action by
written consent in lieu of a meeting. The Interpore Bylaws provide that an
action required to be taken by a meeting of the shareholders may be taken
without a meeting if a consent in writing is given by holders of outstanding
shares having not less than the minimum number of votes necessary to authorize
that action.
The Delaware Certificate provides that special meetings of stockholders may
only be called by a majority of the entire Board of Directors, the Chairman of
the Board of Directors or the President. The Interpore Bylaws provide that
special meetings of the shareholders may be called by the Board, the Chairman of
the Board, the President or by one or more shareholders holding shares entitled
to cast not less than 10% of the votes at the meeting.
Limitation on Directors' Liability. The Delaware Certificate contains
certain provisions limiting the personal liability of directors. The Interpore
Articles also contain certain provisions limiting the personal liability of
directors, although in general, the DGCL permits a corporation to indemnify its
directors and officers under a broader range of circumstances than does the
CGCL.
Authorized Capital. The total number of shares the Delaware Company will
have the authority to issue will be 55,000,000, consisting of 50,000,000 shares
of Delaware Company Common Stock and 5,000,000 shares of Delaware Company
Preferred Stock. The total number of shares of stock which Interpore has the
authority to issue is 20,890,358, consisting of 20,000,000 shares of common
stock, no par value, and 890,358 shares of preferred stock, no par value.
Authorized but unissued shares of Delaware Company Common Stock and Delaware
Company Preferred Stock are available for issuance at the discretion of the
Delaware Company Board of Directors without stockholder approval. Such shares
could be issued in the future by the Delaware Company Board of Directors in ways
that would make more difficult a change in control of the Delaware Company, such
as through a private sale, diluting the stock ownership of the person seeking to
gain control of the Delaware Company. Any such action could have the effect of
deterring an offer for outstanding Delaware Company Common Stock which might
otherwise enable the holders thereof to earn a premium over the then current
market price of such securities.
Amendment of Certificate of Incorporation. In general, the Delaware
Certificate may be amended by greater than 50% of the voting power of the
outstanding shares of Delaware Company Common Stock and Delaware Company
Preferred Stock, voting together as a class. Amendments which would change any
of the rights, preferences or privileges of or limitations on the shares of
Delaware Company Series E Preferred Stock require additional approval by vote of
the holders of more than 50% of the then outstanding shares of the Delaware
Company Series E Preferred Stock, voting separately as a series. In addition,
proposals which would amend, repeal or adopt any provision of the Delaware
Certificate inconsistent with its business combination provisions (described
below) which are proposed by or on behalf of an Interested Stockholder require
additional approval by affirmative vote of both (i) the holders of not less than
75% of the votes entitled to be cast by the holders of Delaware Company Common
Stock and Delaware Company Preferred Stock, voting together as a class; and (ii)
the holders of not less than a majority of the votes entitled to be cast by the
holders of the Delaware Company Common Stock and Delaware Company Preferred
Stock, voting together as a class, excluding stock beneficially owned by the
Interested Stockholder, unless the proposal is unanimously approved by the
continuing board of directors of the Delaware Company. The requirements for
amending the Interpore Articles are identical to those for amending the Delaware
Certificate except that the Interpore Articles do not contain business
combination provisions or requirements for amending business combination
provisions.
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Amendment of Bylaws. The Delaware Certificate provides that stockholders can
amend the Delaware Bylaws with an affirmative vote of 75% of the votes entitled
to be cast. The Delaware Company Board of Directors may amend its Delaware
Bylaws by majority vote, other than certain provisions of the Delaware Bylaws
regarding the Board of Directors, amendments to which require the approval of
75% of the Delaware Company Board of Directors. The Interpore Bylaws may be
altered, amended or repealed, or new bylaws may be adopted, by a majority of the
Interpore Board of Directors or by a majority of the Interpore shareholders.
Business Combination Provisions. The Delaware Company is subject to Section
203 of the DGCL which restricts the power to engage in business combinations
with interested stockholders. In addition, unless approved by a majority of
Continuing Directors (as defined in the Delaware Certificate) or an "Interested
Stockholder" (defined as anyone who is or intends to become the beneficial owner
of 10% or more of the voting stock of the Delaware Company) or the transaction
satisfies a number of criteria relating to, among other things, the
consideration to be received by stockholders and the public disclosure of the
business combination, the Delaware Certificate prohibits a business combination
with an Interested Stockholder without an affirmative vote of 75% of the votes
entitled to be cast by holders of voting stock of the Delaware Company and not
less than a majority of the votes entitled to be cast by holders of voting stock
of the Delaware Company, excluding the votes of the Interested Stockholder. The
existence of such provisions in the Delaware Certificate could make more
difficult a change in control of the Delaware Company by an Interested
Stockholder without the approval of a majority of Continuing Directors, and
could have the effect of deterring an offer for outstanding Delaware Company
Common Stock which might otherwise enable the holders thereof to earn a premium
over the then current market price of such securities.
Dissenters' Rights. Under the CGCL and DGCL, a dissenting shareholder of a
corporation participating in certain transactions may, under varying
circumstances, receive cash in the amount of the fair market value of his shares
(as determined by agreement of the parties or by a court), in lieu of the
consideration he or she would otherwise receive in any such transaction. The
DGCL generally requires such dissenters' rights of appraisal with respect to
reincorporations and consolidations, but not a sale of assets, unless the
corporation's certificate of incorporation provides otherwise. The DGCL contains
certain exclusions from dissenters' rights requirements, including a
reincorporation or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or held by more than 2,000
stockholders, if the stockholders receive shares of the surviving corporation or
of such a listed or widely-held corporation. In contrast the CGCL in general
affords dissenters' rights in a share-for-share exchange reorganization, a
sale-of-assets reorganization, or a reincorporation. The exclusions from
dissenters' rights in reincorporations under the CGCL are somewhat different
from those under the DGCL. For example, in the case of a corporation whose
shares are listed on a national securities exchange, dissenters' rights would
nevertheless be available in certain transactions for any shares with respect to
which there are certain restrictions on transfer, and for any class with respect
to which there are certain restrictions on transfer, and for any class with
respect to which the holders of 5% or more of such class claims dissenters'
rights. Also, under the CGCL, shareholders of a corporation involved in a
reorganization are not entitled to dissenters' rights if the corporation, or its
shareholders immediately before the reorganization, or both, own (immediately
after the reorganization) certain equity securities possessing more than
five-sixths of the voting power of the surviving or acquiring corporation or a
parent party.
Loans to Directors, Officers and Employees. Under the DGCL, a corporation
may make loans or guarantee the obligations of its officers or other employees
and those of its subsidiaries when such action, in the judgment of the
directors, may reasonably be expected to benefit the corporation. Under the
CGCL, shareholders of a corporation with at least 100 shareholders may approve a
bylaw providing that a disinterested majority of the board of directors may
approve loans and guarantees to officers without shareholder approval if the
board of directors determines that such loans may reasonably be expected to
benefit the corporation. There is no such provision in the Interpore Bylaws.
Dividends and Repurchases of Shares; Par Value, Capital and Surplus. The
CGCL dispenses with the concepts of par value of shares as well as statutory
definitions of capital, surplus and the like, while such concepts are retained
under the DGCL. A Delaware corporation may make repurchases or redemptions that
do not impair capital, and may pay dividends out of any surplus account
(generally the stockholders' equity of the corporation less the par value of the
capital stock outstanding) or, if there exists no surplus, out of net profits of
the current and preceding fiscal year (after provision for outstanding Interpore
Preferred Stock). To determine the surplus, assets and liabilities may be
revalued at their current fair market value, which may create greater surplus
from which to pay dividends than would the book valuation of assets and
liabilities.
With certain limited exceptions, distributions to shareholders of a
California corporation (including redemptions, repurchases and dividends, other
than stock dividends) are generally limited either to the amount of the
corporation's retained earnings or to an amount which would leave the
corporation with (i) tangible assets of at least one and one quarter times its
liabilities other than certain deferred liabilities and (ii) current assets at
least equal to its current liabilities. In addition, the CGCL provides that a
corporation may not make any distribution
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that would render the corporation unable to meet its liabilities, nor may such a
distribution be made if, as a result, the excess of the corporation's assets
over its liabilities would be less than the liquidation preference of all shares
having a preference on liquidation over the class or series to which the
distribution is made. The CGCL does not permit the revaluation of assets from
book value to their current fair market value.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL
TO REINCORPORATE INTERPORE IN THE STATE OF DELAWARE.
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PROPOSAL TO ELECT INTERPORE'S DIRECTORS
Directors are elected at each Annual Meeting of Shareholders and hold office
until their successors are duly elected and qualified at the next Annual Meeting
of Shareholders. Interpore's Bylaws authorize a board comprised of at least five
directors and no more than nine directors, with the exact number set by
resolution of the board. Pursuant to a resolution adopted by the Interpore Board
of Directors, the authorized number of members of the Interpore Board of
Directors has been set at five. There are five nominees for election to the
Board of Directors. If the Merger is consummated, Messrs. Mercer, Eisenecher and
Jones will continue as directors (together with certain designees of Cross) and
that each of the other members of the Interpore Board of Directors will resign.
You are being asked to elect the complete slate of Interpore directors in the
normal course of business in case the Merger is not consummated.
Each of Interpore's nominees for election to the Interpore Board of
Directors currently serves as a director of Interpore and was elected to his
present term of office by the shareholders of Interpore. Each nominee first
became a director of Interpore in the year set forth below and has continually
served as a director of Interpore since then.
<TABLE>
<CAPTION>
NAME, AGE, FIRST BECOME
PRINCIPAL OCCUPATION OR POSITION A DIRECTOR
-------------------------------- ----------
<S> <C>
DAVID C. MERCER, 56, Chairman of the Board, President and 1992
Chief Executive Officer of Interpore
WILLIAM A. EISENECHER, 55, Business Consultant 1983
G. BRADFORD JONES, 43, General Partner of Brentwood Venture 1983
Capital
GUY P. NOHRA, 38, Vice President of Burr, Egan, Deleage & Co. 1994
GEORGE W. SMYTH, JR., 67, Business Consultant 1983
</TABLE>
David C. Mercer has served as Chairman of the Board of Directors of
Interpore since April 1997, and as President and Chief Executive Officer of
Interpore since March 1992. Mr. Mercer was President, Orthopaedic Division, of
Kirschner Medical Corporation, a manufacturer of orthopaedic devices, from
October 1988 through March 1992, and Senior Vice President, Marketing,
Orthopaedic Implant Division of Zimmer, Inc., a manufacturer of orthopaedic
devices, from April 1986 through October 1988. From April 1983 to April 1986, he
was President of Aspen Labs, Inc., the arthroscopic and electrosurgical product
subsidiary of Zimmer, Inc.
William A. Eisenecher is a business consultant. From 1987 to August 1993,
Mr. Eisenecher was the President and Chief Executive Officer of Rehabilitation
Technologies, Inc. He is also a director of several privately-held companies.
G. Bradford Jones is a general partner of Brentwood Venture Capital, a
position he has held since 1986. Mr. Jones joined Brentwood Venture Capital in
1981. He also serves on the boards of directors of Aastrom Biosciences, which
develops systems for culturing human bone marrow stem cells; ISOCOR, an
electronic mail and electronic data interchange software company; Onyx
Acceptance Corporation, which provides automobile financing through car
dealerships; and Trikon Technologies, Inc., a manufacturer of advanced etching
and deposition equipment for the semiconductor industry. Mr. Jones is also a
director of several privately-held companies.
Guy P. Nohra has been a director of Interpore since 1994. He has been Vice
President of Burr, Egan, Deleage & Co. ("Burr Egan") since 1989, and a general
partner of certain funds affiliated with Burr Egan since 1992. He was an
associate of Burr Egan from 1989 to 1992. He is also general partner of Alta
California Partners, L.P. Prior to joining Burr Egan, Mr. Nohra was product
manager with Security Pacific Trading Corporation, where he managed a
multi-million dollar medical product line in Asia. Mr. Nohra is a member of the
Board of Directors of Interdyne, Inc., as well as several private companies and
was a director of Euphonix, Inc. until April 1997.
George W. Smyth, Jr. served as Chairman of the Board of Directors of
Interpore from 1983 to April 1997, and is currently a business consultant. From
1983 to March 1992, Mr. Smyth was President and Chief Executive Officer of
Interpore. Prior to June 1983, Mr. Smyth was Vice President, Sales and Marketing
for the American Edwards Laboratories division of American Hospital Supply
Corporation, a manufacturer and distributor of cardiovascular devices.
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The Interpore Board of Directors held five meetings (including one by
written consent) during the fiscal year ended December 31, 1997. Each director
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors held during such period and the total number of meetings held
during such period by all committees of the Board of Directors on which that
director served.
Interpore has standing Audit, Compensation and Stock Option Committees.
During fiscal 1997, Messrs. Eisenecher, Jones and Nohra comprised the Interpore
Audit Committee, which met one time. The Interpore Audit Committee's
responsibilities include (i) recommending the selection of Interpore's
independent public auditors to the Interpore Board of Directors, (ii) consulting
with the independent auditors with regard to the plan and scope of audit, (iii)
reviewing in consultation with the independent auditors, their report of audit,
or proposed report of audit, and the accompanying management letter, if any, and
(iv) consulting with the independent auditors with regard to the adequacy of
internal controls, and, if need be, to consult also with management regarding
the same. During fiscal 1997, the Interpore Compensation Committee was comprised
of Messrs. Jones, Nohra and Mercer and the committee met two times. The
Interpore Compensation Committee reviews and approves executive salaries,
considers awards to be granted under Interpore's officer bonus plan and performs
other related functions upon request of the Board of Directors. Interpore also
has a Stock Option Committee, which administers stock option grants under
Interpore's 1995 Stock Option Plan. During fiscal 1997, the Interpore Stock
Option Committee was comprised of Messrs. Jones and Nohra, and met four times.
BOARD COMPENSATION AND BENEFITS
Each non-employee director of Interpore is entitled to be paid a fee of
$1,000 per Board meeting attended in person (or by phone if a regularly
scheduled meeting) (the "Directors' Fees"), and is eligible to be reimbursed for
expenses actually incurred in attending Board meetings. No fees are paid for
Board meetings by telephonic conference (other than regularly scheduled
meetings) or unanimous written consent, or for committee meetings of the Board.
On April 4, 1995, the Interpore Board of Directors adopted the Stock Option
Plan for Non-Employee Directors (the "Non-Employee Directors Plan"), which was
approved by Interpore's shareholders at the 1995 Annual Meeting of Shareholders.
The Non-Employee Directors Plan provides for the automatic grant of
non-qualified stock options to purchase shares of Interpore Common Stock to
eligible non-employee directors of Interpore annually, at set times and in set
amounts. On May 25, 1995, under the terms of the Non-Employee Directors Plan,
each director of Interpore who was not an employee of Interpore was
automatically granted an initial option to purchase 15,000 shares of Interpore
Common Stock, effective as of May 25, 1995, at an exercise price of $5.75 per
share. Non-employee directors who are first appointed or elected to the
Interpore Board of Directors after May 25, 1995 will be automatically granted an
initial option to purchase 15,000 shares of Interpore Common Stock, effective on
the date of election or appointment to the Board of Directors. In addition to
the initial grant, non-employee directors will be automatically granted
additional options to purchase 2,500 shares on the date of the Annual Meeting of
Shareholders in every year following the initial grant to such director,
provided such director is re-elected at such meeting. Accordingly, effective May
6, 1998, if the Merger is not approved, Messrs. Eisenecher, Jones, Nohra and
Smyth, presuming their re-election to the Board, will each be granted options to
purchase 2,500 shares.
The Non-Employee Directors Plan also provides that, pursuant to an
irrevocable election made at least six months prior to the Board meeting date, a
non-employee director may elect to automatically receive non-qualified stock
options covering 500 shares of Common Stock in lieu of the Directors' Fees. The
price per share of Interpore Common Stock subject to each option granted under
the plan is 100% of the fair market value of Interpore Common Stock on the date
the option is granted, or, if such date is not a trading day on the principal
exchange on which Interpore Common Stock is then trading, then on the trading
day immediately preceding the date the option is granted. The options become
exercisable in four cumulative annual installments of 25% of the shares covered
by the option per year over four years, commencing with the first anniversary
from the date of grant.
During fiscal 1997, non-employee directors received options to purchase 500
shares of Interpore Common Stock, in lieu of the Director's fees, as follows:
exercise price of $4.625 (Eisenecher, Jones), $5.50 (Eisenecher, Jones, Nohra,
Smyth), $5.875 (Eisenecher, Jones, Nohra) and $9.00 (Eisenecher, Jones, Nohra,
Smyth). Each non-employee director received an option to purchase 2,500 shares
of Interpore Common Stock, at an exercise price of $4.625, which option was
granted upon their re-election to the Board.
THE INTERPORE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE ELECTION OF EACH NOMINEE TO THE INTERPORE BOARD OF
DIRECTORS.
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INTERPORE EXECUTIVE OFFICERS
The executive officers of Interpore as of April 3, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David C. Mercer 56 Chairman of the Board, President and Chief Executive
Officer
William A. Franklin, Jr. 52 Vice President, Operations
Richard L. Harrison 41 Vice President, Finance, Chief Financial Officer and
Secretary
Edwin C. Shors, Ph.D 52 Vice President, Research and Development
Maxwell R. Simmonds 42 Vice President, Sales and Marketing
</TABLE>
For a description of the business background of Mr. Mercer, see "Proposal To
Elect Interpore's Directors."
William A. Franklin, Jr. has served as Vice President, Operations since
August 1994 and as Vice President, Quality Assurance and Regulatory Affairs of
Interpore from February 1992 to August 1994. Mr. Franklin was Director, Quality
Assurance, of Allergan Optical, a division of Allergan, Inc., a manufacturer of
ophthalmic products, from December 1988 through October 1991, and Vice
President, Quality Assurance and Regulatory Affairs, of Quest Medical, Inc., a
medical device manufacturer, from March 1983 through October 1988.
Richard L. Harrison has served as Vice President, Finance, Chief Financial
Officer and Secretary of Interpore since November 29, 1994. Prior to joining
Interpore, Mr. Harrison worked for Kirschner Medical Corporation, a manufacturer
of orthopaedic devices, as Corporate Controller from February 1992 through
October 1994, as Division Controller from April 1988 through February 1992, and
as Manager of Financial Analysis from October 1987 through April 1988. Mr.
Harrison is a Certified Public Accountant.
Edwin C. Shors, Ph.D, has served as Vice President, Research and Development
of Interpore since 1983. Dr. Shors was Executive Vice President of Interpore
from 1978 to 1983, during which time he was responsible for establishing the
manufacturing procedures, animal evaluations and clinical trials leading to the
FDA approval and marketing of coralline hydroxyapatite. Prior to joining
Interpore, he was Director of the Thoracic and Cardiovascular Laboratory at
Harbor/UCLA Medical Center. Dr. Shors obtained a Masters in Biology and a
Doctorate in Physiology and Biophysics from the University of Southern
California.
Maxwell R. Simmonds has served as Vice President, Sales and Marketing of
Interpore since August 1991, and from December 1989 through August 1991, he
served as Director of Sales and Marketing. From September 1988 through October
1989, Mr. Simmonds served as Vice President, Sales and Marketing for Implant
Technology, Inc., a manufacturer of total hip implants. From November 1985
through August 1988, he served as Regional Manager, National Sales Manager and
Trauma Group Marketing Manager for Kirschner Medical Corporation.
104
<PAGE> 110
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and
long-term compensation for services in all capacities to Interpore for the
fiscal years ended December 31, 1997, 1996 and 1995 of those persons who were at
December 31, 1997 (i) the chief executive officer of Interpore, (ii) one of the
other most highly compensated executive officers of Interpore whose annual
salary and bonuses exceeded $100,000 or (iii) any other executive officer who
would have qualified under sections (i) or (ii) of this paragraph but for the
fact that the individual was not serving as an executive officer of the
registrant at the end of the 1997 fiscal year (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------- LONG TERM
COMPENSATION
OTHER AWARDS
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) SATION OPTIONS SATION(3)
---- --------- -------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
DAVID C. MERCER 1997 $ 180,000 $ 21,000 $15,261(4) 39,000 $ 468
Chairman, President and 1996 160,313 0 13,877(4) 39,000 468
Chief Executive Officer 1995 148,500 0 14,192(4) 46,000 468
MAXWELL R. SIMMONDS 1997 135,000 15,000 15,204(4) 34,000 468
Vice President, Sales 1996 126,125 0 13,843(4) 31,000 468
and Marketing 1995 120,800 0 13,844(4) 38,000 468
RICHARD L. HARRISON 1997 115,000 15,000 17,485(4) 34,000 468
Vice President, Finance 1996 104,375 0 25,800(5) 31,000 468
Chief Financial 1995 98,000 0 135,142(5) 38,000 468
Officer and Secretary
WILLIAM A. FRANKLIN, JR. 1997 110,000 15,000 19,379(4) 34,000 468
Vice President, Operations 1996 103,062 0 15,121(4) 25,000 468
1995 98,900 0 15,181(4) 38,000 468
EDWIN C. SHORS, PH.D 1997 95,500 9,000 15,307(4) 24,000 445
Vice President, Research 1996 95,500 0 11,071(4) 22,000 449
and Development 1995 95,500 0 11,282(4) 38,000 449
</TABLE>
(1) Includes amounts deferred under Interpore's 401(k) plan.
(2) Represents amounts paid under Interpore's Annual Incentive Plan.
(3) Represents payment by Interpore of term-life insurance premiums.
(4) Represents the cost of Interpore-provided automobiles, including
reimbursement of taxes thereon.
(5) Represents the cost of Interpore-provided automobiles, including
reimbursement of taxes thereon, of $15,210 and $16,803, and the cost of
Interpore-paid relocation expenses, including reimbursement of taxes
thereon, of $10,590 and $118,339, in 1996 and 1995, respectively.
105
<PAGE> 111
The following table sets forth certain information with respect to grants of
stock options during 1997 to the Named Executive Officers, all of which were
made pursuant to Interpore's 1995 Stock Option Plan ("Interpore 1995 Option
Plan"):
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
PERCENTAGE REALIZABLE VALUE
OF TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS EXERCISE RATES OF STOCK
SECURITIES GRANTED TO OR BASE PRICE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTIONTERM(2)
OPTIONS IN FISCAL (PER EXPIRATION -----------------------
NAME GRANTED(1) YEAR SHARE) DATE 5% 10%
------ --- -------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
David C. Mercer............. 21,000 8.5% $5.50 3/12/07 $ 72,639 $184,086
18,000 7.3% 9.00 10/28/07 101,880 258,210
Maxwell R. Simmonds......... 19,000 7.7% 5.50 3/12/07 65,721 166,554
15,000 6.1% 9.00 10/28/07 84,900 215,175
Richard L. Harrison......... 19,000 7.7% 5.50 3/12/07 65,721 166,554
15,000 6.1% 9.00 10/28/07 84,900 215,175
William A. Franklin, Jr. ... 19,000 7.7% 5.50 3/12/07 65,721 166,554
15,000 6.1% 9.00 10/28/07 84,900 215,175
Edwin C. Shors, Ph.D. ...... 12,000 4.9% 5.50 3/12/07 41,508 105,192
12,000 4.9% 9.00 10/28/07 67,920 172,140
</TABLE>
(1) Represents options granted under the Interpore 1995 Option Plan. Under the
terms of the Interpore 1995 Option Plan, the Interpore Stock Option
Committee retains discretion, subject to certain restrictions, to modify the
terms of outstanding options and to reprice outstanding options. No option
is exercisable during the first year after such option is granted, and
thereafter becomes exercisable in four equal annual installments. The
exercise price of shares of Interpore Common Stock subject to options
granted under the Interpore 1995 Option Plan is set by the Interpore Stock
Option Committee; provided, however, that the price of shares of Interpore
Common Stock subject to an incentive stock option must be at least 100% of
the fair market value of the shares of Interpore Common Stock on the date
the option is granted.
(2) Assumed annual rates of stock price appreciation for illustrative purposes
only. Actual stock prices will vary from time to time based upon market
factors and Interpore's financial performance. No assurance can be given
that such rates will be achieved.
106
<PAGE> 112
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31, 1997
pursuant to Interpore's Amended and Restated Stock Option Plan and the Interpore
1995 Option Plan:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END(1)
ACQUIRED ---------------- ------------------
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
------ --------- ---------------- ------------------
<S> <C> <C> <C> <C>
David C. Mercer......... 0 $ 0 280,750 /116,250 $848,218 / $44,531
Maxwell R. Simmonds..... 0 0 119,750 / 96,250 132,656 / 38,469
Richard L. Harrison..... 0 0 45,500 / 82,500 17,156 / 38,469
William A. Franklin, Jr. 18,750 121,875 85,250 / 91,750 15,843 / 34,531
Edwin C. Shors, Ph.D.... 0 0 127,500 / 79,500 177,687 / 29,063
</TABLE>
(1) Calculated based on the closing sales price of Interpore's Common Stock on
the Nasdaq National Market on December 31, 1997 (i.e. $6.00), minus the
exercise price of the option, multiplied by the number of shares to which
the option relates.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General Philosophy. The Interpore Compensation Committee reviews and
determines salaries, bonuses and all other elements of the compensation packages
offered to the executive officers of Interpore, including its Chief Executive
Officer, and establishes the general compensation policies of Interpore.
Interpore desires to attract, motivate and retain high quality employees who
will enable Interpore to achieve its short- and long-term strategic goals and
values. Interpore participates in a high-growth environment where substantial
competition exists for skilled employees. The ability Interpore to attract,
motivate and retain high caliber individuals is dependent in large part upon the
compensation packages it offers.
Interpore believes that its executive compensation programs should reflect
Interpore's financial and operating performance. In addition, individual
contribution to Interpore's success should be supported and rewarded.
Historically, Interpore's executive compensation has been based on two
primary components, base salary and long-term incentives in the form of stock
options. Commencing with 1994, Interpore expanded its traditional executive
compensation package to include an annual incentive program, a profit-sharing
plan and an executive automobile program. These changes in executive
compensation were made upon the recommendation of a national marketing
consultant hired by Interpore to evaluate Interpore's executive compensation
packages in light of competitive practices. The Interpore Compensation Committee
believes that these incentive programs have raised annual executive compensation
to competitive levels and have provided an effective means of retaining,
motivating and rewarding high quality management.
Under the 1993 Omnibus Budget Reconciliation Act ("OBRA"), income tax
deductions of publicly-traded companies in tax years beginning on or after
January 1, 1994 may be limited to the extent total compensation (including base
salary, annual bonus, stock option exercises and non-qualified benefits) for
certain executive officers exceeds $1 million (less the amount of any "excess
parachute-payments" as defined in Section 280G of the Code) in any one year.
Under OBRA, the deduction limit does not apply to payments which qualify as
"performance-based." To qualify as "performance-based," compensation payments
must be based solely upon the
107
<PAGE> 113
achievement of objective performance goals and made under a plan that is
administered by a committee of outside directors. In addition, the material
terms of the plan must be disclosed to and approved by shareholders, and the
compensation committee must certify that the performance goals were achieved
before payments can be made. The Interpore Compensation Committee attempts to
design Interpore's compensation programs to conform with the OBRA legislation
and related regulations so that total compensation paid to any employee will not
exceed $1 million in any one year, except for compensation payments which
qualify as "performance-based." Interpore may, however, pay compensation which
is not deductible in limited circumstances when sound management of Interpore so
requires.
Base Salary. Base salary for each of the executive officers, including the
Chief Executive Officer, is targeted at the average salaries paid for such
positions by competitive medical products companies of similar size, with
additional consideration given to biotech companies for selected positions.
Industry and custom surveys are used to establish competitive practices.
Salaries for executives are reviewed by the Interpore Compensation Committee on
an annual basis and may be adjusted at that time based on Interpore's
performance, the Interpore Compensation Committee's assessment of the
individual's contribution to Interpore's operations and changes in competitive
pay levels.
Interpore provides each of its executive officers with an automobile on a
three-year, closed-end lease. Interpore believes that providing each executive
with the use of an automobile will increase the value of the after-tax
compensation of each executive to more competitive levels.
Annual Incentive Plan. In an effort to encourage and reward Interpore
operating performance on an annual basis, executive officers and senior
management are eligible for annual bonuses. Target bonus awards for each
position, expressed as a percent of base salary ranging from 10% to 25%, were
established by surveying awards paid by competitive companies of similar size.
The target bonus awards vary by management level, with the target award for the
chief executive officer established at 25% of base salary. For fiscal year 1997,
actual bonus awards could have ranged from 0% to 150% of the targeted award,
based upon actual performance against targeted objectives. Executive officer
awards are based upon Interpore's actual operating results as compared to
targeted annual operating results approved by the Interpore Compensation
Committee at the beginning of each fiscal year. In the case of senior
management, 50% of the award is based upon individual performance against
personal and/or functional objectives, with the remaining 50% based upon
Interpore's operating results. Interpore achieved its targeted earnings for
fiscal year 1997, and accordingly, bonuses equal to 100% of the targeted award
were earned, payable in 1998.
Profit Sharing Plan. In an effort to encourage teamwork and Interpore
operating performance, all employees of Interpore are eligible to participate in
the profit sharing plan of Interpore. Under the terms of the profit sharing
plan, a percentage of earnings in excess of targeted earnings for the fiscal
year comprises the profit sharing pool. All employees not covered by the annual
incentive plan first share in this pool, up to individual maximum profit sharing
awards equal to 5% of base salary. Once the maximum awards for these employees
are reached, executive officers and senior management are entitled to share in
the remainder of the pool up to a maximum individual award of 5% of base salary.
Interpore achieved its targeted earnings for fiscal year 1997, and accordingly,
employees not covered by the annual incentive plan earned profit sharing awards
equal to 5% of base salary, payable in 1998.
Long Term Incentives. Interpore offers its executives and other key
employees long-term incentives primarily through stock option grants under its
stock option plans. Stock option grants are intended to motivate executives to
improve long-term stock performance, and thus are tied directly to shareholders'
interests. Stock options are granted at the prevailing market price on the date
of grant and will, thus, only have value if Interpore's stock price rises. Stock
options generally vest over four years. The Interpore Stock Option Committee,
composed of Messrs. Jones and Nohra, administers the plan and determines which
employees are to receive option grants and the number of options to be granted.
This report has been provided by the Interpore Compensation Committee:
Date: March 24, 1998 G. Bradford Jones
David C. Mercer
Guy Nohra
The above report of the Compensation Committee will not be deemed to be
incorporated by reference to any filing by Interpore under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that Interpore
specifically incorporates the same by reference.
108
<PAGE> 114
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee was composed of Messrs.
Jones, Mercer and Nohra. Mr. Mercer is the President and Chief Executive Officer
of Interpore. Mr. Mercer did not participate in discussions and decisions
concerning his compensation package.
COMPANY PERFORMANCE
The following line graph compares the annual cumulative total shareholder
return of Interpore's Common Stock against the cumulative total return of the
S&P 500 Index and the S&P Medical Products & Supplies Index for the period from
December 20, 1993, the date of Interpore's initial public offering, to December
31, 1997.
[PERFORMANCE CHART NOT SHOWN]
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), requires Interpore's directors and executive officers, and persons who
own more than 10% of a registered class of Interpore's equity securities, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC") and The Nasdaq Stock Market. Such
persons are required by SEC regulations to furnish Interpore with copies of all
Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it with
respect to fiscal 1997, or written representations from certain reporting
persons, Interpore believes that during fiscal 1997 all of its directors and
executive officers and persons who own more than 10% of Interpore's Common Stock
have complied with the reporting requirements of Section 16(a).
THE INTERPORE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE ELECTION OF EACH NOMINEE TO THE INTERPORE BOARD OF
DIRECTORS.
109
<PAGE> 115
PROPOSAL TO ELECT CROSS' DIRECTORS
The Cross Board of Directors proposes the election of three directors at the
Annual Meeting to serve as Class II Directors. These nominees, Edward R. Funk,
Herbert J. Kahn, and Curtis A. Loveland, if elected, will each serve for a
three-year term expiring at the 2001 Annual Meeting of Stockholders and until
their successors have been elected and qualified. The nominees are currently
directors of Cross. If the Merger is consummated, Messrs. Mussey, Daniel Funk
and Robert Williams will be elected to the Interpore Board of Directors and that
each of the other members of the Cross Board of Directors will resign. You are
being asked to elect the Class II Directors in the normal course of business in
case the Merger is not consummated.
THE CROSS BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF EACH NOMINEE FOR CLASS II DIRECTOR.
The following table sets forth certain information concerning each nominee,
and each continuing director of Cross and all of the nominees.
CLASS II DIRECTORS
(NOMINEES FOR TERMS EXPIRING IN 2001)
<TABLE>
<CAPTION>
DIRECTOR
NAME, AGE, CONTINUOUSLY
PRINCIPAL OCCUPATION OR POSITION SINCE
-------------------------------- ------------
<S> <C>
EDWARD R. FUNK, 72, Chairman of the Board of Cross; 1980
President of Superconductive Components, Inc.
HERBERT J. KAHN, 57, Executive Vice President of CompuServe 1983
Network Services
CURTIS A. LOVELAND, 51, Partner, Porter, Wright, Morris & Arthur 1983
CLASS III DIRECTORS
(TERMS EXPIRE IN 1999)
DIRECTOR
NAME, AGE, CONTINUOUSLY
PRINCIPAL OCCUPATION OR POSITION SINCE
-------------------------------- ------------
C. CRAIG WALDBILLIG, 72, Retired 1983
PETER H. WILLIAMS, 47, Senior Vice President of Sena, Weller, 1983
Rohs and Williams, Inc.
CLASS I DIRECTORS
(TERMS EXPIRE IN 2000)
DIRECTOR
NAME, AGE, CONTINUOUSLY
PRINCIPAL OCCUPATION OR POSITION SINCE
-------------------------------- ------------
DANIEL A. FUNK, M.D., 42, Orthopedic Surgeon 1985
DANIEL A. GREGORIE, M.D., 48, Consultant 1993
JOSEPH A. MUSSEY, 49, President, Treasurer and Chief Executive 1991
Officer of Cross
ROBERT J. WILLIAMS, 65, Chairman, Chief Executive Officer and 1994
President of ARTEC, Inc.
</TABLE>
Edward R. Funk, SC.D., is a founder and director of Cross and has previously
served as President, Chief Executive Officer, and Treasurer of Cross.
Additionally, Dr. Funk has served as Chairman of the Board of Cross since its
inception. Dr. Funk is also a founder of Superconductive Components, Inc.,
Columbus, Ohio, and has been a director and President thereof since its
inception in April 1987. Dr. Funk is the father of Dr. Daniel A. Funk, also a
director of Cross.
110
<PAGE> 116
Joseph A. Mussey, President, Treasurer, and Chief Executive Officer, joined
Cross in August 1990 as Cross' Vice President and Chief Financial Officer. Mr.
Mussey was named President of Cross in April 1991 and Chief Executive Officer in
November 1991. Mr. Mussey was previously Executive Vice President of the Process
Automation Business of Combustion Engineering, Inc., a division of Asea Brown
Boveri from 1987 until joining Cross in August 1990. From 1984 to 1987, he was
Vice President, Operations of the Engineered Systems and Controls Group of
Combustion Engineering.
Herbert J. Kahn joined CompuServe, Inc. in September 1991 as Vice President
of Administration and subsequently served as an Executive Vice President of that
company until its sale in 1998. Mr. Kahn currently serves as Executive Vice
President of CompuServe Network Services, a subsidiary of WorldCom, Inc.
Curtis A. Loveland, Secretary of Cross since January 1984, has been a
practicing attorney for 24 years and has been a partner in the law firm of
Porter, Wright, Morris & Arthur, Columbus, Ohio since 1979. Mr. Loveland is also
a director of Rocky Shoes & Boots, Inc. and Applied Innovation Inc., both
companies which have a class of equity securities registered pursuant to Section
12 of the Securities Exchange Act of 1934.
C. Craig Waldbillig retired from his position as Chairman of the Board of
Medex, Inc., in January 1997. Mr. Waldbillig served as the Chairman of the Board
of Medex for more than five years. Medex, was a manufacturer of disposable
medical supplies and equipment that was sold to Furon Company in January 1997.
Peter H. Williams has been Senior Vice President of Sena, Weller, Rohs and
Williams, Inc., a registered investment advisory firm in Cincinnati, Ohio, since
March 1989.
Daniel A. Funk, M.D. has been an orthopedic surgeon in private practice in
Cincinnati, Ohio since September 1989 and is a partner with Orthopedic
Consultants of Cincinnati, Inc. Dr. Funk completed a five-year residency in
orthopedic surgery at the Mayo Clinic, Rochester, Minnesota in June 1986. From
April 1988 to June 1989, Dr. Funk was Assistant Professor of The Ohio State
University School of Medicine, Department of Orthopedic Surgery. Dr. Funk served
as a member of Cross' Technical Advisory Board from 1984 until he was named
Cross' Medical Advisor in 1990. He is the son of Dr. Edward R. Funk, Chairman of
the Board of Cross.
Daniel A. Gregorie, M.D. was the President and Chief Executive Officer of
ChoiceCare, a managed health care company, in Cincinnati, Ohio from 1989 to
1997. Dr. Gregorie is currently a self-employed consultant.
Robert J. Williams has been the Chairman of the Board, President and Chief
Executive Officer of ARTEC, Inc. since 1988. ARTEC is an Indianapolis based
manufacturer of disposable anesthesia and respiratory products.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Cross Board of Directors had a total of six meetings during 1997. Four
of the meetings were regular meetings and two were special meetings of the Cross
Board of Directors. The Cross Board of Directors has standing Audit and Stock
Option and Compensation Committees. The members of the Cross Audit Committee are
Messrs. Loveland, Kahn, and P. Williams. The Cross Audit Committee oversees the
work of the internal accounting staff and external auditors and met four times
during 1997. The Cross Stock Option and Compensation Committee, whose members
are Messrs. Waldbillig, D. Funk, and R. Williams, reviews officer compensation
and administers the stock option plans. The Cross Stock Option and Compensation
Committee met twice during 1997. With the exception of Messrs. Waldbillig and
Gregorie, no director attended fewer than seventy-five (75%) percent of the
board or committee meetings.
OFFICERS AND SIGNIFICANT EMPLOYEES OF CROSS
The officers of Cross are elected annually by the Board of Directors and
serve at the pleasure of the Board. In addition to Dr. Edward R. Funk, Chairman
of the Board; Joseph A. Mussey, President, Treasurer, and Chief Executive
Officer; Dr. Daniel A. Funk, M.D., Medical Advisor; and Curtis A. Loveland,
Secretary, the following persons are executive officers of Cross:
Paul A. Miller, age 41, was named Vice President and Chief Financial Officer
in July 1994. From July 1991 until joining Cross, Mr. Miller was Chief Financial
Officer and General Counsel for Litter Industries, Inc., a diversified, family
owned distributor in Chillicothe, Ohio. From 1983 until joining Litter
Industries, Inc., Mr. Miller was with Coopers & Lybrand L.L.P.
111
<PAGE> 117
Ira Benson, age 42, was named Vice President, Sales and Marketing for Cross
Medical Products, Inc., Cross' wholly-owned subsidiary, in June 1992. From
November 1988 until he joined Cross in June 1992, Mr. Benson was Vice President,
Marketing and Director of Marketing of Orthomet, Inc., Minneapolis, Minnesota, a
manufacturer and distributor of reconstructive hip and knee orthopaedic
implants.
Thomas E. Zimmer, age 56, was named Vice President, Manufacturing in August
1993 and served as Cross' Director of Manufacturing from May 1991 to August
1993. From May 1988 until joining Cross, Mr. Zimmer was Director of
Manufacturing, Electronic Transmitter Group for ABB Kent-Taylor, a division of
Asea Brown Boveri in Rochester, New York.
Phillip A. Mellinger, age 34, was named Vice President, Research and
Development in January 1997. Since 1987, Mr. Mellinger has been employed by
Cross in its research and development department. Prior to 1987, Mr. Mellinger
attended Northwestern University, where he received his Bachelor of Science
degree in Biomedical and Mechanical Engineering.
Messrs. Benson and Zimmer are not expected to constitute a part of the
management of the combined company.
MEDICAL ADVISOR
Dr. Daniel A. Funk, M.D., is Cross' Medical Advisor. Dr. Funk receives an
$18,000 annual retainer and is paid a per diem fee when asked to perform a
function requiring time beyond the retainer consideration, at the rate of $600
per half day and $1,200 per day, plus reimbursement of reasonable expenses.
COMPENSATION OF OFFICERS
The aggregate compensation of the Chief Executive Officer, and other
executive officers of Cross with compensation exceeding $100,000 in the 1997
fiscal year, for Cross' fiscal years ended December 31, 1997, 1996 and December
31, 1995, is set forth in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------------------ ----------------------
COMPENSATION
OTHER AWARDS
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION OPTIONS(1) SATION(2)
---- -------- ------- -- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
JOSEPH A. MUSSEY 1997 $170,000 $78,516 $0 20,000 $8,594
Chief Executive Officer, 1996 163,642 25,643 0 30,000 1,222
President and Treasurer 1995 125,005 8,020 0 15,000 970
IRA BENSON 1997 110,885 20,279 0 10,000 7,896
Vice President of Sales 1996 103,577 8,826 0 5,000 1,084
and Marketing 1995 94,700 2,926 0 5,000 1,438
PAUL A. MILLER 1997 106,500 49,444 0 0 8,116
Vice President and 1996 94,232 14,617 0 2,000 1,051
Chief Financial Officer 1995 82,501 5,833 0 30,000 867
PHILIP A. MELLINGER 1997 87,500 15,603 0 11,600 8,384
Vice President, Research 1996 78,500 5,151 0 5,000 981
and Development 1995 69,850 1,685 0 4,000 1,300
THOMAS E. ZIMMER 1997 87,500 15,603 0 12,600 7,475
Vice President, Operations 1996 79,500 6,591 0 3,000 795
1995 71,500 2,163 0 5,000 722
</TABLE>
(1) All shares are subject to options granted under the 1994 Stock Option Plan.
112
<PAGE> 118
(2) Includes the amount of Cross contributions to Cross' Retirement Express
Master Savings Plan and Trust and automobile allowances.
STOCK OPTIONS
Cross had a 1984 Incentive Stock Option Plan which terminated on January 27,
1994, and had a 1984 Non-Statutory Plan which terminated on April 26, 1994.
Stock options granted prior to the termination of these plans remain outstanding
until they are exercised in full, expire or terminate under the terms of the
stock option agreement. On May 19, 1994, the stockholders of Cross approved the
Cross 1994 Plan. The Cross 1994 Plan provides for vesting of options upon a
"change in control." Because the Merger will constitute such a change in control
pursuant to the definition set forth in the Cross 1994 Plan, all options
outstanding under the Cross 1994 Plan will become fully vested and immediately
exercisable upon consummation of the Merger. The following tables contain
information concerning the grant of stock options to Cross' Chief Executive
Officer, Joseph A. Mussey, and the executive officers named in the Summary
Compensation Table under the Cross 1994 Plan:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL OPTIONS EXERCISE
SECURITIES GRANTED TO OR BASE
UNDERLYING EMPLOYEES IN PRICE
OPTIONS FISCAL (PER EXPIRATION
GRANTED (1) YEAR SHARE) DATE
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NAME
Joseph A. Mussey .. 20,000 33.6% $ 8.25 01/01/03
Ira Benson ........ 10,000 16.8% 8.25 01/01/03
Paul A. Miller .... -- -- -- --
Philip A. Mellinger 11,600 19.5% 8.25 01/01/03
Thomas E. Zimmer .. 12,600 21.2% 8.25 01/01/03
</TABLE>
(1) Shares subject to options granted under 1994 Stock Option Plan, which
options first became exercisable on January 1, 1998
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR END FISCAL YEAR END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Joseph A. Mussey........ 2,435 $ 9,971 60,000 / 55,500 $315,500 /$108,300
Ira Benson.............. 0 0 37,500 / 20,000 223,495 / 42,430
Paul A. Miller.......... 0 0 12,400 / 19,600 51,750 / 79,500
Philip A. Mellinger..... 0 0 5,600 / 20,000 28,355 / 33,720
Thomas E. Zimmer........ 14,624 83,174 3,600 / 20,000 16,185 / 33,520
</TABLE>
COMPENSATION OF DIRECTORS
In 1997, each member of the Cross Board of Directors received $500 for each
Board meeting attended and $250 for each Cross Board Committee Meeting attended.
Directors who are also employees of Cross do not receive additional compensation
for serving as directors. Directors are also reimbursed for reasonable expenses
incurred in connection with attendance at Board meetings.
113
<PAGE> 119
Cross has granted stock options to Board members each fiscal year since
1986. Under the 1994 Stock Option Plan, each nonemployee director is
automatically granted an option to purchase 5,000 shares on June 30 each year,
exercisable at the fair market value at the date of grant, and exercisable for a
five year period commencing one year after the date of grant. Each nonemployee
director of Cross was automatically granted an option to purchase 5,000 shares
at an exercise price of $7.125 per share on June 30, 1997. These options first
become exercisable on June 30, 1998, and expire June 30, 2003.
EMPLOYMENT CONTRACTS
On January 1, 1994, Cross entered into an employment contract with Dr.
Edward R. Funk. Dr. Funk's employment contract with Cross has a term of ten (10)
years. It may be terminated by Dr. Funk upon thirty (30) days written notice,
immediately upon written notice if his compensation is reduced, upon his death
or upon termination for cause by Cross. Dr. Funk was compensated for the first
three (3) years of the agreement at the rate of $90,000 per year, subject to
adjustment based on the Consumer Price Index. Thereafter, Dr. Funk's
compensation is determined by Cross' Stock Option and Compensation Committee.
The employment agreement contains restrictions on Dr. Funk regarding Cross'
confidential information and inventions created by Dr. Funk. Additionally, Dr.
Funk is restricted from competing with Cross during the term of the agreement
and for three (3) years after its termination. In addition to the employment
agreement, Cross, the Edward R. Funk Irrevocable Life Insurance Trust #1 and the
Edward R. Funk Irrevocable Life Insurance Trust #2, are parties to two Split
Dollar Insurance Plans (the "Plans"), dated November 15, 1988. Dr. Funk, the
trusts and Cross have entered into an agreement dated February 11, 1998, where,
conditioned and effective upon the consummation of the merger, the Plans are
terminated, the employment agreement is terminated, and Dr. Funk will receive
$240,000 in consideration for the termination of the employment agreement and
the Plans.
On August 15, 1997, Cross entered into employment agreements (the
"Employment Agreements") with Messrs. Mussey, Miller, Mellinger, Zimmer and
Benson to provide for employment of the executives in their current capacities.
Messrs. Mussey's, Miller's, Mellinger's, Zimmer's and Benson's Employment
Agreements with Cross are "at will" and may be terminated: (i) by the executive
or Cross without cause upon thirty (30) days' advance written notice; (ii) by
Cross upon a determination of "good cause" for termination; or (iii) upon the
executive's death or permanent disability. Under the Employment Agreements,
Messrs. Mussey's, Miller's, Mellinger's, Zimmer's and Benson's minimum base
salaries are $170,000, $106,500, $90,000, $90,000 and $108,000 per year,
respectively. The minimum base salary may be increased, but not decreased, from
time to time by the Board of Directors. For up to one (1) year following a
"change in control" of Cross, Messrs. Mussey, Miller, Mellinger, Zimmer and
Benson, if terminated during that period, are entitled to certain benefits,
including unpaid annual salary plus payment of twice the executive's base salary
(including any performance bonuses earned in the prior twelve months) and all
outstanding stock options shall become 100% vested and exercisable in accordance
with the stock option agreements and plans. The Merger will constitute a "change
of control" pursuant to the definition set forth in the Employment Agreements.
The Employment Agreements contain restrictions on Messrs. Mussey, Miller,
Mellinger, Zimmer and Benson regarding Cross' confidential information and
inventions. In addition, Messrs. Mussey, Miller, Mellinger, Zimmer and Benson
are restricted from competing with Cross for a period of twelve (12) months
after termination of employment with Cross.
RETIREMENT EXPRESS MASTER SAVINGS PLAN AND TRUST
Cross' Retirement Express Master Savings Plan and Trust (the "Master Savings
Plan"), as adopted by the Board of Directors on November 14, 1991, effective
January 1, 1992, is a qualified defined contribution plan which contains a cash
or deferred arrangement pursuant to Section 401(k) of the Internal Revenue Code
of 1986, as amended. Participation is available to any employee of Cross or its
subsidiary on or following the date on which such employee has both reached the
age of 21 and has been credited with 1,000 hours of service, provided that the
1,000 hours of service are credited during such employee's first year of
employment or during a single calendar year. Employees who satisfied these
requirements on the effective date of the Master Savings Plan were eligible to
participate on the effective date. Employees may elect to participate by
requesting a pre-tax reduction of compensation. Twenty-five percent of an
employee's pre-tax contributions are matched by Cross; however, the maximum
percent of compensation subject to the match is 4% of the employee's annual
compensation. Pre-tax contributions for an individual cannot exceed 10% of the
individual's gross compensation each year or $9,500 in 1997. Participants are
100% vested in their individual contributions to the Master Savings Plan at all
times. A participant's vested percentage of Cross' matching contributions will
be 20% once the participant has been credited with two vesting years, and an
additional 20% for each additional vesting year thereafter until 100% vested.
Messrs. Mussey, Zimmer, Benson, Miller and Mellinger are the only officers and
directors currently participating in the Master Savings Plan.
114
<PAGE> 120
RELATED PARTY TRANSACTIONS
Mr. Loveland, Secretary, a director and stockholder of Cross, is a partner
in the law firm of Porter, Wright, Morris & Arthur, Columbus, Ohio, which firm
serves as general counsel to Cross.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Cross'
officers and directors, and greater than 10% stockholders, to file reports of
ownership and changes in ownership of Cross' securities with the Securities and
Exchange Commission. Copies of the reports are required by SEC regulation to be
furnished to Cross. Based on its review of such reports and written
representations from reporting persons, Cross believes that, with the exception
of one late report on Form 4 for Philip Mellinger, all officers, directors and
greater than 10% stockholders complied with all filing requirements during
fiscal 1997
115
<PAGE> 121
APPOINTMENT OF INTERPORE'S INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, Interpore's independent auditors for the
fiscal year ended December 31, 1997, was selected by the Board of Directors of
Interpore, upon recommendation of the Audit Committee, to act in the same
capacity for the fiscal year ending December 31, 1998. Neither the firm nor any
of its members has any relationship with Interpore or any of its affiliates
except in the firm's capacity as Interpore's auditor.
Representatives of Ernst & Young LLP are expected to be present at the
Interpore Annual Meeting and will have the opportunity to make statements if
they so desire and respond to appropriate questions from the shareholders.
APPOINTMENT OF CROSS' INDEPENDENT ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P., Cross' independent accountants for the
fiscal year ended December 31, 1997, was selected by the Board of Directors of
Cross, to act in the same capacity for the fiscal year ending December 31, 1998.
Neither the firm nor any of its members has any relationship with Cross or any
of its affiliates except in the firm's capacity as Cross' auditor.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Cross Annual Meeting and will have the opportunity to make statements if
they so desire and respond to appropriate questions from the stockholders.
ANNUAL REPORTS ON FORM 10-K
Interpore's Annual Report on Form 10-K to Shareholders for the fiscal year
ended December 31, 1997, containing financial statements for each of the three
years in the period ended December 31, 1997 and the report of Ernst & Young LLP,
independent auditors, with respect to such financial statements, is being sent
to shareholders of Interpore concurrently with this Joint Proxy
Statement/Prospectus. The Annual Report on Form 10-K of Interpore is not to be
regarded as proxy soliciting material, and the management of Interpore does not
intend to ask, suggest or solicit any action from the shareholders of Interpore
with respect to such report.
Cross' Annual Reports on Form 10-K to Stockholders for the fiscal year ended
December 31, 1997, containing financial statements for each of the three years
in the period ended December 31, 1997 and the report of Coopers & Lybrand
L.L.P., independent public accountants, with respect to such financial
statements, is being sent to stockholders of Cross concurrently with this Joint
Proxy Statement/Prospectus. The Annual Report on Form 10-K of Cross is not to be
regarded as proxy soliciting material, and the management of Cross does not
intend to ask, suggest or solicit any action from the stockholders of Cross with
respect to such report.
STOCKHOLDER PROPOSALS
If the Merger is consummated, the first annual meeting of the stockholders
of Interpore after such consummation is expected to be held in May 1999. If the
Merger is not consummated, the 1999 annual meeting of shareholders of Interpore
is expected to be held in May 1999 and the 1999 annual meeting of the
stockholders of Cross is expected to be held in May 1999.
Subject to the foregoing, if any Interpore shareholder and, if the Merger is
not consummated, any Cross stockholder intends to present a proposal at the 1999
Interpore annual meeting or Cross annual meeting, as the case may be, and wishes
to have such proposal considered for inclusion in the proxy materials for such
meeting, such holder must submit the proposal to the Secretary of Interpore or
Cross, as the case may be, in writing so as to be received at the executive
offices of Interpore or Cross, as the case may be, on or about December 25,
1998. Such proposals must also meet the other requirements of the rules of the
SEC relating to stockholders' proposals.
Subject to the foregoing, in the event the Merger is not consummated, the
only stockholder proposals eligible to be considered for inclusion in the proxy
materials for the 1999 annual meetings of Interpore and Cross will be those
which were duly submitted to the Secretary of Interpore or Cross, as the case
may be, on or about December 25, 1998.
116
<PAGE> 122
LEGAL MATTERS
Certain of the tax consequences of the Merger will be passed upon by Porter,
Wright, Morris & Arthur, Columbus, Ohio. Curtis A. Loveland, Secretary, a
director and a stockholder of Cross, is a partner in Porter, Wright, Morris &
Arthur.
EXPERTS
The consolidated financial statements of Interpore International at December
31, 1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997, included in this Joint Proxy Statement/Prospectus, which is
referred to and made a part of the Registration Statement have been audited by
Ernst & Young LLP, independent auditors as set forth in their reports appearing
elsewhere herein, and as included herein in reliance on such reports and upon
the authority of said firm as experts in accounting and auditing. It is expected
that a representative of Ernst & Young LLP will be present at the Interpore
Annual Meeting to respond to appropriate questions of stockholders and to make a
statement if such representative desires.
The consolidated financial statements of Cross Medical Products, Inc. and
subsidiary as of December 31, 1997 and 1996, and for each of the years in the
three-year period ended December 31, 1997, have been included in this Joint
Proxy Statement/Prospectus, which is referred to and made part of the
Registration Statement in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, as included herein and upon the authority of said firm
as experts in accounting and auditing. It is expected that a representative of
Coopers & Lybrand L.L.P. will be present at the Cross Annual Meeting to respond
to appropriate questions of stockholders and to make a statement if such
representative desires.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Interpore Board
of Directors and the Cross Board of Directors know of no matters that will be
presented for consideration at the Interpore Annual Meeting or the Cross Annual
Meeting other than as described in this Joint Proxy Statement/Prospectus. If any
other matters shall properly come before either stockholder meeting or any
adjournments or postponements thereof and be voted upon, the enclosed proxies
will be deemed to confer discretionary authority on the individuals named as
proxies therein to vote the shares represented by such proxies as to any such
matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the respective managements of Interpore
and Cross.
ADDITIONAL INFORMATION
Interpore and Cross file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
Interpore filed a Registration Statement on Form S-4 to register with the
SEC the Interpore Common Stock to be issued to Cross stockholders in the Merger.
This Joint Proxy Statement/Prospectus is a part of that Registration Statement
and constitutes a prospectus of Interpore in addition to being a proxy statement
of Interpore and Cross for the Annual Meetings. As allowed by SEC rules, this
Joint Proxy Statement/Prospectus does not contain all the information you can
find in the Registration Statement or the exhibits to the Registration
Statement.
We may file additional documents with the SEC between the date of this Joint
Proxy Statement/Prospectus and the dates of the Annual Meetings of our
stockholders.
Interpore has supplied all information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus relating to Interpore and
Cross has supplied all such information relating to Cross.
117
<PAGE> 123
If you are a stockholder, you can obtain any additional documents filed by
Interpore or Cross through us or the SEC. Stockholders may obtain certain
additional documents by requesting them in writing or by telephone from the
appropriate party at the following addresses:
<TABLE>
<S> <C>
Interpore International Cross Medical Products, Inc.
Attention: Richard L. Harrison, Vice Attention: Paul A. Miller, Vice President
President and Chief Financial Officer and Chief Financial Officer
181 Technology Drive 5160-A Blazer Memorial Parkway
Irvine, California 92618 Dublin, Ohio 43017-1339
Telephone: (714) 453-3200 Telephone: (614) 718-0530
</TABLE>
If you would like to request documents from us, please do so by April 15,
1998 to receive them before the Annual Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED
APRIL 6, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN APRIL 6,
1998, AND NEITHER THE MAILING OF THE JOINT PROXY STATEMENT/PROSPECTUS TO
STOCKHOLDERS NOR THE ISSUANCE OF INTERPORE COMMON STOCK IN THE MERGER SHALL
CREATE ANY IMPLICATION TO THE CONTRARY.
118
<PAGE> 124
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTERPORE INTERNATIONAL
Report of Independent Auditors.................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996...... F-3
Consolidated Statements of Income for the years ended December
31, 1997, 1996 and 1995........................................ F-4
Consolidated Statements of Shareholders' Equity................... F-5
Consolidated Statements of Cash Flows............................. F-6
Notes to Consolidated Financial Statements........................ F-7
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Report of Independent Accountants................................. F-15
Consolidated Balance Sheet as of December 31, 1997 and 1996....... F-16
Consolidated Statement of Operations for the years ended December
31, 1997, 1996 and 1995........................................ F-17
Consolidated Statement of Changes in Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995................... F-18
Consolidated Statement of Cash Flows.............................. F-19
Notes to Consolidated Financial Statements........................ F-20
</TABLE>
F-1
<PAGE> 125
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Interpore International
We have audited the accompanying consolidated balance sheets of Interpore
International as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Interpore
International at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Orange County, California
February 4, 1998, except for
Note 7, as to which the date
is February 11, 1998
F-2
<PAGE> 126
Interpore International
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,221 $ 6,112
Short-term investments 3,326 4,220
Accounts receivable, less allowance for doubtful accounts of
$204 and $339 in 1997 and 1996, respectively 2,286 3,771
Inventories 1,915 3,462
Prepaid expenses 438 436
Deferred income taxes 571 596
Other current assets 756 107
-------- --------
Total current assets 19,513 18,704
Property, plant and equipment, net 580 688
Deferred income taxes 2,639 904
Other assets 44 27
-------- --------
Total assets $ 22,776 $ 20,323
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 102 $ 629
Accrued compensation and related expenses 758 591
Accrued sales taxes 114 252
Deferred rent payable 10 103
Other accrued liabilities 156 212
Current portion of long-term debt -- 5
-------- --------
Total current liabilities 1,140 1,792
-------- --------
Commitments and contingencies
Shareholders' equity:
Series E convertible preferred stock, voting, no par value:
Authorized, issued and outstanding shares - 32,906 at December 31, 1997
and 76,593 at December 31, 1996; aggregate liquidation value of $247
at December 31, 1997 and $574 at December 31, 1996 Preferred stock: 208 484
Authorized shares - 296,358; issued and outstanding shares - none -- --
Common stock, no par value:
Authorized shares - 20,000,000; issued and outstanding shares-
7,104,538 at December 31, 1997 and 6,945,447 at December 31, 1996 36,043 35,433
Accumulated deficit (14,615) (17,386)
-------- --------
Total shareholders' equity 21,636 18,531
-------- --------
Total liabilities and shareholders' equity $ 22,776 $ 20,323
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 127
INTERPORE INTERNATIONAL
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 15,511 $ 19,917 $ 17,103
Cost of goods sold 3,135 5,394 4,520
Royalty expense 52 249 278
-------- -------- --------
Gross profit 12,324 14,274 12,305
-------- -------- --------
Operating expenses:
Research and development 1,994 2,001 1,939
Selling and marketing 7,342 9,826 7,544
General and administrative 2,227 2,552 2,438
Loss on sale of dental business 617 -- --
Provision for distributor returns -- -- 411
-------- -------- --------
Total operating expenses 12,180 14,379 12,332
-------- -------- --------
Income (loss) from operations 144 (105) (27)
-------- -------- --------
Interest income 689 553 669
Interest expense (8) (28) (45)
Other income 311 238 37
-------- -------- --------
Total interest and other income, net 992 763 661
-------- -------- --------
Income before taxes 1,136 658 634
Income tax benefit (1,635) -- (1,404)
-------- -------- --------
Net income $ 2,771 $ 658 $ 2,038
======== ======== ========
Net income per share:
Basic $ .40 $ .09 $ .30
======== ======== ========
Diluted $ .37 $ .09 $ .27
======== ======== ========
Shares used in computing net income per share:
Basic 7,002 6,996 6,752
Diluted 7,401 7,468 7,535
</TABLE>
See accompanying notes.
F-4
<PAGE> 128
Interpore International
Consolidated Statements of Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Series E Convertible
Preferred Stock Common Stock
------------------------ ------------------------ Accumulated
Shares Amount Shares Amount deficit
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 514 $ 3,246 6,690 $ 33,973 $(20,082)
Exercise of stock options -- -- 31 74 --
Conversion of preferred stock
convertible into common stock (273) (1,726) 275 1,726 --
Issuances under employee stock
purchase plan -- -- 7 36 --
Repurchase of common stock -- -- (44) (228) --
Net income -- -- -- -- 2,038
-------- -------- -------- -------- --------
Balance at December 31, 1995 241 1,520 6,959 35,581 (18,044)
Exercise of stock options -- -- 51 75 --
Conversion of preferred stock
into common stock (164) (1,036) 164 1,036 --
Issuances under employee stock
purchase plan -- -- 12 64 --
Repurchase of common stock -- -- (241) (1,323) --
Net income -- -- -- -- 658
-------- -------- -------- -------- --------
Balance at December 31, 1996 77 484 6,945 35,433 (17,386)
Exercise of stock options -- -- 95 244 --
Conversion of preferred stock
into common stock (44) (276) 44 276 --
Issuances under employee stock
purchase plan -- -- 21 90 --
Net income -- -- -- -- 2,771
-------- -------- -------- -------- --------
Balance at December 31, 1997 33 $ 208 7,105 $ 36,043 $(14,615)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 129
INTERPORE INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,771 $ 658 $ 2,038
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 345 371 323
Loss on sale of dental business 617 -- --
Changes in operating assets and liabilities:
Accounts receivable 541 (596) 902
Inventories 43 295 (1,512)
Prepaid expenses (70) 44 (232)
Other assets 58 331 (26)
Deferred income taxes (1,710) -- (1,500)
Accounts payable (117) (231) (174)
Accrued liabilities (68) (439) (40)
-------- -------- --------
Net cash provided by (used in) operating activities 2,410 433 (221)
-------- -------- --------
INVESTING ACTIVITIES
Purchases of short-term investments, net 894 3,715 (1,979)
Proceeds from sale of dental business, net 741 -- --
Capital expenditures (265) (360) (220)
-------- -------- --------
Net cash provided by (used in) investing activities 1,370 3,355 (2,199)
-------- -------- --------
FINANCING ACTIVITIES
Repurchase of common stock -- (1,323) (228)
Proceeds from exercise of stock options 244 75 74
Proceeds from employee stock purchase plan 90 64 36
Repayments of notes payable -- -- (79)
Repayment of lease financing (5) (186) (99)
-------- -------- --------
Net cash provided by (used in) financing activities 329 (1,370) (296)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,109 2,418 (2,716)
Cash and cash equivalents at beginning of year 6,112 3,694 6,410
-------- -------- --------
Cash and cash equivalents at end of year $ 10,221 $ 6,112 $ 3,694
======== ======== ========
</TABLE>
See accompanying notes
F-6
<PAGE> 130
INTERPORE INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Interpore International ("Interpore") is a biomaterials company that
operates in one business segment: the development, manufacturing and marketing
of synthetic bone graft materials for the orthopaedic, oral and maxillofacial
markets. Interpore distributes these products in the United States and
internationally.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Interpore and its subsidiaries, Interpore Orthopaedics, Inc. ("Orthopaedics")
and Interpore Acquisition Corporation, Inc., after elimination of all
significant intercompany transactions. Certain amounts have been reclassified to
conform to the 1997 presentation.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment. Provision
is made currently for estimated product returns based on historical experience
and other known factors.
PER SHARE INFORMATION
In 1997, the FASB issued Statement No. 128 (SFAS 128), Earnings Per Share,
which replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform with the requirements of SFAS 128.
CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Interpore operates in markets which are subject to rapid technological
advancement and significant government regulation. The introduction of
technologically advanced products by competitors and increased regulatory
barriers could have a material impact on the future operations of Interpore.
In the normal course of business, Interpore provides credit to its
customers. At December 31, 1997, 78% of Interpore's accounts receivable are from
domestic customers, and 22% are from foreign customers. Interpore performs
ongoing credit evaluations of its customers and maintains allowances for
potential credit losses which, when realized, have been within the range of
management's expectations. As of December 31, 1997, Interpore had no significant
concentrations of credit risk. Sales to domestic customers were 88%, 90% and 90%
of total sales in 1997, 1996 and 1995, respectively, and sales to foreign
customers were 12%, 10% and 10% of total sales in 1997, 1996 and 1995,
respectively. All sales to foreign customers for the periods presented were
denominated in United States dollars.
STOCK OPTION PLANS
During 1996, Interpore adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation and accordingly, is continuing to account for its stock-based
compensation plans under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations. The adoption of SFAS
123 had no impact on Interpore 's consolidated results of operations or
financial position.
ADVERTISING
Interpore expenses the costs of advertising as incurred.
F-7
<PAGE> 131
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
SHORT-TERM INVESTMENTS
Interpore invests excess cash in United States Treasury securities and high
grade corporate marketable securities. Highly liquid investments with a maturity
of three months or less at the date of purchase are classified as cash
equivalents. Short-term investments consist of highly liquid investments with a
maturity of more than three months when purchased. Pursuant to Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, Interpore's short-term investments are classified as
available-for-sale securities and are reported at fair market value. At December
31, 1997 and 1996, there were no material unrealized gains or losses on the
short-term investments. All of Interpore's short-term investments at December
31, 1997 mature within twelve months.
INVENTORIES
Inventories are stated at the lower of average cost or market. Inventories
are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Raw material $ 540 $ 692
Work-in-process 227 385
Finished goods 1,148 2,385
------ ------
$1,915 $3,462
====== ======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
During 1997, Interpore performed a review of its property, plant and
equipment assets. As a result of the review, Interpore removed from its balance
sheet certain assets which were no longer being used. The value at cost was
$869,000 and all items were fully depreciated. Property, plant and equipment are
stated at costs and are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Machinery and equipment $ 1,532 $ 2,143
Furniture and fixtures 365 469
Tooling 142 116
Leasehold improvements 129 114
------- -------
Property, plant and equipment, at cost 2,168 2,842
Less accumulated depreciation and amortization (1,588) (2,154)
------- -------
Property, plant and equipment, net $ 580 $ 688
======= =======
</TABLE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided using the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment 3 to 5 years
Furniture and fixtures 5 years
Tooling 3 years
Leasehold improvements Lesser of estimated useful life or term of lease
</TABLE>
PROVISION FOR DISTRIBUTOR RETURNS
In 1995, Interpore commenced a significant restructuring of its distribution
channels for the sale of Interpore's synthetic bone graft materials. As of
December 31, 1995, certain distributors had been notified of the termination of
their distribution agreements with Interpore. A $411,000 provision was recorded
in 1995 to reflect the estimated value of product returns Interpore accepted
from these terminated distributors in 1996.
F-8
<PAGE> 132
CONSOLIDATED STATEMENTS OF CASH FLOWS
Interpore paid income taxes of $120,000, $62,000 and $128,000 and interest
of $8,000, $28,000 and $45,000 in 1997, 1996 and 1995, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130 (SFAS 130), Reporting
Comprehensive Income, which establishes standards for the reporting and display
of comprehensive income and its components in financial statements.
Comprehensive income generally represents all changes in shareholders' equity
except those resulting from investments by and distributions to shareholders.
SFAS 130 is effective for fiscal years beginning after December 15, 1997 and
requires restatement of earlier periods presented.
Also in June 1997, the FASB issued Statement No. 131 (SFAS 131), Disclosures
about Segments of an Enterprise and Related Information, which requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to shareholders for
interim and annual periods. The statement also requires additional disclosure
with respect to products and services, geographical areas of operations, and
major customers. SFAS 131 is effective for fiscal years beginning after December
15, 1997 and requires restatement of earlier periods presented.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Interpore uses only
third party software and has completed an assessment of each program to ensure
Year 2000 compliance. All software currently used by Interpore is or will be
compliant by the year 2000. Any costs associated with installing updated
versions will not be material and will take place during normal update cycles.
2. DEBT
Interpore has available a $5 million line of credit facility with its
primary bank. The line is secured by substantially all of the assets of
Interpore and Orthopaedics, bears interest at the bank's prime rate (8.5% at
December 31, 1997), and matures July 5, 1998. The facility contains certain
financial covenants with which Interpore was in compliance at December 31, 1997.
No amount was outstanding under the facility at December 31, 1997.
3. SHAREHOLDERS' EQUITY
SERIES E CONVERTIBLE PREFERRED STOCK
The terms of the Series E Convertible Preferred Stock provide for
noncumulative dividends to be paid at the times and in the amounts paid per
share on the common stock and a liquidation preference at an amount no greater
than $7.50 per share. The Series E Convertible Preferred Stock has no redemption
rights (although Interpore may redeem the stock in certain circumstances) and is
convertible into common stock at conversion ratios averaging 1.005 shares of
common stock for each share of preferred stock, subject to certain antidilution
provisions. In addition, the Series E Convertible Preferred Stock will
automatically convert into common stock at such time as the closing sale price
of Interpore's common stock as reported on The Nasdaq Stock Market has been at
least $10.00 per share for at least 20 out of 30 consecutive trading days.
STOCK OPTIONS
Interpore's Amended and Restated Stock Option Plan (the "Amended Plan") and
the 1995 Stock Option Plan (the "1995 Plan") provide for the granting of
incentive and non-qualified
F-9
<PAGE> 133
stock options to directors, officers, consultants and key employees to purchase
shares of its common stock. Interpore's Stock Option Plan for Non-Employee
Directors (the "Directors Plan"), adopted May 25, 1995, provides for automatic
grants of non-qualified stock options to non-employee directors at set times in
set amounts. The minimum exercise price for options granted under all plans is
the fair market value of Interpore's common stock on the date of grant. The
options generally vest annually over a four-year period commencing on the first
anniversary of the date of grant. The options typically expire after 10 years.
The Amended Plan provides for up to 1,211,049 shares to be issued pursuant
to options granted under the plan. At December 31, 1995, the Amended Plan was
terminated with respect to all future option grants.
The 1995 Plan provides for a maximum of 1.5 million shares to be issued
pursuant to options granted under the plan. The number of shares reserved for
issuance under this plan increases annually by an amount equal to 3% of the
number of shares of common stock issued and outstanding as of the close of
business on December 31 of the immediately preceding year, up to the plan
maximum of 1.5 million shares. The maximum number of shares which may be issued
pursuant to options granted during 1998 is approximately 233,000.
The Directors Plan provides for a maximum of 200,000 shares to be issued
pursuant to options granted under the plan. At December 31, 1997, there were
approximately 125,000 shares available for grant under the Directors Plan.
The following is a summary of stock option activity for the periods
indicated:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Options outstanding at beginning of year 1,403,127 1,202,857 959,917
Options granted during the year 262,500 261,000 290,750
Options exercised during the year (94,672) (51,215) (31,289)
Options forfeited during the year (34,345) (9,515) (16,521)
--------------- --------------- ---------------
Options outstanding at end of year 1,536,610 1,403,127 1,202,857
=============== =============== ===============
Exercise price of options outstanding at end of
the period $1.00 to $9.00 $1.00 to $9.00 $1.00 to $9.00
=============== =============== ===============
Exercise price of options exercised during the
period $1.00 to $5.88 $1.00 to $2.50 $.30 to $2.50
=============== =============== ===============
Options exercisable at end of year 910,937 695,911 456,663
=============== =============== ===============
</TABLE>
The weighted average exercise price per share for each stock option activity
and the estimated fair value per share of options granted for the periods
indicated follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Weighted average exercise price per share of:
Options outstanding at beginning of year $ 5.24 $ 5.07 $ 4.74
Options granted during the year 6.76 5.32 5.92
Options exercised during the year 2.58 1.46 2.19
Options forfeited during the year 5.49 5.47 6.08
Options outstanding at end of year 5.66 5.24 5.07
Estimated fair value per share of options
granted during the year 3.46 2.73 3.04
</TABLE>
The weighted average remaining contractual life of stock options outstanding
at December 31, 1997, 1996 and 1995 were approximately 7.0, 7.4 and 7.9 years,
respectively.
EMPLOYEE STOCK PURCHASE PLAN
Interpore has a qualified employee stock purchase plan which allows
employees to purchase shares of Interpore's common stock every six months
through payroll deductions. The purchase price for the shares is 85% of the
lesser of the fair market value of such shares on the first or last day of each
six-month period. The plan provides for a maximum of 100,000 shares to be issued
pursuant to the plan. As of December 31, 1997, 40,070 shares of common stock had
been issued pursuant to the plan.
F-10
<PAGE> 134
SHAREHOLDER RIGHTS PLAN
Effective August 1995, Interpore's Board of Directors adopted a Shareholder
Rights Plan. Every share of Interpore common stock currently issued or to be
issued is accompanied by one right, and every common share issued upon
conversion of Interpore's preferred stock also will be accompanied by one right.
The plan provides for the rights to become exercisable upon the earlier to occur
of (i) ten days following the announcement that a person or group of persons has
acquired or obtained the right to acquire 20% or more of Interpore's common
stock, or (ii) ten days following the announcement or commencement of a tender
offer which would result in ownership of 20% or more of the common stock.
If any person or group of persons acquires 20% or more of Interpore's common
stock, each right, once exercisable and excluding any rights acquired by the 20%
holder, will entitle its holder to purchase that number of additional shares of
Interpore's common stock having a market value of twice the rights' exercise
price. If Interpore is involved in a merger or other business combination
involving the exchange of Interpore's common stock for stock of an acquiring
company at any time after the rights become exercisable, each right will entitle
its holder to purchase that number of the acquiring company's common stock
having a market value of twice the rights' exercise price.
The rights' current exercise price is $33.00. The exercise price and the
number of shares issuable upon exercise are subject to adjustment from time to
time to prevent dilution. The rights will expire on August 28, 2005, subject to
Interpore's right to extend such date, unless earlier redeemed or exchanged by
Interpore or terminated. Interpore is entitled to redeem the rights at one cent
per right at any time before they become exercisable.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Interpore applies Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation, requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of Interpore's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if Interpore had accounted for
employee stock options granted on or after January 1, 1995 under the fair value
method of SFAS 123. The fair value for these options was estimated at the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: a risk free interest rate of 6%, a volatility
factor of the expected market price of Interpore's common stock of .51, a
weighted-average expected life of the option of five years and no dividend
yield.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Interpore's
pro forma information, which reflects the charges related to options issued in
1997, 1996 and 1995 and may not be indicative of such charges in future periods,
is as follows:
F-11
<PAGE> 135
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income (in thousands) $ 2,309 $ 328 $ 1,911
Pro forma basic net income per share $ .33 $ .05 $ .28
Pro forma diluted net income per share $ .31 $ .04 $ .25
</TABLE>
4. INCOME TAXES
Interpore uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under this method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured based on the likelihood of realization of the related tax benefit in
the future.
A reconciliation of the income tax benefit using the federal statutory rate
to the book provision for income taxes follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Statutory federal provision for income taxes $ 386 $ 224 $ 216
Increase (decrease) in taxes resulting from:
Realization of loss carryforwards (386) (224) (216)
Federal alternative minimum tax -- -- 58
State tax, net of federal benefit 100 -- 38
Reduction in valuation allowance (1,735) -- (1,500)
------- ------- -------
Income tax benefit $(1,635) $ -- $(1,404)
======= ======= =======
</TABLE>
Significant components of the income tax benefit are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- --------- -------
<S> <C> <C> <C>
Current expense:
Federal $ -- $ -- $ 58
State 100 -- 38
------- --------- -------
Total current 100 -- 96
------- --------- -------
Deferred benefit:
Federal (1,735) -- (1,275)
State -- -- (225)
------- --------- -------
Total deferred (1,735) -- (1,500)
------- --------- -------
Total income tax benefit $(1,635) $ -- $(1,404)
======= ========= =======
</TABLE>
At December 31, 1997, Interpore has unused net operating loss carryforwards
of approximately $8.6 million for federal income tax purposes which expire
beginning in 2001. Interpore also has research and development tax credit and
alternative minimum tax credit carryforwards of approximately $300,000 for
federal tax purposes and $80,000 for California tax purposes. The research and
development tax credit carryforward began to expire in 1997. Prior to 1995, a
valuation allowance was recorded to entirely offset the tax benefits of the
federal carryforwards. In 1995 and 1997, the valuation allowance was reduced to
recognize the future tax benefits which management believes are more likely than
not to be realized.
The Tax Reform Act of 1986 includes provisions which significantly limit the
potential use of net operating losses and tax credit carryforwards in situations
where there is a change in ownership, as defined, of more than 50% during a
cumulative three-year period. Accordingly, if a change in ownership occurs, the
ultimate benefit realized from these carryforwards may be significantly reduced
in total, and the amount that may be utilized in any given year may be
significantly limited. California has enacted similar legislation. Interpore has
had stock issuances during the past three years; however, these issuances did
not cause a greater than 50% change in ownership at December 31, 1997.
In addition to the net operating losses discussed above, Interpore has net
operating loss carryforwards and research and development tax credit
carryforwards at December 31, 1997 of approximately $7.2 million and $55,000,
respectively, for federal income tax purposes resulting from the acquisition of
Orthopaedics. As a result
F-12
<PAGE> 136
of the acquisition, Orthopaedics experienced a more than 50% ownership change.
Accordingly, under the provisions of the 1986 Tax Reform Act, the use of
Orthopaedics' net operating loss carryforwards is limited to approximately
$300,000 per year. These carryforwards expire beginning in the year 2001. As a
result of the annual limitation, it is estimated that a maximum of $3.6 million
in net operating loss carryforwards will be available for use prior to
expiration. The ultimate realization of the benefits of these loss and credit
carryforwards is dependent on future profitable operations of Orthopaedics.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the net
deferred tax asset at December 31, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Interpore net operating loss carryforwards $ 2,940 $ 2,935
Orthopaedics net operating loss carryforwards 1,219 1,317
Research and development and alternative minimum tax
credit carryforwards 378 363
Orthopaedics research and development tax credit carryforward 55 19
Reserves and accruals not currently deductible for tax purposes 143 387
Inventory capitalization 114 270
Depreciation not currently deductible for tax purposes 181 58
------- -------
Total deferred tax assets 5,030 5,349
Less valuation allowance (1,820) (3,849)
------- -------
Net deferred tax asset $ 3,210 $ 1,500
======= =======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
LICENSE AGREEMENTS
Interpore paid royalties ranging from 1% to 8% of net sales on certain of
its dental products.
LITIGATION
In the ordinary course of its business, Interpore 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 Interpore.
LEASE COMMITMENTS
Future minimum rentals under noncancelable operating leases for
manufacturing and office facilities and equipment at December 31, 1997 are as
follows (in thousands):
<TABLE>
<S> <C>
1998 $ 467
1999 434
2000 432
2001 446
Thereafter 503
----------
$ 2,282
==========
</TABLE>
Rent expense was $632,000, $674,000 and $649,000 in 1997, 1996 and 1995,
respectively.
The lease for Interpore's principal office and manufacturing facility, which
was extended and now expires January 31, 2003, provides a right to extend the
lease for an additional five years at the fair market lease rate of the facility
on the extension date, but not less than the rate paid by Interpore during the
month immediately preceding the commencement of the extension period.
6. SALE OF ASSETS
In April 1997, Interpore entered into a definitive agreement for the sale of
its dental implant business to Steri-Oss Inc. of Yorba Linda, California. In May
1997, the sale was completed, and Interpore received an initial cash
F-13
<PAGE> 137
payment of $1.5 million. A deferred cash payment of $749,000 is due in March
1998. The transaction, including associated costs, resulted in a net charge of
$617,000.
7. SUBSEQUENT EVENT
In February 1998, Interpore entered into an agreement to merge with Cross
Medical Products, Inc. ("Cross"), an Ohio-based worldwide supplier of spinal
implant systems used to treat degenerative conditions and deformities of the
spine. If the merger is consummated, approximately 6.7 million shares of
Interpore's common stock will be exchanged for all the common stock of Cross.
Consummation of the merger is subject to customary conditions, including
regulatory approvals and approvals by the shareholders of each company. The
merger is intended to be accounted for as a pooling of interests and is expected
to be completed in the second quarter of 1998.
In February 1998, the Board of Directors of Interpore approved a proposal
for Interpore to reincorporate from California to Delaware. The proposed
reincorporation is subject to approval by Interpore's shareholders and is
expected to be completed in the second quarter of 1998.
8. QUARTERLY RESULTS (UNAUDITED)
The following table presents a summary of the quarterly results of
operations for 1997 and 1996:
<TABLE>
<CAPTION>
Quarter
----------------------------------------------------
(in thousands, except per share data) First Second Third Fourth
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997
Net sales(1) $ 4,725 $ 4,000 $ 3,501 $ 3,285
Gross profit 3,422 3,253 2,880 2,769
Net income 259 20(1) 577 1,915(2)
Net income per share - basic $ .04 $ .00 $ .08 $ .27
Net income per share - diluted $ .04 $ .00 $ .08 $ .25
1996
Net sales(1) $ 4,996 $ 4,892 $ 4,733 $ 5,296
Gross profit 3,590 3,620 3,352 3,712
Net income 175 117 127 239
Net income per share - basic $ .02 $ .02 $ .02 $ .03
Net income per share - diluted $ .02 $ .02 $ .02 $ .03
</TABLE>
(1) Interpore's dental implant business was sold in May 1997. The transaction,
including associated costs, resulted in a net charge to operating expenses
of $617,000. Net sales of dental implants were approximately $1.4 million
and $262,000 in the first and second quarters of 1997, and $1.4 million,
$1.1 million, $1.6 million and $1.7 million in the first, second, third and
fourth quarters of 1996, respectively.
(2) A $1.7 million credit was recorded in the fourth quarter of 1997 to reflect
the reduction in the valuation allowance against deferred tax assets.
F-14
<PAGE> 138
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Cross Medical Products, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Cross
Medical Products, Inc. and Subsidiary (formerly Danninger Medical Technology,
Inc. and Subsidiaries) as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cross Medical
Products, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/S/ COOPERS & LYBRAND L.L.P.
Columbus, Ohio
February 4, 1998, except
for Note 11, for which
the date is February 11,
1998
F-15
<PAGE> 139
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,588 $ 216
Investments 1,500
Accounts receivable, net 4,304 4,194
Inventories 8,459 4,529
Current assets of discontinued operations 4,437
Other current assets 207 126
Deferred income taxes 883 703
------- -------
Total current assets 16,941 14,205
------- -------
Property and equipment, net 970 784
Other assets:
Intangible assets, net 183 128
Non-current assets of discontinued operations 3,811
Other assets 668 662
------- -------
Total assets $18,762 $19,590
======= =======
</TABLE>
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE AMOUNTS )
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Current portion, term debt and capital lease obligations $ 95 $ 1,659
Current liabilities of discontinued operations 2,355
Accounts payable 992 1,265
Accrued liabilities 821 620
Accrued disposition costs 610
Accrued income taxes 1,067 65
-------- --------
Total current liabilities 3,585 5,964
-------- --------
Term debt, net of current maturities 5,080 5,318
-------- --------
Obligations under capital leases, net of current maturities 44 164
Non-current liabilities of discontinued operations -- 2,452
-------- --------
Deferred income taxes 55 44
-------- --------
Commitments and contingencies Shareholders' equity:
Preferred stock, $.01 par value:
Authorized, 10,000,000 shares; no shares issued and
outstanding
Common stock, $.01 par value:
Authorized, 40,000,000 shares; issued and outstanding
5,224,314 and 4,936,265 shares for 1997
and 1996, respectively 53 49
Additional paid-in capital 6,948 4,362
Retained earnings 2,997 1,389
-------- --------
9,998 5,800
Less treasury stock, at cost, 17,402 shares (152)
-------- --------
Total shareholders' equity 9,998 5,648
-------- --------
Total liabilities and shareholders' equity $ 18,762 $ 19,590
======== ========
</TABLE>
See notes to the consolidated financial statements.
F-16
<PAGE> 140
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 12,918 $ 8,572 $ 4,091
Cost of goods sold 5,923 3,854 1,995
-------- -------- --------
Gross margin 6,995 4,718 2,096
-------- -------- --------
Selling, general and administrative 6,689 4,330 3,224
Research and development 1,226 687 859
-------- -------- --------
7,915 5,017 4,083
-------- -------- --------
Operating loss (920) (299) (1,987)
Interest expense, net (426) (439) (101)
-------- -------- --------
Loss from continuing operations before
income taxes (1,346) (738) (2,088)
-------- -------- --------
Income tax benefit:
Federal:
Current (321) (261) (549)
Deferred (163) (527) (97)
-------- -------- --------
(484) (788) (646)
Net income (loss) from continuing operations
(862) 50 (1,442)
-------- -------- --------
Net income from discontinued operations (net of income
taxes of $168, $140 and $366 for 1997, 1996 and 290 1,231 1,083
1995, respectively)
Gain on sale of discontinued operations (net of
income taxes of $1,400) 2,180
-------- -------- --------
Net income from discontinued operations 2,470 1,231 1,083
-------- -------- --------
Net income (loss) $ 1,608 $ 1,281 $ (359)
======== ======== ========
</TABLE>
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -------------
<S> <C> <C> <C>
Basic earnings per share:
Net income (loss) from continuing operations $ (.17) $ .01 $ (.31)
========= ========= =============
Net income from discontinued operations .49 .26 .23
========= ========= =============
Net income (loss) $ .32 $ .27 $ (.08)
========= ========= =============
Diluted earnings per share:
Net income (loss) from continuing operations $ (.17) $ .01 $ (.31)
========= ========= =============
Net income from discontinued operations .49 .26 .23
========= ========= =============
Net income (loss) $ .32 $ .27 $ (.08)
========= ========= =============
Weighted average shares outstanding used in
basic and diluted earnings per share
calculations 5,065,294 4,772,082 4,661,332
========= ========= =============
</TABLE>
See notes to the consolidated financial statements.
F-17
<PAGE> 141
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL
SHARES COMMON PAID-IN RETAINED TREASURY
OUTSTANDING STOCK CAPITAL EARNINGS STOCK TOTAL
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 4,552 $ 46 $ 2,877 $ 467 $ 0 $ 3,390
Exercise of stock options
and warrants 156 1 402 403
Tax benefit from stock 88 88
options exercised
Net loss (359) (359)
------- ------- ------- ------- ------- -------
Balance, December 31, 1995 4,708 47 3,367 108 0 3,522
Exercise of stock options 145 1 383 (152) 232
Tax benefit from stock 113 113
options exercised
Issuance of common shares to
purchase business 83 1 499 500
Net income 1,281 1,281
------- ------- ------- ------- ------- -------
Balance, December 31, 1996 4,936 49 4,362 1,389 (152) 5,648
Exercise of stock options 26 1 157 158
Retirement of treasury stock (152) 152 --
Options granted in exchange 172 172
for services
Sale of common stock 241 2 2,240 2,242
Converted debentures 21 1 169 170
Net income 1,608 1,608
------- ------- ------- ------- ------- -------
Balance, December 31, 1997 5,224 $ 53 $ 6,948 $ 2,997 $ 0 $ 9,998
======= ======= ======= ======= ======= =======
</TABLE>
See notes to the consolidated financial statements.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ (862) $ 50 $(1,442)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 369 112 45
Reserves for doubtful accounts 77 84 17
Deferred income taxes (163) (527) (97)
Changes in assets and liabilities:
Accounts receivable (187) (2,773) (101)
Inventories (3,931) (1,395) (1,298)
Other assets (170) (3) (48)
Accounts payable and accrued liabilities (383) 1,271 (478)
------- ------- -------
Net cash used in continuing operations (5,250) (3,181) (3,402)
Net cash provided by discontinued operations 92 903 1,091
------- ------- -------
Net cash used in operating activities (5,158) (2,278) (2,311)
------- ------- -------
Cash flows from investing activities:
Expenditures for patents rights (60) (70) --
Purchase of investment (1,500) -- --
Purchases of property and equipment (408) (474) (87)
------- ------- -------
Net cash used in continuing operations (1,968) (544) (87)
Net cash used in discontinued operations (91) (1,106) (75)
Cash received from sale of Recovery Products segment 8,177 -- --
------- ------- -------
Net cash provided by (used in) investing activities 6,118 (1,650) (162)
------- ------- -------
</TABLE>
F-18
<PAGE> 142
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from term debt $ -- $ 1,595 $ 3,079
Proceeds from convertible subordinated
debenture offering -- 5,250 --
Repayment of term debt and capitalized lease obligations (1,791) (3,028) (7)
Debt issue costs -- (557) --
Proceeds from exercise of stock options 158 232 403
Proceeds from sale of common stock 2,242 -- --
Cash overdraft -- (167) 167
------- ------- -------
Net cash provided by continuing operations 609 3,325 3,642
Net cash provided by (used in) discontinued operations (197) 819 (1,172)
------- ------- -------
Net cash provided by financing activities 412 4,144 2,470
------- ------- -------
Net increase (decrease) in cash 1,372 216 (3)
Cash and cash equivalents beginning of year 216 0 3
------- ------- -------
Cash and cash equivalents end of year $ 1,588 $ 216 $ 0
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 596 $ 356 $ 101
======= ======= =======
Income taxes (refunds) $ 9 $ (79) $ 28
======= ======= =======
</TABLE>
See notes to the consolidated financial statements.
F-19
<PAGE> 143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF CROSS
1. DESCRIPTION OF BUSINESS:
Prior to March 12, 1997, Cross Medical Products, Inc. and Subsidiary
("Cross"), formerly known as Danninger Medical Technology, Inc. and
Subsidiaries, was engaged in two distinct business segments of the orthopedic
device industry: 1) the design, manufacture, distribution and rental of
orthopedic rehabilitation products ("recovery products") and 2) the design,
manufacture and marketing of implants and instruments for the surgical treatment
of degenerative diseases, deformities and trauma of the spine ("spinal
implants"). On March 12, 1997, Cross sold substantially all of the assets and
liabilities related to the recovery products segment (See Note 10). Effective
March 21, 1997 Danninger Medical Technology, Inc. changed its name to Cross
Medical Products, Inc. On February 12, 1998, Cross announced a merger agreement
with Interpore International, a California corporation (See Note 11).
In 1992, Cross received the Food & Drug Administration (FDA) 510(k)
marketing clearance for general distribution of its Puno/Winter/Byrd (PWB)
Lumbosacral System. In 1995, Cross received FDA 510(k) marketing clearance for
general distribution of its SYNERGY(TM) Spinal Implant System. In January 1997,
Cross received FDA 510(k) marketing clearance for general distribution of its
titanium SYNERGY(TM) Spinal Implant System.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed in
preparation of these consolidated financial statements:
BASIS OF PRESENTATION:
The accompanying consolidated financial statements reflect the
reclassification of the recovery products segment as discontinued operations.
Assets and liabilities of the discontinued operations exclude assets and
liabilities to be retained by Cross. Income from discontinued operations has
been adjusted for the effect of the allocation of certain general corporate
overhead costs associated with continuing operations. Interest expense has been
allocated to continuing operations based upon specific identification of
indebtedness to be retained. All significant intercompany accounts and
transactions have been eliminated. Unless otherwise stated, the notes to the
financial statements disclose information related to continuing operations.
ACCOUNTING ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues expenses during the reporting
period. The most significant of these estimates are related to the allowance for
doubtful accounts, inventory valuation reserves, amortization of intangible
assets, valuation allowance on deferred tax assets, depreciation of property and
equipment and accrued liabilities including product liability claims. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
Cross considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company has cash
and investments on deposit with a single financial institution of $3,088,000 at
December 31, 1997.
F-20
<PAGE> 144
INVENTORIES:
Inventories are valued at the lower of first-in, first-out cost or market
and consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Raw materials $ 197 $ 125
Finished goods 5,949 3,498
Consigned inventory 2,951 1,210
------ ------
9,097 4,833
Less inventory reserve 638 304
------ ------
$8,459 $4,529
====== ======
</TABLE>
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method at rates designed to amortize the costs of such items
over estimated useful lives ranging from three to five years. Depreciation
expense for the years ended December 31, 1997, 1996 and 1995 was $279,000,
$64,000 and $44,000, respectively.
Expenditures for major improvements are capitalized, while expenditures for
repairs and maintenance are charged to operations as incurred. When property and
equipment are retired or sold, the cost and related accumulated depreciation or
amortization are removed from the accounts with any gain or loss reflected in
the results of operations.
Property and equipment are comprised of (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Machinery and equipment $ 603 $ 906
Office furniture and fixtures 244 94
Computer equipment 436 106
Leasehold improvements 169 131
------ ------
1,452 1,237
Less accumulated depreciation 482 453
------ ------
$ 970 $ 784
====== ======
</TABLE>
INTANGIBLE ASSETS:
Intangible assets include patents and license rights which are amortized on
a straight-line basis over their estimated useful lives of seventeen years.
Amortization begins at the time the patents are granted. Management periodically
evaluates the recoverability of intangible assets based on estimated
undiscounted future cash flows. Amortization expense for the years ended
December 31, 1997, 1996 and 1995 was $6,000, $2,000 and $1,000, respectively.
Accumulated amortization of intangible assets was $9,000 and $3,000 at December
31, 1997 and 1996, respectively.
INVESTMENTS:
Investments include a 270 day certificate of deposit with a maturity of
January 27, 1998 bearing interest of 5.65%. Management intends to hold the
certificate to maturity. Accordingly, the investment is carried at cost.
REVENUE RECOGNITION:
Revenue from the sales of product is recognized upon shipment. Revenue from
the sales of consigned inventory is recorded upon receipt of written
acknowledgment from distributors that the surgical procedure has been completed.
Allowance for doubtful accounts was $167,000 and $95,000 at December 31,
1997 and 1996, respectively.
F-21
<PAGE> 145
Research and Development:
Research and development costs are expensed as incurred.
INCOME TAXES:
Income tax provisions are determined using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of the assets and
liabilities and net operating loss and tax credit carryforwards for which income
tax benefits will be realized in future years using enacted rates. Valuation
allowances are provided against deferred tax assets based on estimated future
recoverability of the assets.
NEW ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." Each standard will be effective December
31, 1998.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses).
SFAS No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owners sources; it includes all changes in equity during
a period except those resulting from investments by owners and distributions to
owners.
SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. This
statement defines business segments as components of an enterprise about which
separate financial information is available and used internally for evaluating
segment performance and decision making on resource allocations. SFAS No. 131
requires reporting a measure of segment profit or loss, certain specific revenue
and expense items, and segment assets; and other reporting about geographic and
customer matters.
Cross is evaluating each of these pronouncements and has not yet determined
the ultimate impact of these pronouncements on its future financial statements.
3. TERM DEBT:
Term debt at December 31, 1997 and 1996 was:
<TABLE>
<CAPTION>
1997 1996
------ ------
(in thousands)
<S> <C> <C>
Revolving credit agreement -- $1,495
Convertible Subordinated Debentures, due in June 2003 $5,080 5,250
plus interest at 8.5%, payable semi-annually
Note payable, due in monthly installments of $1,666 87
plus interest at prime plus .75%, maturing in May 2001
Note payable, related party, payable on demand with
interest at 8%, payable annually 80 80
------ ------
5,160 6,912
Less current maturities 80 1,594
------ ------
$5,080 $5,318
====== ======
</TABLE>
The Convertible Subordinated Debentures (the "Debentures") are convertible
prior to maturity or redemption into Cross' Common Stock at $8.125 per share.
Beginning July 1, 1999, Cross will be obligated to redeem Debentures tendered by
June 1, 1999 or June 1 of any succeeding year at their fair amount plus accrued
interest, subject to an annual limitation of $25,000 per holder and an aggregate
of $262,500. Redemption may be accelerated in the event of a change in control
of Cross and in certain other circumstances as described in the bond indenture.
The Debentures contain certain covenants with respect to default of interest and
redemption payments and defaults under other indebtedness of Cross in excess of
$1,000,000. Interest expense was $601,000, $418,000,
F-22
<PAGE> 146
and $102,000 in 1997, 1996, and 1995, respectively. During 1997, $170,000 of
Debentures were converted to 20,920 shares of Common Stock.
Other assets include $573,000 of offering costs related to issuance of the
Debentures. Amortization of such costs of $83,000 and $46,000 for the year ended
December 31, 1997 and 1996, respectively, are included in interest expense.
Accumulated amortization was $129,000 and $46,000 as of December 31, 1997 and
1996, respectively.
During 1995, Cross obtained a loan from a split-dollar life insurance policy
in the irrevocable life trust of a significant shareholder and director at an
interest rate of 8%, payable on the anniversary date of the loan.
Term debt maturities (in thousands):
<TABLE>
<S> <C>
1998 $ 80
1999 0
2000 0
2001 0
2002 0
Thereafter 5,080
-------
$5,160
=======
</TABLE>
4. RENTAL AND LEASE AGREEMENTS:
Cross leases its offices and distribution facility under an operating lease
agreement which will expire on May 31, 2001. Total rent expense from continuing
operations was $160,000, $103,000 and $42,000 in 1997, 1996, and 1995,
respectively.
Cross leases certain office and computer equipment under noncancelable lease
agreements that are accounted for as capitalized leases. The leases provide that
Cross pay taxes, insurance and maintenance expenses related to the equipment.
Leased equipment under capital leases is included in the accompanying
consolidated balance sheet as property and equipment with an aggregate cost of
$79,000 and $272,000, and accumulated depreciation of $25,000 and $37,000 at
December 31, 1997 and 1996, respectively. New capital lease obligations were
$38,000 and $236,000 in 1997 and 1996, respectively.
Future minimum payments under capital and operating leases are as follows
(in thousands):
<TABLE>
<CAPTION>
Capital
Year Ending December 31, Leases Operating
------ ---------
<S> <C> <C>
1998 $ 20 $ 270
1999 19 273
2000 19 276
2001 10 115
------ ---------
Total minimum lease payments 68 $ 934
=========
Less amount representing interest 9
-----
59
Less current maturities 15
-----
Long-term obligations
under capital leases $ 44
=====
</TABLE>
F-23
<PAGE> 147
5. INCOME TAXES:
The components of the net deferred tax asset are (in thousands):
<TABLE>
<CAPTION>
Temporary differences: 1997 1996
----- -----
<S> <C> <C>
Deferred tax assets
Accounts receivable $ 32
Inventories $ 217 103
Accrued liabilities 407 34
Net operating loss 79
Tax credit carryforwards 259 455
----- -----
Total deferred tax asset 883 703
Deferred tax liability
Property and equipment (55) (44)
----- -----
Net deferred tax asset $ 828 $ 659
===== =====
</TABLE>
The current and non-current components of the net deferred tax asset
recognized in the balance sheet are (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net current asset $883 $703
Net non-current liability 55 44
---- ----
Net asset $828 $659
==== ====
</TABLE>
Cross previously established a valuation allowance for the future
recoverability of deferred tax assets. The allowance was established based on
Cross' historical experience of paying federal income taxes at alternative
minimum tax rates and expected limitations on the future use of research and
development and alternative minimum tax credit carryforwards. During the fourth
Quarter of 1996, Cross reversed the previously established valuation allowance
based on the improved performance of the spinal implant segment during 1996 and
expectations of future profitability. Research and development credit
carryforwards were $259,000 at December 31, 1997 and expires as follows: $78,000
in 2009, $35,000 in 2010, $88,000 in 2011, and $58,000 in 2012.
The following is a reconciliation of income tax expense to the amount
computed at the federal statutory rate (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Income tax benefit at statutory rates $(458) $(251) $(710)
Increase (reduction) in taxes resulting
from: Research and development tax
credits (58) (88) (35)
Valuation allowance (459) 101
Other permanent differences 32 10 (2)
----- ----- -----
Total income tax benefit $(484) $(788) $(646)
===== ===== =====
</TABLE>
Tax benefits credited to equity for stock options exercised were $0,
$113,000 and $88,000 for the years ending December 31, 1997, 1996 and 1995,
respectively.
6. SHAREHOLDERS' EQUITY:
At December 31, 1997, Cross has three stock-based compensation plans, which
are described below.
In January 1984, Cross adopted an Incentive Stock Option Plan (Incentive
Plan) which expired on January 27, 1994. The Incentive Plan was administered by
the Compensation Committee of the Board of Directors (the Committee) and
provided that options be granted to key employees at exercise prices no less
than market value on the date the option was granted. All options currently
outstanding vest pro rata over five years beginning one year from date of grant
and expire six years from date of grant. Cross has reserved 750,000 shares of
its common stock for distribution under the Incentive Plan.
F-24
<PAGE> 148
Changes in stock options are:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES OPTION PRICE
------- -----
<S> <C> <C>
1995
Outstanding at January 1, 1995 295,550 $2.22
Granted 0
Exercised 20,100 $1.73
Canceled 6,400 $2.16
-------
Outstanding at December 31, 1995 269,000 $2.26
=======
Options exercisable at December 31, 1995 160,000
1996
Outstanding at January 1, 1996 269,000 $2.26
Granted 0
Exercised 124,441 $2.42
Canceled 8,500 $2.15
-------
Outstanding at December 31, 1996 136,059 $2.12
=======
Options exercisable at December 31, 1996 83,059
1997
Outstanding at January 1, 1997 136,059 $2.12
Granted
Exercised 25,059 $2.56
Canceled
-------
Outstanding at December 31, 1997 111,000 $2.02
=======
Options exercisable at December 31, 1997 83,000
</TABLE>
As of December 31, 1997, the options outstanding under the Incentive Plan
have exercise prices between $1.75 and $2.38 and a weighted-average remaining
contractual life of 1.4 years. The remaining options become exercisable in 1998
- - 14,000 shares; 1999 - 14,000 shares. Certain options exercised in 1996
resulted from the exchange of 17,402 shares of common stock held by the
participants at the then current market value of $152,268 for the exercise of
options to purchase 65,841 shares of common stock. These shares were retired in
1997.
In April 1984, Cross adopted a Nonstatutory Stock Option Plan (Nonstatutory
Plan) which expired on April 26, 1994. The Nonstatutory Plan specified that
options be granted to officers, directors, advisors and key employees at a price
specified by the Board of Directors on the date the option was granted. The
options vest pro rata over a period of up to five years beginning one year from
date of grant and expire six years from date of grant. Cross has reserved
300,000 shares of common stock.
F-25
<PAGE> 149
Changes in stock options are:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES OPTION PRICE
------ ------------
<S> <C> <C>
1995
Outstanding at January 1, 1995 97,500 $2.47
Granted 0
Exercised 26,000 $2.25
Canceled 0
-------
Outstanding at December 31, 1995 71,500 $2.54
=======
Options exercisable at December 31, 1995 71,500
1996
Outstanding at January 1, 1996 71,500 $2.54
Granted 0
Exercised 14,000 $2.37
Canceled 0
-------
Outstanding at December 31, 1996 57,500 $2.59
=======
Options exercisable at December 31, 1996 57,500
1997
Outstanding at January 1, 1997 57,500 $2.59
Granted
Exercised
Canceled
-------
Outstanding at December 31, 1997 57,500 $2.59
=======
Options exercisable at December 31, 1997 57,500
</TABLE>
As of December 31, 1997, the options outstanding under the Nonstatutory Plan
have exercise prices between $1.94 and $2.94 and a weighted-average remaining
contractual life of 1.1 years.
In February 1994, Cross adopted the 1994 Stock Option Plan (1994 Plan). The
1994 Plan was intended to replace both the Incentive Plan and the Nonstatutory
Plan. The 1994 Plan is administered by the Committee. The 1994 Plan provides for
the granting of nonstatutory or incentive options to directors, consultants,
advisors, or key employees of Cross who are selected by the Committee. Vesting
periods are determined by the Committee. Cross has reserved 1,000,000 shares of
common stock for distribution under the 1994 Plan.
F-26
<PAGE> 150
Changes in stock options are:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES OPTION PRICE
-------------- -----------------
<S> <C> <C>
1995
Outstanding at January 1, 1995 45,000 $3.50
Granted 150,000 $5.64
Exercised 10,000 $3.50
Canceled 9,000 $4.25
---------
Outstanding at December 31, 1995 176,000 $5.28
=========
Options exercisable at December 31, 1995 45,000
Weighted-average fair value of options
granted during 1995 $3.20
1996
Outstanding at January 1, 1996 176,000 $5.28
Granted 164,000 $6.74
Exercised 7,000 $4.25
Canceled 18,000 $4.91
---------
Outstanding at December 31, 1996 315,000 $6.09
=========
Options exercisable at December 31, 1996 142,800
Weighted-average fair value of options
granted during 1996 $3.76
1997
Outstanding at January 1, 1997 315,000 $6.09
Granted 227,276 $7.94
Exercised 22,000 $5.55
Canceled 15,000 $7.38
---------
Outstanding at December 31, 1997 505,276 $6.91
=========
Options exercisable at December 31, 1997 298,177
Weighted-average fair value of options
granted during 1997 $4.50
</TABLE>
As of December 31, 1997, the options outstanding under the 1994 Plan have
exercise prices between $3.50 and $8.875 and a weighted-average remaining
contractual life of 4.4 years. The remaining options become exercisable in 1998
- - 100,779 shares; 1999 - 34,480 shares; 2000 - 34,480 shares; 2001 - 23,680
shares; and 2002 - 13,680 shares.
Cross applies APB Opinion 25 and related Interpretations in accounting for
its plans. There has been no compensation cost charged against income for its
stock option plans in 1995, 1996, and 1997. Had compensation cost for Cross'
three stock option plans been determined based on the fair value at the grant
dates for the awards under those plans consistent with the method of SFAS No.
123, "Accounting for Stock-Based Compensation," Cross' net income and earnings
per share would have been reduced to the pro forma amounts indicated below (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income As reported $ 1,608 $1,281
Pro forma $ 1,250 $1,093
Diluted earnings per share As reported $ 0.32 $ 0.26
Pro forma $ 0.25 $ 0.22
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: risk-free interest
rates of 7%, expected life of 5 years and expected volatility of 57%.
In August 1997, Cross sold restricted common shares to a distributor. The
restrictions include a two year holding period and certain voting restrictions.
Cross has the right of first refusal in the event of a transfer of such shares
and the distributor is prohibited from the purchase of additional shares.
F-27
<PAGE> 151
7. EMPLOYEE BENEFIT PLAN:
In January 1992, Cross adopted a 401(k) profit sharing plan (the Plan)
covering substantially all employees. Pursuant to the Plan, employees may make
voluntary contributions, and Cross may make matching contributions based on 25%
of the employee's contribution, up to 4% of the employee's salary, subject to
certain limitations. Cross expensed matching contributions of $15,000, $7,000
and $6,000 during 1997, 1996, and 1995, respectively.
8. FOURTH QUARTER ADJUSTMENTS:
During the fourth quarter of 1997, Cross recognized $700,000 of inventory
valuation adjustments related to obsolete and slow moving inventory.
During the fourth quarter of 1996, Cross increased the reserve for product
liability by $70,000 and recognized income of $459,000 from the reversal of a
valuation allowance provided against deferred tax assets.
9. EARNINGS PER SHARE CALCULATIONS
Cross adopted Statement of Financial Accounting Standard No. 128 ("FAS
128"), "Earnings Per Share," for the year ended December 31, 1997. All prior
period earnings per share data have been restated to conform to the provisions
of this statement. Basic earnings per share is computed using the weighted
average number of shares outstanding. Diluted earnings per share is computed
using the weighted average number of shares outstanding adjusted for the
incremental shares attributed to outstanding options and warrants to purchase
common stock and convertible subordinated debentures. For purposes of computing
diluted earnings per share assuming conversion of the subordinated debentures,
income from continuing operations is adjusted for interest expense, net of tax.
For the years ended December 31, 1997, 1996 and 1995, the common stock
equivalents were not considered in the diluted earnings per share calculation
since the results were antidilutive.
10. SALE OF RECOVERY PRODUCTS SEGMENT:
On March 12, 1997, Cross entered into an agreement to sell its recovery
products segment for approximately $8,200,000 in cash and the assumption of
approximately $5,000,000 of debt and other liabilities. The buyer also acquired
30,000 shares of Cross' common stock for $242,000. The buyer entered into a
"temporary services agreement" to pay Cross $30,000 a month for the use of
Cross' facility and accounting services from the date of the sale until July
1997. In connection with the sale, Cross agreed to retain cash, leasehold
improvements, other assets and certain related accrued liabilities and leases of
the discontinued segment.
Cross recognized a gain of $2,180,000, net of related income taxes of
$1,400,000. Included in the determination of the gain are future lease
commitments of $332,000, severance and other compensation arrangements of
$96,000, and disposal costs of $222,000. At December 31, 1997, the Company is in
negotiations with the buyer concerning matters related to escrow deposits and
the temporary services agreement.
Revenues from discontinued operations through the date of disposal were
$2,500,000. Accrued disposition costs at December 31, 1997 include estimated
amounts for lease commitments and other contingent liabilities related to
discontinued operations.
11. MERGER AGREEMENT:
On February 12, 1998, Cross entered into a definitive merger agreement with
Interpore International, a California based company. The agreement calls for
each shareholder of Cross to receive 1.275 shares of Interpore Common Stock in
exchange for each of their shares of Cross' common stock. It is anticipated that
the transaction will be consummated after the customary conditions are met and
after approval by the shareholders of each company. The transaction is expected
to close prior to June 30, 1998.
Interpore International is a biomaterials company specializing in the
development, manufacture and marketing of synthetic bone and tissue products for
use in the orthopaedic markets.
12. COMMITMENTS AND CONTINGENCIES:
In 1996, Cross maintained a claims made product liability insurance policy
with $50,000 per occurrence and $250,000 aggregate retention limits. Beyond
these retention limits, the policy covers aggregate insured claims made during
each policy year up to $5,000,000. Effective January 1, 1997, Cross revised its
product liability insurance policy with the recovery products business having a
$75,000 per occurrence and $250,000 aggregate
F-28
<PAGE> 152
retention limits and the spinal implant business having a $100,000 per
occurrence and $500,000 aggregate retention limits. The new policy covers
aggregate insured claims made during each policy year up to $5,000,000. For
spinal implant claims incurred before January 1, 1997, and filed anytime within
five years after such date, Cross' aggregate insured claims limit equals the
outstanding balance as of December 31, 1996. For spinal implant claims incurred
after December 31, 1996, the new policy limits would apply.
Cross and other spinal implant manufacturers have been named as defendants
in various class action product liability lawsuits alleging that the plaintiffs
were injured by spinal implants supplied by Cross and others. All such lawsuits
were consolidated for pretrial proceedings in the Federal District Court for the
Eastern District of Pennsylvania, and on February 22, 1995, the plaintiffs were
denied class certification. In response to the denial of class certification, a
large number of additional individual lawsuits have been filed alleging, in
addition to damages from spinal implants, a conspiracy among manufacturers,
physicians and other spinal implant industry members. Approximately 750 such
lawsuits have been filed in which Cross is a party although none of these
lawsuits involve Cross' products. Cross cannot estimate precisely at this time
the number of such lawsuits that may eventually be filed. The vast majority of
such lawsuits are pending in federal courts and are in preliminary stages.
Discovery proceedings, including the taking of depositions, have commenced in
certain of the lawsuits. Plaintiffs in these cases typically seek relief in the
form of monetary damages, often in unspecified amounts. While the aggregate
monetary damages eventually sought in all of such individual actions is
substantial and exceeds the limits of Cross' product liability insurance
policies, Cross believes that it has affirmative defenses, including, without
limitation, preemption, and that these individual lawsuits are otherwise without
merit. In addition, Cross has been named as a defendant in 16 cases alleging
claims of products liability for defective products manufactured by Cross. An
estimate of the amount of loss cannot be made as Cross does not have sufficient
information on which to base an estimate. All pending cases are being defended
by Cross' insurance carrier, in some cases under a reservation of rights. There
can be no assurance, however, that the $5,000,000 per annum limit of Cross'
coverage will be sufficient to cover the cost of defending all lawsuits or the
payment of any amounts that may be paid in satisfaction of any settlements or
judgments. Further, there can be no assurance that Cross will continue to be
able to obtain sufficient amounts of product liability insurance coverage at
commercially reasonable premiums.
The range of estimated product liability exposures was $300,000 to $575,000
at December 31, 1997. Cross has provided a reserve for these exposures of
$300,000.
In addition to the above, in the ordinary course of business Cross has been
named as a defendant in various other legal proceedings. These actions, when
finally concluded, will not, in the opinion of management, have a material
adverse affect upon the financial position or results of operations of Cross.
However, there can be no assurance that future quarterly or annual operating
results will not be materially adversely affected by the final resolution of
these matters.
Financial instruments that potentially subject Cross to concentration of
credit risk consist principally of trade accounts receivable (domestic and
international). Cross follows certain guidelines in determining the
credit-worthiness of domestic and foreign customers. The credit risk associated
with each customer and each country is reviewed before a credit decision is
made. All international sales are denominated in U.S. dollars.
Cross has royalty agreements with its Medical Advisory Board related to
certain of the spinal implant systems. Cross is obligated to pay members of the
Medical Advisory Board a fixed quarterly amount plus a royalty, subject to
certain limitations of 6.5% (and increasing -1/2% annually up to 8%) of the net
revenues generated from the sales of these spinal implant products.
International sales were $5,100,000, $4,200,000, $1,400,000 in 1997, 1996,
and 1995, respectively. Sales to individual customers constituting more than 10%
of net sales were $1,837,000 and $652,000, in 1996, and 1995, respectively.
Accounts receivable include amounts from two customers of approximately
$1,500,000 at December 31, 1996.
<PAGE> 153
ANNEX I
MERGER AGREEMENT
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 11, 1998
AMONG
INTERPORE INTERNATIONAL,
A CALIFORNIA CORPORATION,
BUCKEYE INTERNATIONAL, INC.,
A DELAWARE CORPORATION
AND
CROSS MEDICAL PRODUCTS, INC.,
A DELAWARE CORPORATION
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TABLE OF CONTENTS
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ARTICLE I. THE MERGER.......................................................................1
Section 1.1. The Merger..............................................................1
Section 1.2. Effective Time of the Merger............................................1
Section 1.3. Closing.................................................................2
Section 1.4. Effect of the Merger....................................................2
ARTICLE II. CONVERSION OF SECURITIES........................................................2
Section 2.1. Conversion of Cross Capital Stock.......................................2
Section 2.2. Exchange of Certificates................................................2
Section 2.3. Dissenting Shares.......................................................4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CROSS........................................4
Section 3.1. Organization of Cross...................................................4
Section 3.2. Cross Capital Structure.................................................5
Section 3.3. Authority; No Conflict; Required Filings and Consents...................5
Section 3.4. SEC Filings; Financial Statements.......................................6
Section 3.5. No Undisclosed Liabilities..............................................7
Section 3.6. Absence of Certain Changes or Events....................................7
Section 3.7. Taxes...................................................................7
Section 3.8. Properties..............................................................8
Section 3.9. Intellectual Property...................................................8
Section 3.10. Regulation.............................................................9
Section 3.11. Agreements, Contracts and Commitments..................................9
Section 3.12. Litigation............................................................10
Section 3.13. Environmental Matters.................................................10
Section 3.14. Employee Benefit Plans................................................11
Section 3.15. Compliance With Laws..................................................12
Section 3.16. Accounting and Tax Matters............................................12
Section 3.17. Registration Statement; Joint Proxy Statement/Prospectus..............14
Section 3.18. Labor Matters.........................................................15
Section 3.19. Insurance.............................................................15
Section 3.20. Opinion of Financial Advisor..........................................15
Section 3.21. No Existing Discussions...............................................15
Section 3.22. Section 203 of the DGCL Not Applicable................................15
Section 3.23. Warn Act..............................................................15
Section 3.24. Transactions with Related Parties.....................................16
Section 3.25. Suppliers and Customers...............................................16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF INTERPORE....................................16
Section 4.1. Organization of Interpore..............................................16
Section 4.2. Interpore Capital Structure............................................17
Section 4.3. Authority; No Conflict; Required Filings and Consents..................17
Section 4.4. SEC Filings; Financial Statements......................................18
Section 4.5. No Undisclosed Liabilities.............................................18
Section 4.6. Absence of Certain Changes or Events...................................18
Section 4.7. Taxes..................................................................19
Section 4.8. Properties.............................................................19
Section 4.9. Intellectual Property..................................................19
Section 4.10. Regulation............................................................20
Section 4.11. Agreements, Contracts and Commitments.................................21
Section 4.12. Litigation............................................................22
</TABLE>
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Section 4.13. Environmental Matters.................................................22
Section 4.14. Employee Benefit Plans................................................22
Section 4.15. Compliance With Laws..................................................23
Section 4.16. Accounting and Tax Matters............................................23
Section 4.17. Registration Statement; Joint Proxy Statement/Prospectus..............25
Section 4.18. Labor Matters.........................................................26
Section 4.19. Insurance.............................................................26
Section 4.20. Opinion of Financial Advisor..........................................26
Section 4.21. No Existing Discussions...............................................26
Section 4.22. Interpore Rights Plan.................................................26
Section 4.23. Section 203 of the DGCL Not Applicable................................26
Section 4.24. Warn Act..............................................................26
Section 4.25. Transactions with Related Parties.....................................27
Section 4.26. Suppliers and Customers...............................................27
ARTICLE V. COVENANTS.......................................................................27
Section 5.1. Conduct of Business....................................................27
Section 5.2. Cooperation; Notice; Cure..............................................29
Section 5.3. No Solicitation........................................................29
Section 5.4. Joint Proxy Statement/Prospectus; Registration Statement...............29
Section 5.5. NASDAQ Quotation and Listing...........................................30
Section 5.6. Access to Information..................................................30
Section 5.7. Stockholders' Meetings.................................................30
Section 5.8. Legal Conditions to Merger.............................................30
Section 5.9. Public Disclosure......................................................31
Section 5.10. Nonrecognition Exchange...............................................31
Section 5.11. Pooling Accounting....................................................31
Section 5.12. Affiliate Agreements..................................................31
Section 5.13. NASDAQ Listing........................................................32
Section 5.14. Cross Stockholder Agreement Legend....................................32
Section 5.15. Interpore Stockholder Agreement Legend................................32
Section 5.16. Stock Plans...........................................................32
Section 5.17. Brokers or Finders....................................................33
Section 5.18. Indemnification.......................................................33
Section 5.19. Stock Option Agreements...............................................33
Section 5.20. No Warn Act Activities................................................33
Section 5.21. Post-Merger Corporate Governance; Employment Arrangements.............34
Section 5.22. Conveyance Taxes......................................................34
Section 5.23. Transfer Taxes........................................................34
Section 5.24. Stockholder Litigation................................................34
Section 5.25. Employee Benefits; Severance..........................................35
Section 5.26. Supplemental Indenture................................................35
Section 5.27. No Tax Offset Payments................................................35
ARTICLE VI. CONDITIONS TO MERGER...........................................................35
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger.............35
Section 6.2. Additional Conditions to Obligations of Cross..........................36
Section 6.3. Additional Conditions to Obligations of Interpore......................36
ARTICLE VII. TERMINATION AND AMENDMENT.....................................................37
Section 7.1. Termination............................................................37
Section 7.2. Effect of Termination..................................................38
Section 7.3. Fees and Expenses......................................................38
Section 7.4. Amendment..............................................................40
Section 7.5. Extension; Waiver......................................................40
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ARTICLE VIII. MISCELLANEOUS................................................................40
Section 8.1. Nonsurvival of Representations, Warranties and Agreements..............40
Section 8.2. Notices................................................................40
Section 8.3. Interpretation.........................................................41
Section 8.4. Counterparts...........................................................41
Section 8.5. Entire Agreement; No Third Party Beneficiaries.........................41
Section 8.6. Governing Law..........................................................41
Section 8.7. Assignment.............................................................41
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EXHIBITS
Exhibit A Stockholder Agreement (Cross)
Exhibit B Stockholder Agreement (Interpore)
Exhibit C Stock Option Agreement (Cross)
Exhibit D Stock Option Agreement (Interpore)
Exhibit E Form of Cross Affiliate Agreement
Exhibit F Form of Interpore Affiliate Agreement
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TABLES OF DEFINED TERMS
<TABLE>
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CROSS REFERENCE
TERMS IN AGREEMENT
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Acquisition Proposal Section 5.3(a)
Affiliate Section 5.12
Affiliate Agreement Section 5.12
Agreement Preamble
Alternative Transaction Section 7.3(e)
Bankruptcy and Equity Exception Section 3.3(a)
CCC Section 4.3(a)
Certificate of Merger Section 1.2
Certificates Section 2.2(b)
Closing Section 1.3
Closing Date Section 1.3
Code Preamble
Confidentiality Agreements Section 5.3(a)
Cross Preamble
Cross Balance Sheet Section 3.4(b)
Cross Claims Section 3.12
Cross Common Stock Preamble
Cross Disclosure Schedule Article III
Cross Employee Plans Section 3.14(a)
Cross Employees Section 5.24(b)
Cross Exchange Ratio Section 2.1(b)
Cross Intellectual Property Section 3.9(a)
Cross Material Adverse Effect Section 3.1
Cross Material Contracts Section 3.11(a)
Cross Preferred Stock Section 3.2(a)
Cross Products Section 3.10(a)
Cross SEC Reports Section 3.4(a)
Cross Stock Option Section 5.15(a)
Cross Stock Option Agreement Preamble
Cross Stock Plans Section 3.2(a)
Cross Stockholder Agreement Preamble
Cross Stockholders' Meeting Section 3.17
Debentures Section 5.26
DGCL Section 1.1
Effective Time Section 1.2
Environmental Law Section 3.13(b)
ERISA Section 3.14(a)
ERISA Affiliate Section 3.14(a)
Exchange Act Section 3.3(c)
Exchange Agent Section 2.2(a)
Exchange Fund Section 2.2(a)
Existing Indenture Section 5.26
FDA Section 3.10(a)
Governmental Entity Section 3.3(c)
Hazardous Substance Section 3.3(c)
Indemnified Parties Section 5.17(a)
Interpore Preamble
Interpore Balance Sheet Section 4.4(b)
Interpore Claims Section 4.12
Interpore Common Stock Preamble
Interpore Disclosure Schedule Article IV
Interpore Employee Plans Section 4.14(a)
Interpore Employees Section 5.24(b)
Interpore Intellectual Property Section 4.9(a)
Interpore Material Adverse Effect Section 4.1
Interpore Material Contracts Section 4.11(c)
Interpore Preferred Stock Section 4.2(a)
Interpore Products Section 4.10(a)
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<TABLE>
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CROSS REFERENCE
TERMS IN AGREEMENT
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Interpore Rights Plan Section 4.2(b)
Interpore SEC Reports Section 4.4(a)
Interpore Stock Option Agreement Preamble
Interpore Stock Plans Section 4.2(a)
Interpore Stockholder Agreement Preamble
Interpore Stockholders' Meeting Section 3.17
IRS Section 3.7(b)
Joint Proxy Statement/Prospectus Section 3.17
Liens Section 3.2(a)
Merger Preamble
Order Section 5.8(b)
Outside Date Section 7.1(b)
Person Section 3.9(b)
Registration Statement Section 3.17
SEC Section 3.3(c)
Securities Act Section 2.2(k)
Stockholder Agreement Preamble
Sub Preamble
Subsidiary Section 3.1
Superior Proposal Section 5.3(a)
Supplemental Indenture Section 5.26
Tax Section 3.7(a)
Third Party Section 5.3(a)
Transfer Taxes Section 5.22
WARN Act Section 3.24
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of February 11,
1998, by and between INTERPORE INTERNATIONAL, a California corporation
("Interpore"), BUCKEYE INTERNATIONAL, INC., a Delaware corporation and a
wholly-owned subsidiary of Interpore ("Sub") and CROSS MEDICAL PRODUCTS, INC., a
Delaware corporation ("Cross").
WHEREAS, the respective Boards of Directors of Interpore, Sub and Cross,
and Interpore, acting as the sole shareholder of Sub, have approved the merger
of Sub with and into Cross (the "Merger") upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and outstanding
share of Common Stock, par value $.01 per share, of Cross ("Cross Common
Stock"), other than Cross Common Stock owned by Interpore, Sub or Cross, will be
converted into the right to receive Common Stock, no par value of Interpore
("Interpore Common Stock");
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to Interpore's willingness to enter into this
Agreement, Interpore and certain affiliate stockholders of Cross have entered
into a Stockholder Agreement dated as of the date of this Agreement and attached
hereto as Exhibit A (the "Cross Stockholder Agreement");
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to Cross's willingness to enter into this
Agreement, Cross and certain affiliate stockholders of Interpore have entered
into a Stockholder Agreement dated as of the date of this Agreement and attached
hereto as Exhibit B (the "Interpore Stockholder Agreement" and collectively with
the Cross Stockholder Agreement, the "Stockholder Agreements"));
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to each of Cross's and Interpore's willingness
to enter into this Agreement, Cross and Interpore have entered into (i) a Stock
Option Agreement dated as of the date of this Agreement and attached hereto as
Exhibit C (the "Cross Stock Option Agreement"), pursuant to which Interpore
granted Cross an option to purchase shares of common stock of Interpore under
certain circumstances, and (ii) a Stock Option Agreement dated as of the date of
this Agreement and attached hereto as Exhibit D (the "Interpore Stock Option
Agreement" and, together with the Cross Stock Option Agreement, the "Stock
Option Agreements"), pursuant to which Cross granted Interpore an option to
purchase shares of common stock of Cross under certain circumstances;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization described in Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the transactions
contemplated by this Agreement shall be accounted for as a pooling of interests;
and
WHEREAS, the Boards of Directors of Cross and Interpore have approved
this Agreement, the Stockholder Agreements and the Stock Option Agreements, as
applicable;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I.
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions
of this Agreement, in accordance with the Delaware General Corporation Law (the
"DGCL"), at the Effective Time (as defined in Section 1.2 hereof), Sub shall
merge with and into Cross. Cross shall be the surviving corporation in the
Merger, and shall continue its corporate existence under the laws of the State
of Delaware. Upon consummation of the Merger, the separate corporate existence
of Sub shall terminate. At the election of Interpore, any newly-created direct
or indirect wholly-owned Subsidiary (as defined in Section 3.1) of Interpore may
be substituted for Sub as a constituent corporation in the Merger.
Section 1.2. Effective Time of the Merger. Subject to the provisions of
this Agreement, a certificate of merger with respect to the Merger in such form
as is required by the relevant provisions of the DGCL (the
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"Certificate of Merger") shall be duly prepared, executed and acknowledged and
thereafter delivered to the Secretary of State of the State of Delaware for
filing, as provided in the DGCL, as early as practicable on the Closing Date (as
defined in Section 1.3). The Merger shall become effective at such time as is
specified in the Certificate of Merger (the time at which the Merger has become
fully effective being hereinafter referred to as the "Effective Time").
Section 1.3. Closing. The closing of the Merger (the "Closing") will
take place at 8:00 a.m., local time, at the offices of Latham & Watkins, 650
Town Center Drive, 20th Floor, Costa Mesa, California 92626, on a date to be
specified by Interpore and Cross, which shall be no later than the second
business day after satisfaction or, if permissible, waiver of the conditions set
forth in Article VI (the "Closing Date"), unless another date is agreed to in
writing by Interpore and Cross.
Section 1.3. Effect of the Merger. As a result of the Merger, the
separate corporate existence of Sub shall cease and Cross shall continue as the
surviving corporation. Upon becoming effective, the Merger shall have the
effects set forth in the DGCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all properties, rights, privileges,
powers and franchises of Sub shall vest in Cross, and all debts, liabilities and
duties of Sub shall become the debts, liabilities and duties of Cross.
ARTICLE II.
CONVERSION OF SECURITIES
Section 2.1. Conversion of Cross Capital Stock. At the Effective Time,
by virtue of the Merger and without any action on the part of any of the parties
hereto or the holders of any shares of Cross Common Stock:
(a) Cancellation of Treasury Stock and Interpore-Owned Stock. All
shares of Cross Common Stock that are owned by Cross as treasury stock and any
shares of Cross Common Stock owned by Interpore, Sub or any other wholly-owned
Subsidiary (as defined in Section 3.1) of Interpore shall be canceled and
retired and shall cease to exist and no stock of Interpore or other
consideration shall be delivered in exchange therefor.
(a) Exchange Ratio for Cross Common Stock. Subject to Section
2.2(e), each issued and outstanding share of Cross Common Stock (other than
shares to be canceled in accordance with Section 2.1(a) or Dissenting Shares (as
defined in Section 2.3) in respect of which appraisal rights are properly
exercised and perfected under Section 262 of the DGCL) shall be converted into
the right to receive 1.275 shares (the "Cross Exchange Ratio") of Interpore
Common Stock. All such shares of Cross Common Stock, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
shall cease to have any ownership or other rights with respect thereto, except
the right to receive the shares of Interpore Common Stock and an amount equal to
certain dividends and other distributions described in Section 2.2(c), without
interest, upon the surrender of such certificate in accordance with Section 2.2.
Section 2.2. Exchange of Certificates. The procedures for exchanging
certificates which prior to the Effective Time represented shares of Cross
Common Stock for certificates representing Interpore Common Stock pursuant to
the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Interpore shall
deposit with a bank or trust company or other entity mutually agreeable to
Interpore and Cross (the "Exchange Agent"), for the benefit of the holders of
shares of Cross Common Stock outstanding immediately prior to the Effective
Time, for exchange in accordance with this Section 2.2, through the Exchange
Agent, certificates representing the shares of Interpore Common Stock and an
estimated amount of cash in lieu of fractional shares (such shares of Interpore
Common Stock and cash in lieu of fractional shares, together with any dividends
or distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"), issuable pursuant to Section 2.1 in exchange for shares of
Cross Common Stock outstanding immediately prior to the Effective Time.
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Cross Common Stock (collectively, the
"Certificates") whose shares were converted pursuant to Section 2.1 into the
right to receive shares of Interpore Common Stock (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such
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other provisions as Interpore may reasonably specify) and (ii) instructions for
effecting the surrender of the Certificates in exchange for certificates
representing shares of Interpore Common Stock (plus cash in lieu of fractional
shares, if any, of Interpore Common Stock as provided below). Upon surrender of
a Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Interpore, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of whole
shares of Interpore Common Stock, the amount of any cash payable in lieu of
fractional shares of Interpore Common Stock, if any, and an amount equal to
certain dividends and other distributions which such holder has the right to
receive pursuant to the provisions of this Article II, and the Certificate so
surrendered shall immediately be canceled. In the event of a transfer of
ownership of Cross Common Stock prior to the Effective Time which is not
registered in the transfer records of Cross, a certificate representing the
number of shares of Interpore Common Stock issuable and any amounts payable in
accordance with this Agreement may be issued and paid to a transferee if the
Certificate representing such Cross Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid.
(c) Distributions With Respect to Unexchanged Shares. No amount
in respect of dividends or other distributions declared or made after the
Effective Time with respect TO Interpore Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Interpore Common Stock which the holder thereof is
entitled to receive in respect thereof and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to subsection (e) below until
the holder of record of such Certificate shall surrender such Certificate to
Interpore in accordance herewith. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Interpore Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Interpore Common Stock to which such holder is entitled pursuant to subsection
(e) below and an amount equal to the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to
whole shares of Interpore Common Stock, and (ii) at the appropriate payment
date, an amount equal to the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to whole shares of Interpore Common
Stock, in each case without interest.
(d) No Further Ownership Rights in Cross Common Stock. All shares
of Interpore Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms hereof (including any cash paid pursuant to
subsection (c) or (e) of this Section 2.2) shall be deemed to have been issued
in full satisfaction of all rights pertaining to the shares of Cross Common
Stock theretofore represented by such Certificates, subject, however, to
Interpore's obligation to pay any dividends or make any other distributions with
a record date prior to the Effective Time which may have been declared or made
by Cross on such shares of Cross Common Stock in accordance with the terms of
this Agreement (to the extent permitted under Section 5.1) prior to the date
hereof and which remain unpaid at the Effective Time, and from and after the
Effective Time there shall be no further registration of transfers on the stock
transfer books of Cross of the shares of Cross Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to Interpore or Cross for any reason, such
Certificates shall be canceled and exchanged as provided in this Section 2.2.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Interpore Common Stock shall be issued upon the surrender
for exchange of Certificates representing shares of Cross Common Stock, and such
fractional share interests will not entitle the owner thereof to vote or to any
other rights of a stockholder of Parent. Notwithstanding any other provision of
this Agreement, each holder of shares of Cross Common Stock outstanding
immediately prior to the Effective Time exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of Interpore
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Interpore Common Stock multiplied by
the average closing sale price per share of Interpore Common Stock (as reported
on the NASDAQ National Market) for the ten (10) consecutive trading days
immediately prior to the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the former stockholders of Cross for 180
days after the Effective Time shall be delivered to Interpore upon demand, and
any former stockholder of Cross who has not previously complied with this
Section 2.2 shall thereafter look only to Interpore for payment of such former
stockholder's claim for Interpore Common Stock, any cash in lieu of fractional
shares of Interpore Common Stock and any amounts in respect of dividends or
distributions with respect to Interpore Common Stock.
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(g) No Liability. None of Cross, Interpore, or the Exchange Agent
shall be liable to any holder of shares of Cross Common Stock, as the case may
be, for any shares of Interpore Common Stock (or cash in lieu of fractional
shares of Interpore Common Stock or any dividends or distributions with respect
thereto) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest
any cash included in the Exchange Fund, as directed by Interpore, on a daily
basis. Any interest and other income resulting from such investments shall be
paid to Interpore.
(i) Withholding Rights. Interpore shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of Certificates which prior to the Effective Time represented shares
of Cross Common Stock such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by
Interpore, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Cross Common Stock
in respect of which such deduction and withholding was made.
(j) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Interpore, the posting by such person of a bond in such reasonable amount as
Interpore may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the shares of Interpore Common Stock
and any cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Interpore Common Stock deliverable in respect thereof
pursuant to this Agreement.
(k) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate (as defined in Section
5.12) of Cross or Interpore shall not be exchanged until (i) Interpore has
received an Affiliate Agreement (as defined in Section 5.12) from such Affiliate
or (ii) until the later of such date as such shares of Interpore Common Stock
are freely tradable without jeopardizing the pooling of interests accounting
treatment of the Merger and without violating the Securities Act of 1933, as
amended (the "Securities Act").
Section 2.3. Dissenting Shares. Subject to Section 6.3(e), Shares of
Cross Common Stock that are issued and outstanding immediately prior to the
Effective Time and which are held by stockholders who have properly exercised
appraisal rights with respect thereto under Section 262 of the DGCL (the
"Dissenting Shares") shall not be converted into or represent the right to
receive shares of Interpore Common Stock as provided in Section 2.1, but the
holders of Dissenting Shares shall be entitled to receive such payment of the
appraised value of such shares of Cross Common Stock held by them from Interpore
(or the Exchange Agent, if applicable) as shall be determined pursuant to
Section 262 of the DGCL; provided, however, that if any such holder shall have
failed to perfect or shall withdraw or lose the right to appraisal and payment
under the DGCL, each such holder's shares of Cross Common Stock shall thereupon
be deemed to have been converted as of the Effective Time into the right to
receive the shares of Interpore Common Stock as provided in Section 2.1, without
any interest thereon and less any required withholding of taxes, upon surrender
of the Certificate(s) representing such shares of Cross Common Stock, in the
manner provided in Section 2.2 and such shares of Cross Common Stock shall no
longer be Dissenting Shares.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF CROSS
Cross represents and warrants to Interpore that the statements contained
in this Article III are true and correct, except as set forth herein and in the
disclosure schedule delivered by Cross to Interpore on or before the date of
this Agreement (the "Cross Disclosure Schedule"). The Cross Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article III and the disclosure in any paragraph
shall qualify other paragraphs in this Article III only to the extent that it is
reasonably apparent from a reading of such disclosure that it also qualifies or
applies to such other paragraphs. Whenever a statement in this Article III is
qualified by "to the best knowledge of Cross" or a similar phrase, it is
intended to indicate that the executive officers of Cross do not have current
actual knowledge of the inaccuracy of such statement.
Section 3.1. Organization of Cross. Each of Cross and its Subsidiaries
(as defined below) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, has all requisite power
to own, lease and operate its property and to carry on its business as now being
conducted and as
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proposed to be conducted, and is duly qualified to do business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
business, properties, financial condition or results of operations of Cross and
its Subsidiaries, taken as a whole (an "Cross Material Adverse Effect"). A true
and correct copy of the Certificate of Incorporation and Bylaws of Cross and
each Subsidiary of Cross has been delivered to Interpore. Except as set forth in
Cross SEC Reports (as defined in Section 3.4) filed prior to the date hereof,
neither Cross nor any of its Subsidiaries directly or indirectly owns (other
than ownership interests in Cross or in one or more of its Subsidiaries) any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any corporation, partnership, joint venture or other
business association or entity, excluding (i) securities in any publicly traded
company held for investment by Cross and comprising less than five percent (5%)
of the outstanding stock of such company and (ii) any investment or series of
related investments with a book value of less than $50,000. As used in this
Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner
(excluding partnerships the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the economic
interests in such partnership) or (ii) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries.
Section 3.2. Cross Capital Structure.
(a) The authorized capital stock of Cross consists of 40,000,000
shares of Common Stock, $.01 par value, and 10,000,000 shares of Preferred
Stock, $.01 par value ("Cross Preferred Stock"). As of the date hereof, (i)
5,259,314 shares of Cross Common Stock were issued and outstanding, all of which
are validly issued, fully paid and nonassessable and (ii) no shares of Cross
Common Stock were held in the treasury of Cross or by Subsidiaries of Cross. The
Cross Disclosure Schedule shows the number of shares of Cross Common Stock
reserved for future issuance pursuant to stock options granted and outstanding
as of the date hereof and the plans under which such options were granted
(collectively, the "Cross Stock Plans"). As of the date of this Agreement, no
shares of Cross Preferred Stock are issued or outstanding and no dividends or
other distributions have been declared or made by Cross in respect of any of its
capital stock. There are no obligations, contingent or otherwise, of Cross or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Cross Common Stock or the capital stock of any Subsidiary or to provide funds to
or make any material investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
bank obligations or indebtedness for borrowed money of Subsidiaries entered into
in the ordinary course of business and other than any obligation the failure of
which to perform or satisfy would not have a Cross Material Adverse Effect. All
of the outstanding shares of capital stock or other ownership interests of each
of Cross's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares in
the case of foreign Subsidiaries) are owned by Cross or another Subsidiary of
Cross free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Cross's voting rights, charges or other encumbrances
of any nature (collectively, "Liens").
(b) Except as set forth in this Section 3.2 or as reserved for
future grants of options under the Cross Stock Plans or the Interpore Stock
Option Agreement, (i) there are no shares of capital stock of any class of
Cross, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding; (ii) there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which Cross or any of its Subsidiaries is a party or by
which it is bound obligating Cross or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other ownership interests of Cross or any of its Subsidiaries or
obligating Cross or any of its Subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement; and (iii) to the best knowledge of Cross, there are no
voting trusts, proxies or other voting agreements or understandings with respect
to the shares of capital stock of Cross. All shares of Cross Common Stock
subject to issuance as specified in this Section 3.2 are duly authorized and,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, shall be validly issued, fully paid and
nonassessable.
Section 3.3. Authority; No Conflict; Required Filings and Consents.
(a) Cross has all requisite corporate power and authority to
enter into this Agreement, the Interpore Stockholder Agreement and the Stock
Option Agreements and to consummate the transactions contemplated by this
Agreement, the Interpore Stockholder Agreement and the Stock Option Agreements.
The execution and delivery of this Agreement, the Interpore Stockholder
Agreement and the Stock Option Agreements and the consummation of the
transactions contemplated by this Agreement, the Interpore Stockholder Agreement
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and the Stock Option Agreements by Cross have been duly authorized by all
necessary corporate action on the part of Cross, subject only to the approval
and adoption of this Agreement and the Merger by Cross's stockholders under the
DGCL. This Agreement, the Interpore Stockholder Agreement and the Stock Option
Agreements have been duly executed and delivered by Cross and constitute the
valid and binding obligations of Cross, enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(b) The execution and delivery of this Agreement, the Interpore
Stockholder Agreement and the Stock Option Agreements by Cross does not, and the
consummation of the transactions contemplated by this Agreement, the Interpore
Stockholder Agreement and the Stock Option Agreements will not, (i) conflict
with, or result in any violation or breach of, any provision of the Certificate
of Incorporation or Bylaws of Cross or any of its Subsidiaries, (ii) result in
any violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Cross or any of its Subsidiaries is a party or
by which any of them or any of their properties or assets may be bound or (iii)
conflict with or violate any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Cross
or any of its Subsidiaries or any of its or their properties or assets, except
in the case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which (x) are not, individually or
in the aggregate, reasonably likely to have a Cross Material Adverse Effect or
(y) would not substantially impair or delay the consummation of the Merger.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Cross or any of its Subsidiaries in
connection with the execution and delivery of this Agreement, Stockholder
Agreements and the Stock Option Agreements or the consummation of the
transactions contemplated hereby or thereby, except for (i) the filing of a
Certificate of Merger with respect to the Merger with the Delaware Secretary of
State, (ii) the filing of the Joint Proxy Statement/Prospectus (as defined in
Section 3.17 below) with the Securities and Exchange Commission (the "SEC") in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Securities Act, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country and (iv)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not (x) be reasonably likely to have a Cross
Material Adverse Effect or (y) substantially impair or delay the consummation of
the Merger.
(d) The affirmative vote of the holders of a majority of the
outstanding shares of Cross Common Stock at the Cross Stockholders Meeting (as
defined in Section 3.17) or any adjournment or postponement thereof to approve
this Agreement is the only vote of the holders of any class or series of Cross's
capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
Section 3.4. SEC Filings; Financial Statements.
(a) Cross has filed and made available to Interpore all forms,
reports and documents required to be filed by Cross with the SEC since January
1, 1996 (collectively, the "Cross SEC Reports"). The Cross SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Cross SEC Reports or necessary in order to make
the statements in such Cross SEC Reports, in the light of the circumstances
under which they were made, not misleading. None of Cross's Subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any related notes) of Cross contained in the Cross SEC Reports
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q under the Exchange Act) and fairly presented the consolidated
financial position of Cross and its Subsidiaries as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The audited balance sheet of Cross as of December 31,
1997 is referred to herein as the "Cross Balance Sheet."
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Section 3.5. No Undisclosed Liabilities. Except as disclosed in the
Cross SEC Reports filed prior to the date hereof, and as of the Closing Date
except as set forth in the audited financial statements of Cross as of December
31, 1997, and except for normal or recurring liabilities incurred since December
31, 1997 in the ordinary course of business consistent with past practices,
Cross and its Subsidiaries do not have any liabilities, either accrued,
contingent or otherwise (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting principles), and
whether due or to become due, which individually or in the aggregate are
reasonably likely to have a Cross Material Adverse Effect.
Section 3.6. Absence of Certain Changes or Events. Except as disclosed
in the Cross SEC Reports filed prior to the date of this Agreement, since the
date of the Cross Balance Sheet, Cross and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any event, development,
state of affairs or condition, or series or combination of events, developments,
states of affairs or conditions, which, individually or in the aggregate, has
had or is reasonably likely to have a Cross Material Adverse Effect (other than
events, developments, states of affairs or conditions that are the effect or
result of actions taken by Interpore or economic factors affecting the economy
as a whole or the industry in which Cross competes); (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to Cross
or any of its Subsidiaries which is reasonably likely to have a Cross Material
Adverse Effect; (iii) any material change by Cross in its accounting methods,
principles or practices to which Interpore has not previously consented in
writing; (iv) any revaluation by Cross of any of its assets which is reasonably
likely to have a Cross Material Adverse Effect; or (v) any other action or event
that would have required the consent of Interpore pursuant to Section 5.1 of
this Agreement had such action or event occurred after the date of this
Agreement other than such actions or events that, individually or in the
aggregate, have not had or are not reasonably likely to have a Cross Material
Adverse Effect.
Section 3.7. Taxes.
(a) For the purposes of this Agreement, a "Tax" or, collectively,
"Taxes," means any and all federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, gains, franchise,
withholding, payroll, recapture, employment, excise, unemployment insurance,
social security, business license, occupation, business organization, stamp,
environmental and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts. For purposes of this Agreement,
"Taxes" also includes any obligations under any agreements or arrangements with
any other person with respect to Taxes of such other person (including pursuant
to Treas. Reg. Section 1.1502-6 or comparable provisions of state, local or
foreign tax law) and including any liability for Taxes of any predecessor
entity.
(b) Cross and each of its Subsidiaries have (i) filed all
federal, state, local and foreign Tax returns and reports required to be filed
by them prior to the date of this Agreement (taking into account all applicable
extensions), (ii) paid or accrued all Taxes due and payable, and (iii) paid or
accrued all Taxes for which a notice of assessment or collection has been
received (other than amounts being contested in good faith by appropriate
proceedings), except in the case of clauses (i), (ii) or (iii) for any such
filings, payments or accruals that are not reasonably likely, individually or in
the aggregate, to have a Cross Material Adverse Effect. Neither the Internal
Revenue Service (the "IRS") nor any other taxing authority has asserted any
claim for Taxes, or to the actual knowledge of the executive officers of Cross,
is threatening to assert any claims for Taxes, which claims, individually or in
the aggregate, are reasonably likely to have a Cross Material Adverse Effect.
Cross and each of its Subsidiaries have withheld or collected and paid over to
the appropriate governmental authorities (or are properly holding for such
payment) all Taxes required by law to be withheld or collected, except for
amounts that are not reasonably likely, individually or in the aggregate, to
have a Cross Material Adverse Effect. Neither Cross nor any of its Subsidiaries
has made an election under Section 341(f) of the Code, except for any such
election that shall not have a Cross Material Adverse Effect. There are no liens
for Taxes upon the assets of Cross or any of its Subsidiaries (other than liens
for Taxes that are not yet due or delinquent or that are being contested in good
faith by appropriate proceedings), except for liens that are not reasonably
likely, individually or in the aggregate, to have a Cross Material Adverse
Effect.
(c) Neither Cross nor any of its Subsidiaries is or has been a
member of an affiliated group of corporations filing a consolidated federal
income tax return (or a group of corporations filing a consolidated, combined or
unitary income tax return under comparable provisions of state, local or foreign
tax law) for any taxable period beginning on or after the taxable period ending
December 31, 1993, other than a group the common parent of which is or was Cross
or any Subsidiary of Cross.
(d) Neither Cross nor any of its Subsidiaries has any obligation
under any agreement or arrangement with any other person with respect to Taxes
of such other person (including pursuant to Treas. Reg.
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Section 1.1502-6 or comparable provisions of state, local or foreign tax law)
and including any liability for Taxes of any predecessor entity, except for
obligations that are not reasonably likely, individually or in the aggregate, to
have a Cross Material Adverse Effect.
Section 3.8. Properties.
(a) Cross and each of its Subsidiaries has good and valid title
to, or valid leasehold interests in, all its material properties and assets
except for such as are no longer used in the conduct of the businesses of Cross
and its Subsidiaries or as have been disposed of in the ordinary course of
business and except for defects in title, easements, restrictive covenants and
similar encumbrances that individually or in the aggregate would not have a
Cross Material Adverse Effect. All such material assets and properties, other
than assets and properties in which Cross or any of its Subsidiaries has a
leasehold interest, are free and clear of all Liens and except for Liens that
individually or in the aggregate would not have a Cross Material Adverse Effect.
(b) Cross and each of its Subsidiaries has complied in all
material respects with the terms of all material leases to which it is a party
and under which it is in occupancy, and all such leases are in full force and
effect, except for such noncompliance or failure to be in full force and effect,
except for such noncompliance or failure to be in full force and effect as would
not individually or in the aggregate have a Cross Material Adverse Effect. Cross
and each of its Subsidiaries enjoys peaceful and undisturbed possession under
all such material leases, except for failures to do so that would not
individually or in the aggregate have a Cross Material Adverse Effect.
Section 3.9. Intellectual Property.
(a) Cross and its Subsidiaries own or possess adequate rights to
use all intellectual and similar property of every kind and nature relating to
or used or necessary in the operation of the business of Cross and its
Subsidiaries, including, without limitation, (i) all patents and trademarks
associated with the business of Cross and its Subsidiaries (including all
Governmental Entity trademarks, service marks, logos and designs, all
registrations and recordings thereof, and all applications in the United States
or any other Governmental Entity, all goodwill symbolized thereby or associated
therewith and all extensions or renewals thereof, all of which are set forth on
Section 3.9 of the Cross Disclosure Schedule), (ii) copyrights associated solely
with the business of Cross and its Subsidiaries, including all copyrights,
United States and foreign copyright registrations, and applications to register
copyrights which are set forth on Section 3.9 of the Cross Disclosure Schedule,
(iii) inventions, formulae, processes, designs, know-how or other data or
information, (iv) confidential or proprietary technical and business
information, processes and trade secrets, (v) computer software, (vi) technical
manuals and documentation made or used in connection with any of the foregoing,
and (vii) licenses or rights with respect to any of the foregoing or property of
like nature (collectively, "Cross Intellectual Property").
(b) (i) Section 3.9 of the Cross Disclosure Schedule sets forth a
complete and accurate list of all registered copyrights, patents and trademarks
owned by or under obligation of assignment to Cross or any of its Subsidiaries,
currently used in the conduct of the business of Cross or its Subsidiaries, and
all applications therefor;
(ii) Section 3.9 of the Cross Disclosure Schedule sets
forth a complete and accurate list of the owners of the Cross Intellectual
Property. Each owner listed in Section 3.9 of the Cross Disclosure Schedule is
listed in the records of the appropriate Governmental Entity as the sole owner
of record;
(iii) Section 3.9 of the Cross Disclosure Schedule sets
forth a complete and accurate list of all agreements between Cross, on the one
hand, and any corporation, individual, limited liability company, joint stock
company, joint venture, partnership, unincorporated association, Governmental
Entity, trust or other entity (any of the foregoing, a "Person"), on the other
hand, granting any right to use or practice any rights with respect to any Cross
Intellectual Property;
(iv) there is no encumbrance on the right of Cross and its
Subsidiaries to transfer any of the Cross Intellectual Property, as herein
contemplated;
(v) no trade secret, formula, process, invention, design,
know-how or any other information currently used in the conduct of the business
of Cross and its Subsidiaries has been disclosed or authorized to be disclosed
to any Person, except in the ordinary course of business or pursuant to an
obligation of confidentiality binding upon said Person;
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(vi) there are no pending proceedings by or before any
Governmental Entity, including oppositions, interferences, proceedings or suits,
relating to such Cross Intellectual Property, and no such proceedings are
threatened;
(vii) the conduct of the business of Cross and its
Subsidiaries and the exercise of rights relating to the patents which are part
of the Cross Intellectual Property does not infringe upon or otherwise violate
any rights of any Person with respect to the Cross Intellectual Property;
(viii) to Cross's knowledge, no Person is infringing upon
or otherwise violating any patents which are part of the Cross Intellectual
Property;
(ix) Neither Cross nor any of its Subsidiaries has
received notice of any claims, obligations or liabilities and there are no
pending claims, obligations or liabilities, of an Persons relating to the scope,
ownership or use of any of the Cross Intellectual Property; and
(x) each copyright registration, patent and registered
trademark and application therefor listed in Section 3.9 of the Cross Disclosure
Schedule is in proper form, has not been disclaimed and has been duly
maintained, including the submission of all necessary filings in accordance with
the legal and administrative requirements of the appropriate jurisdictions.
Section 3.10. Regulation.
(a) Except as is not reasonably likely to have a Cross Material
Adverse Effect, since March 1, 1993, there have been no written notices,
citations or decisions by any governmental or regulatory body that any product
produced, manufactured, marketed or distributed at any time by Cross or any of
its Subsidiaries (the "Cross Products") is defective or fails to meet any
applicable standards promulgated by any such governmental or regulatory body.
Cross and each of its Subsidiaries has complied in all material respects with
the laws, regulations, policies, procedures and specifications with respect to
the design, manufacture, labeling, testing and inspection of Cross Products and
the operation of manufacturing facilities promulgated by the Food and Drug
Administration (the "FDA"), except where the failure so to comply is not likely
to have a Cross Material Adverse Effect. Except as described in the Cross SEC
Reports, since March 1, 1993, there have been no recalls, field notifications or
seizures ordered or, to Cross's knowledge, threatened by any such governmental
or regulatory body with respect to any of the Cross Products. Cross has not
received, and does not reasonably believe that any facts or circumstances exist
that are reasonably likely to result in, any warning letter, or Section 305
notices from the FDA. Section 3.10(a) of the Cross Disclosure Schedule sets
forth summary information concerning all 510(k) applications, Premarket
Approvals and Investigation Device Exemptions obtained by Cross or any of its
Subsidiaries from the FDA or required in connection with the manufacturing,
marketing and sale of any Cross Product, including title, date issued, summary
and type of FDA action.
(b) Cross has obtained, in all countries where Cross or any of
its Subsidiaries is marketing or has marketed the Cross Products, all applicable
licenses, registrations, approvals, clearances and authorizations required by
local, state or federal agencies (including the FDA) in such countries
regulating the safety, effectiveness and market clearance of the Products that
are currently marketed by Cross or any of its Subsidiaries (collectively, "Cross
Licenses"), except for any such failures that are not reasonably likely,
individually or in the aggregate, to have a Cross Material Adverse Effect.
Section 3.10(b) of the Cross Disclosure Schedule (i) contains a complete and
accurate list of all Cross Licenses and (ii) identifies all material information
relating to regulation of the Cross Products, including licenses, registrations,
approvals, permits, device listings, inspections, Cross's and its Subsidiaries'
recalls and product actions, audits and Cross's and its Subsidiaries' ongoing
clinical studies. Other than as set forth on Section 3.10(b) of the Cross
Disclosure Schedule, there are no Cross Licenses or material information of the
type described in clause (ii) of the immediately preceding sentence.
(c) With respect to Cross Products sold during the last five
years, neither Cross nor any Subsidiary has marketed any of its products for
uses other than uses approved by the FDA.
Section 3.11. Agreements, Contracts and Commitments.
(a) Subsections (i) through (vii) of Section 3.11(a) of the Cross
Disclosure Schedule contain a list of the following types of contracts and
agreements to which Cross or any Subsidiary is a party (such contracts,
agreements and arrangements as are required to be set forth in Section 3.11(a)
of the Cross Disclosure Schedule being referred to herein collectively as the
"Cross Material Contracts"):
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(i) all distributor, manufacturer's representative,
broker, franchise, agency and dealer contracts and agreements to which Cross or
any Subsidiary is a party;
(ii) all contracts with physicians and any scientific
advisory board members;
(iii) all contracts with independent contractors or
consultants (or similar arrangements) to which Cross or any Subsidiary is a
party and which: (A) are reasonably likely to involve consideration of more than
$150,000 in the aggregate during the calendar year ended December 31, 1998, or
(B) are reasonably likely to involve consideration of more than $150,000 in the
aggregate over the remaining term of the contract;
(iv) all contracts and agreements (excluding routine
checking account overdraft agreements involving petty cash amounts) under which
Cross or any Subsidiary has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness or under which Cross or any
Subsidiary has imposed (or may impose) a lien on any of its assets, whether
tangible or intangible, to secure indebtedness;
(v) all contracts and agreements that limit the ability of
Cross or any Subsidiary or, after the Effective Time, Interpore or any of its
affiliates, to compete in any line of business or with any person or in any
geographic area or during any period of time, or to solicit any customer or
client;
(vi) all contracts and agreements between or among Cross
or any Subsidiary, on the one hand, and any affiliate of Cross (other than a
wholly owned Subsidiary), on the other hand; and
(vii) all other contracts or agreements (A) which are
material to Cross and its Subsidiaries or the conduct of their respective
businesses or (B) the absence of which would have a Cross Material Adverse
Effect or (C) which are believed by Cross to be of unique value to Cross even
though not material to the business of Cross.
(b) Except as would not, individually or in the aggregate, have a
Cross Material Adverse Effect, each contract referred to in paragraphs (ii) and
(vii) above and each other material contract or agreement of Cross or any
Subsidiary which would have been required to be disclosed in Sections
3.11(a)(ii) and (vii) of the Cross Disclosure Schedule had such contract or
agreement been entered into prior to the date of this Agreement, is a legal,
valid and binding agreement, and none of the Cross Material Contracts is in
default by its terms or had been canceled by the other party; Cross and its
Subsidiaries are not in receipt of any claim of default under any such
agreement; and none of Cross or any of its Subsidiaries anticipates any
termination or change to, or receipt of a proposal with respect to, any such
agreement as a result of the Merger or otherwise. Cross has furnished Interpore
with true and complete copies of all Cross Material Contracts and any and all
amendments thereto.
Section 3.12. Litigation.
(a) Section 3.12(a) of the Cross Disclosure Schedule sets forth a
complete and accurate list, of all claims, actions, litigations, proceedings,
product liability claims and investigations pending or, to Cross's knowledge,
threatened against Cross or any of its Subsidiaries, or any property or asset of
Cross or any of its Subsidiaries, before any Governmental Authority or
arbitrator (collectively, "Cross Claims"). Each Cross Claim is cross-referenced
in Section 3.12 of the Cross Disclosure Schedule by the insurer or insurers from
which Cross or any Subsidiary has claimed coverage for such Cross Claim. There
is no Cross Claim, which, individually or when aggregated with other Cross
Claims which are reasonably likely to result from facts and circumstances that
have given rise to such a Cross Claim, is reasonably likely to have a Cross
Material Adverse Effect. As of the date hereof, neither Cross nor any of its
Subsidiaries nor any property or asset of Cross or any Subsidiary is subject to
any order, writ, judgment, injunction, decree, determination or award having,
individually or in the aggregate, a Cross Material Adverse Effect.
(b) As of the date hereof, to Cross's knowledge, neither Cross
nor any of its Subsidiaries has received notice from any source that Cross or
any of its Subsidiaries may be liable with respect to product liability or
worker's compensation claims, except for such claims that are not reasonably
likely to have, individually or in the aggregate, a Cross Material Adverse
Effect.
Section 3.13. Environmental Matters.
(a) To the knowledge of Cross and except as disclosed in the
Cross SEC Reports filed prior to the date hereof and except for such matters
that, individually or in the aggregate, are not reasonably likely to
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have a Cross Material Adverse Effect: (i) Cross and its Subsidiaries have
complied with all applicable Environmental Laws (as defined in Section 3.13(b));
(ii) the properties currently owned, leased or operated by Cross and its
Subsidiaries (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances (as defined in
Section 3.13(c)); (iii) the properties formerly owned, leased or operated by
Cross or any of its Subsidiaries were not contaminated with Hazardous Substances
during the period of ownership or operation by Cross or any of its Subsidiaries;
(iv) neither Cross nor its Subsidiaries are subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
neither Cross nor any of its Subsidiaries has been associated with any release
or threat of release of any Hazardous Substance; (vi) neither Cross nor any of
its Subsidiaries has received any notice, demand, letter, claim or request for
information alleging that Cross or any of its Subsidiaries may be in violation
of or liable under any Environmental Law; (vii) neither Cross nor any of its
Subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or is subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (viii) there are no
circumstances or conditions involving Cross or any of its Subsidiaries that
could reasonably be expected to result in any claims, liability, investigations,
costs or restrictions on the ownership, use or transfer of any property of Cross
or any of its Subsidiaries pursuant to any Environmental Law.
(b) As used in this Agreement, the term "Environmental Law" means
any federal, state, local or foreign law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to: (A) the
protection, investigation or restoration of the environment, health and safety,
or natural resources, (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
(c) As used in this Agreement, the term "Hazardous Substance"
means any substance that is: (A) listed, classified or regulated pursuant to any
Environmental Law; (B) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (C) any other substance which is the subject
of regulatory action by any Governmental Entity pursuant to any Environmental
Law.
Section 3.14. Employee Benefit Plans.
(a) For purposes of this Agreement, the "Cross Employee Plans"
shall mean all "employee benefit plans" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and all
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar employee benefit plans, and
all unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Cross or any trade or business
(whether or not incorporated) which is under common control with Cross within
the meaning of Section 414 of the Code (an "ERISA Affiliate"), or any Subsidiary
of Cross (together, the "Cross Employee Plans"). Cross has listed in Section
3.14 of the Cross Disclosure Schedule all Cross Employee Plans.
(b) With respect to each Cross Employee Plan, Cross has made
available to Interpore, a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the IRS, (ii) such Cross Employee Plan and all
amendments thereto, (iii) each trust agreement and group annuity contract, if
any, and all amendments thereto relating to such Cross Employee Plan and (iv)
the most recent actuarial report or valuation relating to a Cross Employee Plan
subject to Title IV of ERISA.
(c) With respect to the Cross Employee Plans, individually and in
the aggregate, no event has occurred, and to the knowledge of Cross, there
exists no condition or set of circumstances in connection with which Cross could
be subject to any liability that is reasonably likely to have a Cross Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Cross Employee Plans, individually and in
the aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with generally accepted accounting principles, on the
financial statements of Cross, except for obligations which, individually or in
the aggregate, are not reasonably likely to have a Cross Material Adverse
Effect.
(e) Except as disclosed in the Cross SEC Reports filed prior to
the date of this Agreement, and except as provided for in this Agreement,
neither Cross nor any of its Subsidiaries is a party to any oral or written (i)
agreement with any officer or other key employee of Cross or any of its
Subsidiaries, the benefits of
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which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Cross of the nature contemplated by this
Agreement, (ii) agreement with any officer of Cross providing any term of
employment or compensation guarantee extending for a period longer than one year
from the date hereof and for the payment of compensation in excess of $100,000
per annum, or (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, the vesting of the benefits of which
will be accelerated or the funding of benefits of which will be required, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(f) There is no contract, agreement, plan or arrangement covering
any employee or former employee of Cross or any of its Subsidiaries (with
respect to their relationship with such entities) that, individually or
collectively, provides for the payment by Cross of any amount (i) that is not
deductible under Section 162(a)(1) of the Code or (ii) that is an "excess
parachute payment" pursuant to Section 280G of the Code.
Section 3.15. Compliance With Laws. Cross has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation, including without
limitation, Federal Medicare and Medicaid statutes, including without
limitation, 42 U.S.C. Section 1320a-7b and 42 U.S.C. Section 1395nn or related
statutes or regulations, with respect to the conduct of its business, or the
ownership or operation of its business, except for failures to comply or
violations which, individually or in the aggregate, have not had and are not
reasonably likely to have a Cross Material Adverse Effect.
Section 3.16. Accounting and Tax Matters.
(a) To the best knowledge of Cross, after consulting with its
independent auditors with respect to clause (i) below and its tax advisors with
respect to clause (ii) below, neither Cross nor any of its Affiliates (as
defined in Section 5.12) has taken or agreed to take any action which would (i)
prevent Interpore from accounting for the business combination to be effected by
the Merger as a pooling of interests or (ii) prevent the Merger from qualifying
as a reorganization described in Section 368(a) of the Code. Except as
contemplated by the Cross Option Agreement, neither Cross nor any of its
Subsidiaries owns any shares of Interpore Common Stock or other securities
convertible into shares of Interpore Common Stock (exclusive of any shares owned
by Cross's employee benefit plans).
(b) The terms of the exchange of the outstanding shares of Cross
Common Stock for Interpore Common Stock were arrived at as a result of arm's
length negotiations. Based on the fairness opinion of Piper Jaffray Inc.
pursuant to Section 3.20 and based on the value of the Interpore Common Stock
and Cross Common Stock at the date of this Agreement, the fair market value of
the Interpore Common Stock (and, if applicable, cash in lieu of fractional
shares) received by each stockholder of Cross will be approximately equal to the
fair market value of Cross Common Stock surrendered in the Merger. The only
consideration to be issued in the Merger is Interpore Common Stock, except for
cash paid for fractional shares and cash paid to dissenters.
(c) Cross knows of no plan or intention of any of the
stockholders of Cross to (i) sell, exchange, or otherwise dispose of a number of
shares of Interpore Common Stock received pursuant to the Merger that would
reduce the Cross Stockholders' aggregate ownership of Interpore Common Stock to
a number of shares having a value, as of the Effective Time, of less than 50
percent of the value of all the formerly outstanding Cross Common Stock as of
the same date (but including distributions by Cross and the value of Cross
Common Stock redeemed or surrendered by dissenters for cash or other property in
connection with the Merger, regardless of whether such distribution, redemption
or surrender occurred or occurs prior to the Effective Time) or (ii) enter into
any transaction or arrangement that would eliminate substantially all of the
economic benefits and burdens of beneficial ownership of any shares of Interpore
Common Stock.
(d) Following consummation of the Merger, (i) Cross will hold at
least 90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets held immediately prior to
the Merger and at least 90 percent of the fair market value of Sub's net assets
and 70 percent of the fair market value of Sub's gross assets and (ii) Cross and
its Subsidiaries, on a combined basis, and disregarding any shares of stock of
any such Subsidiary, will hold 90% of the fair market value of their net assets,
and at least 70% of the fair market value of their gross assets, held
immediately prior to the Merger. For purposes of this representation, amounts
paid by Cross or Sub to stockholders of Cross who receive cash or other
property, either as dissenters' rights or in lieu of fractional shares, amounts
used by Cross to pay its expenses related to the Merger and all redemptions or
distributions made by Cross in connection with the Merger are included in
computing Cross's and Sub's assets held immediately prior to the Merger.
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(e) Cross has no plan or intention to issue additional shares of
its stock or other securities (or any options, warrants, or other similar
rights) that would result in Interpore losing "control" of Cross within the
meaning of Section 368(c) of the Code or owning less than 80% of any class of
outstanding capital stock of Cross after the Merger.
(f) Cross and its stockholders will pay their respective
expenses, if any, incurred in connection with the transaction and neither Cross
or its stockholders will pay the expenses of Interpore or Sub.
(g) No intercorporate indebtedness exists between Cross and
either Interpore or Sub that was issued, acquired, or will be settled at a
discount.
(h) None of the shares of Cross Common Stock issued and
outstanding at any time prior to the Merger have been sold, exchanged, redeemed
or otherwise disposed of prior to the Merger in a transaction or transactions
related to the Merger (or otherwise in connection with the Merger) for
consideration other than Interpore Common Stock, except for shares of Cross
Common Stock surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Interpore Common Stock.
(i) Except for any shares of Cross Common Stock subject to
dissenters rights of appraisal or exchanged for cash in lieu of fractional
shares, and assuming that the Merger will be validly effected pursuant to the
laws of the State of Delaware, all of the issued and outstanding shares of all
classes of the capital stock of Cross immediately prior to the Merger will be
converted and exchanged in the Merger solely for Interpore Common Stock.
(j) As of the Effective Time, the fair market value of the assets
of Cross will exceed the sum of its liabilities, plus the liabilities, if any,
to which its assets are subject, and all liabilities were incurred by Cross in
the ordinary course of its business.
(k) Cross has not filed for protection from creditors under the
U.S. bankruptcy laws or otherwise made a general assignment of its assets for
the benefit of creditors.
(l) Cross is not an investment company within the meaning of
Section 368(a)(2)(F) of the Code. Generally, a corporation is an "investment
company" under that provision of the Code if 50% or more of its assets (by
value) consist of stock or securities and 80% or more of its assets (by value)
are held for investment. For purposes of these 50% and 80% tests, however, stock
of a subsidiary corporation is ignored and Interpore is deemed to own a ratable
portion of its subsidiary's assets directly. (A corporation is a subsidiary for
this purpose if the parent owns 50% or more of its stock by vote or value.)
(m) Immediately after the time of the Merger, Cross will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person can acquire stock in Cross, that if exercised
or converted, would affect Interpore's acquisition or retention of "control" of
Cross within the meaning of Section 368(c) of the Code.
(n) Stockholders of Cross will receive Interpore Common Stock in
the Merger that has a value, as of the date of the Merger, of at least 80
percent of the value of all of the formerly outstanding Cross Common Stock as of
the same date and at least 80 percent of the total number of shares of all other
classes of stock, in exchange solely for voting stock of Interpore. For purposes
of this representation, Cross shares exchanged for cash or other property
originating with Interpore will be treated as outstanding Cross Common Stock on
the date of the Merger. Moreover, in making this representation, we have
considered shares of Cross Common Stock and Interpore Common Stock held by the
stockholders of Cross and otherwise sold, redeemed, or disposed of prior or
subsequent to the Merger.
(o) No part of any consideration paid to any stockholder of Cross
for services performed by such stockholder for Cross or pursuant to any other
contractual relationship between Cross and such stockholder constitutes separate
or additional consideration for the shares of Cross Common Stock tendered in the
Merger, and, no part of the Interpore Common Stock transferred to such
stockholder of Cross pursuant to the Merger constitutes separate or additional
consideration attributable to such services or other contractual relationships.
(p) Following the Merger, Cross and its Subsidiaries each intend
to continue its historic business or use a significant portion of its historic
business assets in a business.
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(q) Cross has no plan or intention to liquidate, merge into
another corporation, or to sell or otherwise dispose of any of its assets,
except for dispositions made in the ordinary course of business.
(r) Cross is entering into the Merger for business reasons and
not for the principal purpose of avoiding federal income tax.
(s) Cross has not paid or declared dividends with respect to its
stock prior to the Merger.
(t) There are no restrictions or agreements with respect to the
stock of Cross, except for the Cross Stockholders Agreement and the Cross Stock
Option Agreement.
(u) The Merger will be consummated in compliance with the
material terms of this Agreement, and none of the material terms and conditions
therein has been waived or modified, and Cross has no plan or intention to waive
or modify any such material condition. No side agreements exist between Cross
and any of its stockholders, Interpore or Sub related to the Merger which set
forth terms or conditions or call for payment of consideration by any party not
set forth in this Agreement, except as listed on Section 3.16(u) of the Cross
Disclosure Schedule.
(v) To the best knowledge of Cross, No shares of Cross Common
Stock are owned or have been owned, directly or indirectly, at any time during
the past five years by Interpore or Sub.
(w) All the outstanding debt of Cross has been, and will be,
treated by Cross as debt, and not as equity, for all financial accounting and
tax purposes. At the time of the issuance of the debt, it was anticipated that
the existing cash flow of Cross would be more than adequate to enable Cross to
timely make all scheduled payments of interest and principal on the debt. Cross
has in fact timely made all payments of principal and interest on the debt as
such payments have become due.
(x) Amounts, if any, paid to dissenters will be paid solely out
of funds of Cross and not from any consideration paid by Interpore.
(y) Cross knows of no stockholder of Cross who acquired his or
her shares of Cross Stock in contemplation of the Merger.
(z) Cross has not repurchased any shares of its outstanding stock
since January 1, 1995.
(aa) The payment of cash in lieu of fractional shares of
Interpore Common Stock does not represent separately bargained for
consideration. The total cash consideration that will be paid in the Merger to
stockholders of Cross instead of issuing fractional shares of Interpore Common
Stock will not exceed one percent of the total consideration that will be issued
in the Merger to stockholder of Cross for their shares of Cross Common Stock.
The fractional share interests of each stockholder of Cross will be aggregated,
and no stockholder of Cross will receive cash in an amount greater than the
value of one full share of Interpore Common Stock.
(bb) To the best of Cross's knowledge, none of the compensation
received by any stockholder of Cross who is also an employee or independent
contractor of Cross from Interpore will be separate or additional consideration
for, or allocable to any of their shares of Cross Common Stock; none of the
shares of Interpore Common Stock received by any such stockholder will be
separate or additional consideration for, or allocable to, any employment
agreement with Interpore or other agreement to perform services for Interpore;
and the compensation paid to any such stockholder by Interpore will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(cc) To the best of Cross's knowledge and based on the
representations of Interpore, Cross has no reason to believe that the
representations made by Interpore in Section 4.16 are not true, correct and
complete in all material respects.
Section 3.17. Registration Statement; Joint Proxy Statement/Prospectus.
The information to be supplied by Cross for inclusion in the registration
statement on Form S-4 pursuant to which shares of Interpore Common Stock issued
in the Merger will be registered under the Securities Act (the "Registration
Statement"), shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information supplied by Cross for inclusion in the joint proxy
statement/prospectus to
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be sent to the stockholders of Interpore and Cross in connection with the
meeting of Cross's stockholders (the "Cross Stockholders' Meeting") and the
meeting of Interpore's stockholders (the "Interpore Stockholders' Meeting") to
consider this Agreement and the Merger (the "Joint Proxy Statement/Prospectus")
shall not, on the date the Joint Proxy Statement/Prospectus is first mailed to
stockholders of Cross or Interpore, at the time of the Cross Stockholders'
Meeting and the Interpore Stockholders' Meeting and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, omit to state any material fact necessary in order to make the
statements made in the Joint Proxy Statement/Prospectus not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Cross
Stockholders' Meeting or the Interpore Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to Cross or any of its Affiliates, officers or directors should be
discovered by Cross which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement/Prospectus,
Cross shall promptly inform Interpore.
Section 3.18. Labor Matters. Neither Cross nor any of its Subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, nor, as of the date hereof, is Cross or any of its Subsidiaries
the subject of any material proceeding asserting that Cross or any of its
Subsidiaries has committed an unfair labor practice or is seeking to compel it
to bargain with any labor union or labor organization nor, as of the date of
this Agreement, is there pending or, to the knowledge of the executive officers
of Cross, threatened, any material labor strike, dispute, walkout, work
stoppage, slow-down or lockout involving Cross or any of its Subsidiaries.
Section 3.19. Insurance.
(a) Section 3.19(a) of the Cross Disclosure Schedule sets forth a
complete and accurate list of all material fire and casualty, general liability,
business interruption, product liability, directors and officers and other
insurance policies maintained by Cross or any of its Subsidiaries. All such
policies are with reputable insurance carriers, provide full and adequate
coverage for all normal risks incident to the business of Cross and its
Subsidiaries and their respective properties and assets, and are in character
and amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Cross Material Adverse Effect.
(b) Section 3.19(b) of the Cross Disclosure Schedule sets forth a
complete and accurate list of all products liability insurance policies which
Cross or any of its Subsidiaries has maintained since June 30, 1991. Copies of
all such products liability insurance policies have been provided to Interpore
prior to the date hereof. Cross has continuous insurance coverage in amounts
equal to $5 million or more per occurrence and in the aggregate for products
liability claims, on a claims made basis from January 1, 1990 through January 1,
1999 covering each of its products sold during such periods.
Section 3.20. Opinion of Financial Advisor. The financial advisor of
Cross, Piper Jaffray Inc., has delivered to Cross an opinion dated the date of
this Agreement to the effect that the consideration to be received in the Merger
by Cross's stockholders is fair to Cross's stockholders from a financial point
of view, a signed copy of which opinion has been promptly delivered to
Interpore.
Section 3.21. No Existing Discussions. As of the date hereof, Cross is
not engaged, directly or indirectly, in any material discussions or negotiations
with any other party with respect to an Acquisition Proposal (as defined in
Section 5.3).
Section 3.22. Section 203 of the DGCL Not Applicable. The restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in DGCL Section 203) will not apply to the authorization, execution,
delivery and performance of this Agreement, the Stockholder Agreement or the
Stock Option Agreements by Cross or by the parties thereto or the consummation
of the Merger by Cross. No other "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation is applicable
to Cross or (by reason of Cross's participation therein) the Merger or the other
transactions contemplated by this Agreement.
Section 3.23. Warn Act. Since the enactment of the Work Adjustment and
Retraining Notification Act of 1988 ("WARN Act"), neither Cross nor any of its
Subsidiaries have effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more operating units within any site
of employment of Cross or any of its Subsidiaries, or (ii) a "mass layoff" (as
defined in the WARN Act) affecting Cross or any of its Subsidiaries; nor has
Cross been affected by any transaction or engaged in layoffs or
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employment terminations sufficient in number to trigger application of any
similar state or local law. None of the employees of any of Cross or its
Subsidiaries has suffered an "employment loss" (as defined in the WARN Act)
during the ninety-day period prior to the Effective Date of this Agreement.
Section 3.24. Transactions with Related Parties . No officer or director
of Cross or its Subsidiaries or any affiliate thereof, or any business or entity
in which Cross or its Subsidiaries or any affiliate thereof, or relative of any
such person, has any direct or material indirect interest (collectively,
"Related Parties"):
(a) has borrowed money or loaned money to Cross or any
Subsidiary;
(b) has made or threatened any contractual or other claim of any
kind whatsoever against Cross or any Subsidiary;
(c) has any interest in any property or assets used by Cross or
any Subsidiary in its business;
(d) has been engaged in any other transaction with Cross or any
Subsidiary (other than employment relationships disclosed in Section 3.14);
(e) owns or holds any capital stock or other ownership interest
in Interpore; or
(f) since December 1, 1997, has purchased or sold any of the
capital stock or other ownership interests of Cross or Interpore.
Section 3.25. Suppliers and Customers. Section 3.25 of the Cross
Disclosure Schedule contains a list of Cross's top five suppliers and top ten
customers, determined in each case by aggregate purchases. No supplier or
customer accounted for more than ten percent of Cross's and its Subsidiaries'
sales or purchases in either of the past two years and no other supplier or
customer material to the business of Cross and its Subsidiaries, taken as a
whole, has materially decreased its supplies or orders, as the case may be, or
terminated its relationship with Cross or any Subsidiary.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF INTERPORE
Interpore represents and warrants to Cross that the statements contained
in this Article IV are true and correct, except as set forth in the disclosure
schedule delivered by Interpore to Cross on or before the date of this Agreement
(the "Interpore Disclosure Schedule"). The Interpore Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article IV and the disclosure in any paragraph shall qualify
other paragraphs in this Article IV only to the extent that it is reasonably
apparent from a reading of such document that it also qualifies or applies to
such other paragraphs. Whenever a statement in this Article IV is qualified by
"to the best knowledge of Interpore" or a similar phrase, it is intended to
indicate that the executive officers of Interpore do not have current actual
knowledge of the inaccuracy of such statement.
Section 4.1. Organization of Interpore. Each of Interpore and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, properties, financial condition or results of
operations of Interpore and its Subsidiaries, taken as a whole (a "Interpore
Material Adverse Effect"). A true and correct copy of the Certificate of
Incorporation and Bylaws of Interpore and each Subsidiary of Interpore has been
delivered to Cross. Except as set forth in the Interpore SEC Reports (as defined
in Section 4.4) filed prior to the date of this Agreement, neither Interpore nor
any of its Subsidiaries directly or indirectly owns (other than ownership
interests in Interpore or in one or more of its Subsidiaries) any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any corporation, partnership, joint venture or other business
association or entity, excluding (i) securities in any publicly traded company
held for investment by Interpore and comprising less than five percent (5%) of
the outstanding stock of such company and (ii) any investment or series of
related investments with a book value of less than $50,000.
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Section 4.2. Interpore Capital Structure.
(a) The authorized capital stock of Interpore consists of
20,000,000 shares of Common Stock, no par value, and 372,951 shares of Preferred
Stock ("Interpore Preferred Stock"). As of the date hereof, (i) 7,105,898 shares
of Interpore Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable; (ii) 76,593 shares of Interpore Preferred
Stock were issued and outstanding; and (iii) no shares of Interpore Common Stock
were held in the treasury of Interpore or by Subsidiaries of Interpore. As of
the date of this Agreement no dividends or other distributions have been
declared or made by Interpore in respect of any of its capital stock. The
Interpore Disclosure Schedule shows the number of shares of Interpore Common
Stock reserved for future issuance pursuant to stock options granted and
outstanding as of the date hereof and the plans under which such options were
granted (collectively, the "Interpore Stock Plans"). There are no obligations,
contingent or otherwise, of Interpore or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Interpore Common Stock or the capital
stock of any Subsidiary or to provide funds to or make any material investment
(in the form of a loan, capital contribution or otherwise) in any such
Subsidiary or any other entity other than guarantees of bank obligations or
indebtedness for borrowed money of Subsidiaries entered into in the ordinary
course of business and other than any obligation the failure of which to perform
or satisfy would not have an Interpore Material Adverse Effect. All of the
outstanding shares of capital stock or other ownership interests of each of
Interpore's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Interpore or another Subsidiary
of Interpore free and clear of all Liens.
(b) Except as set forth in this Section 4.2 or as reserved for
future grants of options under the Interpore Stock Plans or the Cross Stock
Option Agreement, and except for the preferred stock purchase rights issued and
issuable under the Rights Agreement dated as of August 29, 1995 between
Interpore and U.S. Stock Transfer Corporation (the "Interpore Rights Plan"), (i)
there are no shares of capital stock of any class of Interpore, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding; (ii) there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
Interpore or any of its Subsidiaries is a party or by which it is bound
obligating Interpore or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other ownership interests of Interpore or any of its Subsidiaries or obligating
Interpore or any of its Subsidiaries to grant, extend, accelerate the vesting of
or enter into any such option, warrant, equity security, call, right, commitment
or agreement; and (iii) to the best knowledge of Interpore, there are no voting
trusts, proxies or other voting agreements or understandings with respect to the
shares of capital stock of Interpore. All shares of Interpore Common Stock
subject to issuance as specified in this Section 4.2 are duly authorized and,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, shall be validly issued, fully paid and
nonassessable.
Section 4.3. Authority; No Conflict; Required Filings and Consents.
(a) Interpore has all requisite corporate power and authority to
enter into this Agreement, the Cross Stockholder Agreement and the Stock Option
Agreements and to consummate the transactions contemplated by this Agreement,
the Cross Stockholder Agreement and the Stock Option Agreements. The execution
and delivery of this Agreement, the Cross Stockholder Agreement and the Stock
Option Agreements and the consummation of the transactions contemplated by this
Agreement, the Cross Stockholder Agreement and the Stock Option Agreements by
Interpore have been duly authorized by all necessary corporate action on the
part of Interpore, subject only to the approval and adoption of this Agreement
and the Merger by Interpore's stockholders under the California Corporations
Code (the "CCC"). This Agreement, the Cross Stockholder Agreement and the Stock
Option Agreements have been duly executed and delivered by Interpore and
constitute the valid and binding obligations of Interpore, enforceable in
accordance with their terms, subject to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement, the Cross
Stockholder Agreement and the Stock Option Agreements by Interpore does not, and
the consummation of the transactions contemplated by this Agreement, the Cross
Stockholder Agreement and the Stock Option Agreements will not, (i) conflict
with, or result in any violation or breach of, any provision of the Articles of
Incorporation or Bylaws of Interpore or any of its Subsidiaries, (ii) result in
any violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Interpore or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
or (iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Interpore or any of its Subsidiaries or any of its or their properties or
assets, except in the case of (ii) and (iii) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which
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(x) are not, individually or in the aggregate, reasonably likely to have an
Interpore Material Adverse Effect or (y) would not substantially impair or delay
the consummation of the Merger.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Interpore or any of its Subsidiaries in connection with the
execution and delivery of this Agreement, the Cross Stockholder Agreement and
the Stock Option Agreements or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of a Certificate of Merger with
respect to the Merger with the Delaware Secretary of State, (ii) the filing of
the Joint Proxy Statement/Prospectus with the SEC in accordance with the
Exchange Act and the Securities Act, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country and (iv)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not (x) be reasonably likely to have an Interpore
Material Adverse Effect or (y) substantially impair or delay the consummation of
the Merger.
(d) The affirmative votes of the holders of majorities of the
outstanding shares of (i) Interpore Common Stock and (ii) Interpore Series E
Preferred Stock at the Interpore Stockholders Meeting or any adjournment or
postponement thereof to approve this Agreement are the only votes of the holders
of any class or series of Interpore's capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
Section 4.4. SEC Filings; Financial Statements.
(a) Interpore has filed and made available to Cross all forms,
reports and documents required to be filed by Interpore with the SEC since
January 1, 1996 (collectively, the "Interpore SEC Reports"). The Interpore SEC
Reports (i) at the time filed, complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Interpore SEC Reports or necessary
in order to make the statements in such Interpore SEC Reports, in the light of
the circumstances under which they were make, not misleading. None of
Interpore's Subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any related notes) of Interpore contained in the Interpore SEC
Reports complied as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q under the Exchange Act) and fairly presented the
consolidated financial position of Interpore and its Subsidiaries as of the
dates and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount. The audited balance sheet of
Interpore as of December 31, 1997 is referred to herein as the "Interpore
Balance Sheet."
Section 4.5. No Undisclosed Liabilities. Except as disclosed in the
Interpore SEC Reports filed prior to the date hereof, and as of the Closing
Date, except as set forth in the audited financial statements of Interpore as of
December 31, 1997, and except for normal or recurring liabilities incurred since
December 31, 1997 in the ordinary course of business consistent with past
practices, Interpore and its Subsidiaries do not have any liabilities, either
accrued, contingent or otherwise (whether or not required to be reflected in
financial statements in accordance with generally accepted accounting
principles), and whether due or to become due, which individually or in the
aggregate, are reasonably likely to have an Interpore Material Adverse Effect.
Section 4.6. Absence of Certain Changes or Events. Except as disclosed
in the Interpore SEC Reports filed prior to the date hereof, since the date of
the Interpore Balance Sheet, Interpore and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any event, development,
state of affairs or condition, or series or combination of events, developments,
states of affairs or conditions, which, individually or in the aggregate, has
had or which is reasonably likely to have an Interpore Material Adverse Effect
(other than events, developments, states of affairs or conditions that are the
effect or result of actions taken by Cross or economic factors affecting the
economy as a whole or the industry in which Interpore competes); (ii) any
damage, destruction or loss (whether or not covered by insurance) with respect
to Interpore or any of its Subsidiaries which is reasonably likely to have an
Interpore Material Adverse Effect; (iii) any material change by Interpore in its
accounting methods, principles or practices to which Cross has not previously
consented in writing; (iv) any revaluation by Interpore of any of its assets
which is reasonably likely to have an Interpore Material Adverse Effect; or (v)
any other action or event that
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would have required the consent of Cross pursuant to Section 5.1 of this
Agreement had such action or event occurred after the date of this Agreement,
other than such actions or events that, individually or in the aggregate, have
not had or are not reasonably likely to have an Interpore Material Adverse
Effect.
Section 4.7. Taxes.
(a) Interpore and each of its Subsidiaries have (i) filed all
federal, state, local and foreign Tax returns and reports required to be filed
by them prior to the date of this Agreement (taking into account all applicable
extensions), (ii) paid or accrued all Taxes due and payable, and (iii) paid or
accrued all Taxes for which a notice of assessment or collection has been
received (other than amounts being contested in good faith by appropriate
proceedings), except in the case of clauses (i), (ii) or (iii) for any such
filings, payments or accruals that are not reasonably likely, individually or in
the aggregate, to have an Interpore Material Adverse Effect. Neither the IRS nor
any other taxing authority has asserted any claim for Taxes, or to the actual
knowledge of the executive officers of Interpore, is threatening to assert any
claims for Taxes, which claims, individually or in the aggregate, are reasonably
likely to have an Interpore Material Adverse Effect. Interpore and each of its
Subsidiaries have withheld or collected and paid over to the appropriate
governmental authorities (or are properly holding for such payment) all Taxes
required by law to be withheld or collected, except for amounts that are not
reasonably likely, individually or in the aggregate, to have an Interpore
Material Adverse Effect. Neither Interpore nor any of its Subsidiaries has made
an election under Section 341(f) of the Code, except for any such election that
shall not have an Interpore Material Adverse Effect. There are no liens for
Taxes upon the assets of Interpore or any of its Subsidiaries (other than liens
for Taxes that are not yet due or delinquent or that are being contested in good
faith by appropriate proceedings), except for liens that are not reasonably
likely, individually or in the aggregate, to have an Interpore Material Adverse
Effect.
(b) Neither Interpore nor any of its Subsidiaries is or has been
a member of an affiliated group of corporations filing a consolidated federal
income tax return (or a group of corporations filing a consolidated, combined or
unitary income tax return under comparable provisions of state, local or foreign
tax law) for any taxable period beginning on or after the taxable period ending
December 31, 1993, other than a group the common parent of which is or was
Interpore or any Subsidiary of Interpore.
(c) Neither Interpore nor any of its Subsidiaries has any
obligation under any agreement or arrangement with any other person with respect
to Taxes of such other person (including pursuant to Treas. Reg. Section
1.1502-6 or comparable provisions of state, local or foreign tax law) and
including any liability for Taxes of any predecessor entity, except for
obligations that are not reasonably likely, individually or in the aggregate, to
have an Interpore Material Adverse Effect.
Section 4.8. Properties.
(a) Interpore and each of its Subsidiaries has good and valid
title to, or valid leasehold interests in, all its material properties and
assets except for such as are no longer used in the conduct of the businesses of
Interpore and its Subsidiaries or as have been disposed of in the ordinary
course of business and except for defects in title, easements, restrictive
covenants and similar encumbrances that individually or in the aggregate would
not have an Interpore Material Adverse Effect. All such material assets and
properties, other than assets and properties in which Interpore or any of its
Subsidiaries has a leasehold interest, are free and clear of all Liens and
except for Liens that individually or in the aggregate would not have an
Interpore Material Adverse Effect.
(b) Interpore and each of its Subsidiaries has complied in all
material respects with the terms of all material leases to which it is a party
and under which it is in occupancy, and all such leases are in full force and
effect, except for such noncompliance or failure to be in full force and effect,
except for such noncompliance or failure to be in full force and effect as would
not individually or in the aggregate have an Interpore Material Adverse Effect.
Interpore and each of its Subsidiaries enjoys peaceful and undisturbed
possession under all such material leases, except for failures to do so that
would not individually or in the aggregate have an Interpore Material Adverse
Effect.
Section 4.9. Intellectual Property.
(a) Interpore and its Subsidiaries own or possess adequate rights
to use all intellectual and similar property of every kind and nature relating
to or used or necessary in the operation of the business of Interpore and its
Subsidiaries, including, without limitation, (i) all patents and trademarks
associated with the business of Interpore and its Subsidiaries (including all
Governmental Entity trademarks, service marks, logos and designs, all
registrations and recordings thereof, and all applications in the United States
or any other
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Governmental Entity, all goodwill symbolized thereby or associated therewith and
all extensions or renewals thereof, all of which are set forth on Section 4.9 of
the Interpore Disclosure Schedule), (ii) copyrights associated solely with the
business of Interpore and its Subsidiaries, including all copyrights, United
States and foreign copyright registrations, and applications to register
copyrights which are set forth on Section 4.9 of the Interpore Disclosure
Schedule, (iii) inventions, formulae, processes, designs, know-how or other data
or information, (iv) confidential or proprietary technical and business
information, processes and trade secrets, (v) computer software, (vi) technical
manuals and documentation made or used in connection with any of the foregoing,
and (vii) licenses or rights with respect to any of the foregoing or property of
like nature (collectively, "Interpore Intellectual Property").
(b) (i) Section 4.9 of the Interpore Disclosure Schedule
sets forth a complete and accurate list of all registered copyrights, patents
and trademarks owned by or under obligation of assignment to Interpore or any of
its Subsidiaries, currently used in the conduct of the business of Interpore or
its Subsidiaries, and all applications therefor;
(ii) Section 4.9 of the Interpore Disclosure Schedule sets
forth a complete and accurate list of the owners of the Interpore Intellectual
Property. Each owner listed in Section 4.9 of the Interpore Disclosure Schedule
is listed in the records of the appropriate Governmental Entity as the sole
owner of record;
(iii) Section 4.9 of the Interpore Disclosure Schedule
sets forth a complete and accurate list of all agreements between Interpore, on
the one hand, and any Person, on the other hand, granting any right to use or
practice any rights with respect to any Interpore Intellectual Property;
(iv) there is no encumbrance on the right of Interpore and
its Subsidiaries to transfer any of the Interpore Intellectual Property, as
herein contemplated;
(v) no trade secret, formula, process, invention, design,
know-how or any other information currently used in the conduct of the business
of Interpore and its Subsidiaries has been disclosed or authorized to be
disclosed to any Person, except in the ordinary course of business or pursuant
to an obligation of confidentiality binding upon said Person;
(vi) there are no pending proceedings by or before any
Governmental Entity, including oppositions, interferences, proceedings or suits,
relating to such Interpore Intellectual Property, and no such proceedings are
threatened;
(vii) the conduct of the business of Interpore and its
Subsidiaries and the exercise of rights relating to the patents which are part
of the Interpore Intellectual Property does not infringe upon or otherwise
violate any rights of any Person with respect to the Interpore Intellectual
Property;
(viii) to Interpore's knowledge, no Person is infringing
upon or otherwise violating any patents which are part of the Interpore
Intellectual Property;
(ix) Neither Interpore nor any of its Subsidiaries has
received notice of any claims, obligations or liabilities and there are no
pending claims, obligations or liabilities, of an Persons relating to the scope,
ownership or use of any of the Interpore Intellectual Property; and
(x) each copyright registration, patent and registered
trademark and application therefor listed in Section 4.9 of the Interpore
Disclosure Schedule is in proper form, has not been disclaimed and has been duly
maintained, including the submission of all necessary filings in accordance with
the legal and administrative requirements of the appropriate jurisdictions.
Section 4.10. Regulation.
(a) Except as is not reasonably likely to have an Interpore
Material Adverse Effect, since March 1, 1993, there have been no written
notices, citations or decisions by any governmental or regulatory body that any
product produced, manufactured, marketed or distributed at any time by Interpore
or any of its Subsidiaries (the "Interpore Products") is defective or fails to
meet any applicable standards promulgated by any such governmental or regulatory
body. Interpore and each of its Subsidiaries has complied in all material
respects with the laws, regulations, policies, procedures and specifications
with respect to the design, manufacture, labeling, testing and inspection of
Interpore Products and the operation of manufacturing facilities promulgated by
the Food and Drug Administration (the "FDA"), except where the failure so to
comply is not likely to have an Interpore
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Material Adverse Effect. Except as described in the Interpore SEC Reports, since
March 1, 1993, there have been no recalls, field notifications or seizures
ordered or, to Interpore's knowledge, threatened by any such governmental or
regulatory body with respect to any of the Interpore Products. Interpore has not
received, and does not reasonably believe that any facts or circumstances exist
that are reasonably likely to result in, any warning letter, or Section 305
notices from the FDA. Section 4.10(a) of the Interpore Disclosure Schedule sets
forth summary information concerning all 510(k) applications, Premarket
Approvals and Investigation Device Exemptions obtained by Interpore or any of
its Subsidiaries from the FDA or required in connection with the manufacturing,
marketing and sale of any Interpore Product, including title, date issued,
summary and type of FDA action.
(b) Interpore has obtained, in all countries where Interpore or
any of its Subsidiaries is marketing or has marketed the Interpore Products, all
applicable licenses, registrations, approvals, clearances and authorizations
required by local, state or federal agencies (including the FDA) in such
countries regulating the safety, effectiveness and market clearance of the
Products that are currently marketed by Interpore or any of its Subsidiaries
(collectively, "Interpore Licenses"), except for any such failures that are not
reasonably likely, individually or in the aggregate, to have an Interpore
Material Adverse Effect. Section 4.10(b) of the Interpore Disclosure Schedule
(i) contains a complete and accurate list of all Interpore Licenses and (ii)
identifies all material information relating to regulation of the Interpore
Products, including licenses, registrations, approvals, permits, device
listings, inspections, Interpore's and its Subsidiaries' recalls and product
actions, audits and Interpore's and its Subsidiaries' ongoing clinical studies.
Other than as set forth on Section 4.10(b) of the Interpore Disclosure Schedule,
there are no Interpore Licenses or material information of the type described in
clause (ii) of the immediately preceding sentence.
(c) With respect to Interpore Products sold during the last five
years, neither Interpore nor any Subsidiary has marketed any of its products for
uses other than uses approved by the FDA.
Section 4.11. Agreements, Contracts and Commitments.
(a) Subsections (i) through (vii) of Section 4.11(a) of the
Interpore Disclosure Schedule contain a list of the following types of contracts
and agreements to which Interpore or any Subsidiary is a party (such contracts,
agreements and arrangements as are required to be set forth in Section 4.11(a)
of the Interpore Disclosure Schedule being referred to herein collectively as
the "Interpore Material Contracts"):
(i) all distributor, manufacturer's representative,
broker, franchise, agency and dealer contracts and agreements to which Interpore
or any Subsidiary is a party;
(ii) all contracts with physicians and any scientific
advisory board members;
(iii) all contracts with independent contractors or
consultants (or similar arrangements) to which Interpore or any Subsidiary is a
party and which: (A) are reasonably likely to involve consideration of more than
$150,000 in the aggregate during the calendar year ended December 31, 1998, or
(B) are reasonably likely to involve consideration of more than $150,000 in the
aggregate over the remaining term of the contract;
(iv) all contracts and agreements (excluding routine
checking account overdraft agreements involving petty cash amounts) under which
Interpore or any Subsidiary has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness or under which Interpore or any
Subsidiary has imposed (or may impose) a lien on any of its assets, whether
tangible or intangible, to secure indebtedness;
(v) all contracts and agreements that limit the ability of
Interpore or any Subsidiary or, after the Effective Time, Interpore or any of
its affiliates, to compete in any line of business or with any person or in any
geographic area or during any period of time, or to solicit any customer or
client;
(vi) all contracts and agreements between or among
Interpore or any Subsidiary, on the one hand, and any affiliate of Interpore
(other than a wholly owned Subsidiary), on the other hand; and
(vii) all other contracts or agreements (A) which are
material to Interpore and its Subsidiaries or the conduct of their respective
businesses or (B) the absence of which would have an Interpore Material Adverse
Effect or (C) which are believed by Interpore to be of unique value to Interpore
even though not material to the business of Interpore.
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(b) Except as would not, individually or in the aggregate, have
an Interpore Material Adverse Effect, each contract referred to in paragraphs
(ii) and (vii) above and each other material contract or agreement of Interpore
or any Subsidiary which would have been required to be disclosed in Sections
4.11(a)(ii) and (vii) of the Interpore Disclosure Schedule had such contract or
agreement been entered into prior to the date of this Agreement, is a legal,
valid and binding agreement, and none of the Interpore Material Contracts is in
default by its terms or had been canceled by the other party; Interpore and its
Subsidiaries are not in receipt of any claim of default under any such
agreement; and none of Interpore or any of its Subsidiaries anticipates any
termination or change to, or receipt of a proposal with respect to, any such
agreement as a result of the Merger or otherwise. Interpore has furnished
Interpore with true and complete copies of all Interpore Material Contracts and
any and all amendments thereto.
Section 4.12. Litigation
(a) Section 4.12(a) of the Interpore Disclosure Schedule sets
forth a complete and accurate list, of all claims, actions, litigations,
proceedings, product liability claims and investigations pending or, to
Interpore's knowledge, threatened against Interpore or any of its Subsidiaries,
or any property or asset of Interpore or any of its Subsidiaries, before any
Governmental Authority or arbitrator (collectively, "Interpore Claims"). Each
Interpore Claim is cross-referenced in Section 4.12 of the Interpore Disclosure
Schedule by the insurance policy or policies under which Interpore or any of its
Subsidiaries has claimed coverage for such Interpore Claim. There is no
Interpore Claim, which, individually or when aggregated with other Interpore
Claims which are reasonably likely to result from facts and circumstances that
have given rise to such an Interpore Claim, is reasonably likely to have an
Interpore Material Adverse Effect. As of the date hereof, neither Interpore nor
any of its Subsidiaries nor any property or asset of Interpore or any Subsidiary
is subject to any order, writ, judgment, injunction, decree, determination or
award having, individually or in the aggregate, an Interpore Material Adverse
Effect.
(b) As of the date hereof, to Interpore's knowledge, neither
Interpore nor any of its Subsidiaries has received notice from any source that
Interpore or any of its Subsidiaries may be liable with respect to product
liability or worker's compensation claims, except for such claims that are not
reasonably likely to have, individually or in the aggregate, an Interpore
Material Adverse Effect.
Section 4.13. Environmental Matters. To the knowledge of Interpore and
except as disclosed in the Interpore SEC Reports filed prior to the date hereof
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have an Interpore Material Adverse Effect: (i) Interpore
and its Subsidiaries have complied with all applicable Environmental Laws; (ii)
the properties currently owned, leased or operated by Interpore and its
Subsidiaries (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances; (iii) the
properties formerly owned, leased or operated by Interpore or any of its
Subsidiaries were not contaminated with Hazardous Substances during the period
of ownership or operation by Interpore or any of its Subsidiaries; (iv) neither
Interpore nor its Subsidiaries are subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) neither
Interpore nor any of its Subsidiaries has been associated with any release or
threat of release of any Hazardous Substance; (vi) neither Interpore nor any of
its Subsidiaries has received any notice, demand, letter, claim or request for
information alleging that Interpore or any of its Subsidiaries may be in
violation of or liable under any Environmental Law; (vii) neither Interpore nor
any of its Subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or is subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (viii) there are no
circumstances or conditions involving Interpore or any of its Subsidiaries that
could reasonably be expected to result in any claims, liability, investigations,
costs or restrictions on the ownership, use or transfer of any property of
Interpore or any of its Subsidiaries pursuant to any Environmental Law.
Section 4.14. Employee Benefit Plans.
(a) For purposes of this Agreement, the "Interpore Employee
Plans" shall mean all "employee benefit plans" (as defined in Section 3(3) of
ERISA), all "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA) and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar employee
benefit plans, and all unexpired severance agreements, written or otherwise, for
the benefit of, or relating to, any current or former employee of Interpore or
any ERISA Affiliate of Interpore, or any Subsidiary of Interpore (together, the
"Interpore Employee Plans"). Interpore has listed in Section 4.14 of the
Interpore Disclosure Schedule all Interpore Employee Plans.
(b) With respect to each Interpore Employee Plan, Interpore has
made available to Cross, a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the IRS, (ii) such Interpore Employee Plan and all
amendments thereto, (iii) each trust agreement and group annuity contract, if
any, and all
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amendments thereto relating to such Interpore Employee Plan and (iv) the most
recent actuarial report or valuation relating to an Interpore Employee Plan
subject to Title IV of ERISA.
(c) With respect to the Interpore Employee Plans, individually
and in the aggregate, no event has occurred, and to the knowledge of Interpore,
there exists no condition or set of circumstances in connection with which
Interpore could be subject to any liability that is reasonably likely to have an
Interpore Material Adverse Effect under ERISA, the Code or any other applicable
law.
(d) With respect to the Interpore Employee Plans, individually
and in the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the financial statements of Interpore, except for obligations which,
individually or in the aggregate, are not reasonably likely to have an Interpore
Material Adverse Effect.
(e) Except as disclosed in the Interpore SEC Reports filed prior
to the date of this Agreement, and except as provided for in this Agreement,
neither Interpore nor any of its Subsidiaries is a party to any oral or written
(i) agreement with any officer or other key employee of Interpore or any of its
Subsidiaries, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving Interpore of
the nature contemplated by this Agreement, (ii) agreement with any officer of
Interpore providing any term of employment or compensation guarantee extending
for a period longer than one year from the date hereof or for the payment of
compensation in excess of $100,000 per annum, or (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, the
vesting of the benefits of which will be accelerated or the funding of benefits
of which will be required, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
(f) There is no contract, agreement, plan or arrangement covering
any employee or former employee of Interpore or any of its Subsidiaries (with
respect to their relationship with such entities) that, individually or
collectively, provides for the payment by Interpore of any amount (i) that is
not deductible under Section 162(a)(1) of the Code or (ii) that is an "excess
parachute payment" pursuant to Section 280G of the Code.
Section 4.15. Compliance With Laws. Interpore has complied with, is not
in violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation, including without
limitation, Federal Medicare and Medicaid statutes, including without
limitation, 42 U.S.C. Section 1320a-7b and 42 U.S.C. Section 1395nn or related
statutes or regulations, with respect to the conduct of its business, or the
ownership or operation of its business, except for failures to comply or
violations which, individually or in the aggregate, have not had and are not
reasonably likely to have an Interpore Material Adverse Effect.
Section 4.16. Accounting and Tax Matters.
(a) To the best knowledge of Interpore, after consulting with its
independent auditors with respect to clause (i) below and its tax advisors with
respect to clause (ii) below, neither Interpore nor any of its Affiliates (as
defined in Section 5.12) has taken or agreed to take any action which would (i)
prevent Interpore from accounting for the business combination to be effected by
the Merger as a pooling of interests, or (ii) prevent the Merger from qualifying
as a reorganization described in Section 368(a) of the Code. Except as
contemplated by the Interpore Option Agreement, neither Interpore nor any of its
Subsidiaries owns any shares of Cross Common Stock or other securities
convertible into shares of Cross Common Stock (exclusive of any shares owned by
Interpore's employee benefit plans).
(b) The terms of the exchange of the outstanding shares of Cross
Common Stock for Interpore Common Stock were arrived at as a result of arm's
length negotiations. Based on the fairness opinion of Genesis Merchant Group
Securities LLC pursuant to Section 4.20 and based on the value of the Interpore
Common Stock and Cross Common Stock at the date of this Agreement, the fair
market value of the Interpore Common Stock (and, if applicable, cash in lieu of
fractional shares) received by each stockholder of Cross will be approximately
equal to the fair market value of Cross Common Stock surrendered in the Merger.
The only consideration to be issued in the Merger is Interpore Common Stock,
except for cash paid for fractional shares and cash paid to dissenters.
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(c) Following consummation of the Merger, (i) Interpore will
cause Cross to hold at least 90 percent of the fair market value of its net
assets and at least 70 percent of the fair market value of its gross assets held
immediately prior to the Merger and at least 90 percent of the fair market value
of Sub's net assets and 70 percent of the fair market value of Sub's gross
assets and (ii) Cross and its Subsidiaries, on a combined basis, and
disregarding any shares of stock of any such Subsidiary, will hold 90% of the
fair market value of their net assets, and at least 70% of the fair market value
of their gross assets, held immediately prior to the Merger. For purposes of
this representation, amounts paid by Cross or Sub to stockholders of Cross who
receive cash or other property, either as dissenters' rights or in lieu of
fractional shares, amounts used by Cross to pay its expenses related to the
Merger and all redemptions or distributions made by Cross in connection with the
Merger are included in computing Cross's and Sub's assets held immediately prior
to the Merger.
(d) Immediately prior to the Merger, Interpore will own directly
all of the outstanding stock of Sub. Sub is being used solely in order to
consummate the Merger, and at no time will Sub conduct any business activities
or other operations of any kind prior to the Closing Date.
(e) Interpore has no intention or plan to cause Cross to issue
additional shares of its stock that would result in Interpore losing "control"
of Cross within the meaning of Section 368(c) of the Code.
(f) Interpore has no plan or intention to reacquire any of the
Interpore Common Stock issued in the Merger.
(g) To the best knowledge of Interpore, after the Merger,
Interpore will be the sole shareholder of Cross. Interpore has no plan or
intention to liquidate Cross; to merge Cross into another corporation; to cause
Cross to sell or otherwise dispose of any of its assets, except for dispositions
made in the ordinary course of business; to sell or otherwise dispose of any
Cross Common Stock, except for transfers of Cross Common Stock to a corporation
controlled by Interpore within the meaning of Section 368(c) of the Code; or to
cause Cross to issue any stock to any third party.
(h) Sub will have no liabilities assumed by Cross, and will not
transfer to Cross any assets subject to liabilities in the Merger.
(i) Following the Merger, Interpore will cause Cross and each of
its Subsidiaries to continue its historic business or use a significant portion
of its historic business assets in a business.
(j) Interpore and Sub will pay their respective expenses, if any,
incurred in connection with the Merger and neither Interpore nor Sub will pay
the expenses of Cross or its stockholders.
(k) No intercorporate indebtedness exists between Cross and
either Interpore or Sub that was issued, acquired, or will be settled at a
discount.
(l) To the best knowledge of Interpore, in the Merger, Interpore
will acquire shares of Cross Common Stock possessing at least 80 percent of the
total combined voting power of all classes of stock entitled to vote and at
least 80 percent of the total number of shares of all other classes of capital
stock of Cross in exchange solely for Interpore Common Stock. For purposes of
this representation, shares of Cross Common Stock exchanged for cash or other
property originating with Interpore will be treated as outstanding Cross Common
Stock on the date of the Merger.
(m) To the best knowledge of Interpore, none of the shares of
Cross Common Stock issued and outstanding at any time prior to the Merger have
been sold, exchanged, redeemed or otherwise disposed of prior to the Merger in a
transaction or transactions related to the Merger (or otherwise in connection
with the Merger) for consideration other than Interpore Common Stock, except for
shares of Cross Common Stock surrendered by dissenters or exchanged for cash in
lieu of fractional shares of Interpore Common Stock.
(n) To the best knowledge of Interpore and based on the
representations of Cross, except for any shares of Cross Common Stock subject to
dissenters rights of appraisal or exchanged for cash in lieu of fractional
shares, and assuming that the Merger will be validly effected pursuant to the
laws of the State of Delaware, all of the issued and outstanding shares of all
classes of the capital stock of Cross immediately prior to the Merger will be
converted and exchanged in the Merger solely for Interpore Common Stock.
(o) The payment of cash in lieu of fractional shares of Interpore
Common Stock is solely for the purpose of avoiding the expense and inconvenience
of issuing fractional shares and does not represent
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separately bargained for consideration. The total cash consideration that will
be paid in the Merger to stockholders of Cross instead of issuing fractional
shares of Interpore Common Stock will not exceed one percent of the total
consideration that will be issued in the Merger to stockholders of Cross for
their shares of Cross Common Stock. The fractional share interests of each
stockholder of Cross will be aggregated, and no stockholder of Cross will
receive cash in an amount greater than the value of one full share of Interpore
Common Stock.
(p) Interpore has not filed for protection from creditors under
the U.S. bankruptcy laws or otherwise made a general assignment of its assets
for the benefit of creditors.
(q) Interpore is not an investment company within the meaning of
Section 368(a)(2)(F) of the Code.
(r) No liabilities of any stockholder of Cross will be assumed by
Interpore pursuant to or in connection with the Merger.
(s) To the extent any of the stockholders of Cross or its
Subsidiaries has ever performed services for Interpore or has ever entered into
any other contractual relationship with Interpore, no part of any consideration
paid to such stockholder of Cross for such services or pursuant to such
relationship constitutes separate or additional consideration for the shares of
Cross Common Stock tendered in the Merger.
(t) Interpore is entering into the Merger for business reasons
and not for the principal purpose of avoiding federal income tax.
(u) Except as set forth on Section 4.16(t) of the Interpore
Disclosure Schedule, the Merger will be consummated in compliance with the
material terms of this Agreement, and none of the material terms and conditions
therein has been waived or modified, and Interpore has no plan or intention to
waive or modify any such material condition. No side agreements exist between
Interpore or Sub and any of the stockholders of Cross related to the Merger
which set forth terms or conditions or call for payment of consideration by any
party not set forth in this Agreement, except as listed on Section 4.16(u) of
the Interpore Disclosure Schedule.
(v) To the best knowledge of Interpore, no shares of Cross Common
Stock are owned or have been owned, directly or indirectly, at any time during
the past five years by Interpore or Sub.
(w) No amounts, if any, paid to dissenters will be paid, directly
or indirectly, by Interpore, nor will Interpore, directly or indirectly,
reimburse Cross for any payments made to dissenters.
(x) None of the compensation received by any stockholder of Cross
who is also an employee or independent contractor of Cross from Interpore will
be separate or additional consideration for, or allocable to any of their shares
of Cross Common Stock; none of the shares of Interpore Common Stock received by
any such stockholder will be separate or additional consideration for, or
allocable to, any employment agreement with Interpore or other agreement to
perform services for Interpore; and the compensation paid to any such
stockholder by Interpore will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
(y) Interpore knows of no plan or intention of any of the
stockholders of Cross to (i) sell, exchange, or otherwise dispose of a number of
shares of Interpore Common Stock received pursuant to the Merger that would
reduce the Cross stockholders' aggregate ownership of Interpore Common Stock to
a number of shares having a value, as of the Effective Time, of less than 50
percent of the value of all the formerly outstanding Cross Common Stock as of
the same date (but including distributions by Cross and the value of Cross
Common Stock redeemed or surrendered by dissenters for cash or other property in
connection with the Merger, regardless of whether such distribution, redemption
or surrender occurred or occurs prior to the Effective Time) or (ii) enter into
any transaction or arrangement that would eliminate substantially all of the
economic benefits and burdens of beneficial ownership of any shares of Interpore
Common Stock.
(z) To the best of Interpore's knowledge and based on the
representations of Cross, Interpore has no reason to believe that the
representations made by Cross in Section 3.16 are not true, correct and complete
in all material respects.
Section 4.17. Registration Statement; Joint Proxy Statement/Prospectus.
The information to be supplied by Interpore for inclusion in the Registration
Statement shall not at the time the Registration Statement is declared effective
by the SEC contain any untrue statement of a material fact or omit to state any
material fact
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required to be stated in the Registration Statement or necessary in order to
make the statements in the Registration Statement, in light of the circumstances
under which they were made, not misleading. The information to be supplied by
Interpore for inclusion in the Joint Proxy Statement/Prospectus shall not, on
the date the Joint Proxy Statement/Prospectus is first mailed to stockholders of
Interpore or Cross, at the time of the Interpore Stockholders' Meeting and the
Cross Stockholder's Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, omit to state
any material fact necessary in order to make the statements made in the Joint
Proxy Statement/Prospectus not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Interpore Stockholders'
Meeting or the Cross Stockholders' Meeting which has become false or misleading.
If at any time prior to the Effective Time any event relating to Interpore or
any of its Affiliates, officers or directors should be discovered by Interpore
which should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, Interpore shall promptly
inform Cross.
Section 4.18. Labor Matters. Neither Interpore nor any of its
Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization, nor, as of the date hereof, is Interpore or any of its
Subsidiaries the subject of any material proceeding asserting that Interpore or
any of its Subsidiaries has committed an unfair labor practice or is seeking to
compel it to bargain with any labor union or labor organization nor, as of the
date of this Agreement, is there pending or, to the knowledge of the executive
officers of Interpore, threatened, any material labor strike, dispute, walkout,
work stoppage, slow-down or lockout involving Interpore or any of its
Subsidiaries.
Section 4.19. Insurance.
(a) Section 4.19(a) of the Interpore Disclosure Schedule sets
forth a complete and accurate list of all material fire and casualty, general
liability, business interruption, product liability, directors and officers and
other insurance policies maintained by Interpore or any of its Subsidiaries. All
such policies are with reputable insurance carriers, provide full and adequate
coverage for all normal risks incident to the business of Interpore and its
Subsidiaries and their respective properties and assets, and are in character
and amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have an Interpore Material Adverse
Effect.
(b) Section 4.19(b) of the Interpore Disclosure Schedule sets
forth a complete and accurate list of all products liability insurance policies
which Interpore or any of its Subsidiaries has maintained since January 1, 1994.
Copies of all such products liability insurance policies have been provided to
Cross prior to the date hereof.
Section 4.20. Opinion of Financial Advisor. The financial advisor of
Interpore, Genesis Merchant Group Securities LLC, has delivered to Interpore an
opinion dated the date of this Agreement to the effect that the consideration to
be received in the Merger by Interpore's shareholders is fair to Interpore's
shareholders from a financial point of view, a signed copy of which opinion has
been promptly delivered to Cross.
Section 4.21. No Existing Discussions. As of the date hereof, Interpore
is not engaged, directly or indirectly, in any material discussions or
negotiations with any other party with respect to an Acquisition Proposal (as
defined in Section 5.3).
Section 4.22. Interpore Rights Plan. Under the terms of the Interpore
Rights Plan, neither the execution of this Agreement or the Cross Stock Option
Agreement, nor the transactions contemplated hereby or thereby will cause a
Distribution Date to occur or cause the rights issued pursuant to the Interpore
Rights Plan to become exercisable, and all such rights shall become
non-exercisable at the Effective Time.
Section 4.23. Section 203 of the DGCL Not Applicable. The restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in DGCL Section 203) will not apply to the authorization, execution,
delivery and performance of this Agreement, the Stockholder Agreement or the
Stock Option Agreements by Cross or by the parties thereto or the consummation
of the Merger by Interpore. No other "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation is applicable
to Interpore or (by reason of Interpore's participation therein) the Merger or
the other transactions contemplated by this Agreement.
Section 4.24. Warn Act. Since the enactment of the WARN Act, neither
Interpore nor any of its Subsidiaries have effectuated (i) a "plant closing" (as
defined in the WARN Act) affecting any site of employment
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or one or more operating units within any site of employment of Interpore or any
of its Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act)
affecting Interpore or any of its Subsidiaries; nor has Interpore been affected
by any transaction or engaged in layoffs or employment terminations sufficient
in number to trigger application of any similar state or local law. None of the
employees of any of Interpore or its Subsidiaries has suffered an "employment
loss" (as defined in the WARN Act) during the ninety-day period prior to the
Effective Date of this Agreement.
Section 4.25. Transactions with Related Parties. No Related Party:
(a) has borrowed money or loaned money to Interpore or any
Subsidiary;
(b) has made or threatened any contractual or other claim of any
kind whatsoever against Interpore or any Subsidiary;
(c) has any interest in any property or assets used by Interpore
or any Subsidiary in its business;
(d) has been engaged in any other transaction with Interpore or
any Subsidiary (other than employment relationships disclosed in Section 4.14);
(e) owns or holds any capital stock or other ownership interest
in Cross; or
(f) since December 1, 1997, has purchased or sold any of the
capital stock or other ownership interests of Cross or Interpore.
Section 4.26. Suppliers and Customers. Section 4.26 of the Interpore
Disclosure Schedule contains a list of Interpore's top five suppliers and top
ten customers, determined in each case by aggregate purchases. No supplier or
customer accounted for more than ten percent of Interpore's and its
Subsidiaries' sales or purchases in either of the past two years and no other
supplier or customer material to the business of Interpore and its Subsidiaries,
taken as a whole, has materially decreased its supplies or orders, as the case
may be, or terminated its relationship with Interpore or any Subsidiary.
ARTICLE V.
COVENANTS
Section 5.1. Conduct of Business. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Cross and Interpore each agrees as to itself
and its respective Subsidiaries (except to the extent that the other party shall
otherwise consent in writing) to carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted, to pay
its debts and taxes when due subject to good faith disputes over such debts or
taxes, to pay or perform its other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve its relationships with customers, suppliers, distributors, and others
having business dealings with it. Except as expressly contemplated by this
Agreement or the Stock Option Agreements or as set forth in Section 5.1 of the
Cross Disclosure Schedule or Section 5.1 of the Interpore Disclosure Schedule,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, Cross and
Interpore each shall not (and shall not permit any of its respective
Subsidiaries to), without the written consent of the other party:
(a) Accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of such party
or authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements
(including severance agreements) in effect as of the date of this Agreement;
(b) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock;
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(c) Issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than (i) the grant
of options consistent with past practices to employees, consultants or
directors, which options represent in the aggregate the right to acquire no more
than 200,000 shares (net of cancellations) of Cross Common Stock or Interpore
Common Stock, as the case may be, (ii) the issuance of shares of Cross Common
Stock or Interpore Common Stock, as the case may be, pursuant to the exercise of
options, warrants or other convertible securities outstanding on the date of
this Agreement, and (iii) the issuance of capital stock under the Interpore
Rights Plan if required by the terms thereof; provided, however, that if either
party takes any of the actions listed in clauses (i), (ii) or (iii), such party
shall promptly give written notice of such action to the other party;
(d) Acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division, or otherwise acquire or agree to
acquire any assets (other than properties, inventory and other immaterial
assets, in each case in the ordinary course of business);
(e) Sell, lease, license or otherwise dispose of any of its
material properties or assets, except for transactions (including sales, leases,
licenses or dispositions of properties, inventory and other immaterial assets)
in the ordinary course of business;
(f) (i) Increase or agree to increase the compensation payable or
to become payable to its officers or employees, except for increases in salary
or wages of employees (other than officers) in accordance with past practices;
provided, however that if either party increases the salary or wages of its
employees, such party shall promptly give written notice of such action to the
other party, (ii) grant any additional severance or termination pay to, or enter
into any employment or severance agreements with, any employees or officers,
(iii) enter into any collective bargaining agreement (other than as required by
law or extensions to existing agreements in the ordinary course of business),
(iv) establish, adopt, enter into or amend any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees;
(g) Amend or propose to amend its Certificate of Incorporation,
Articles of Incorporation or Bylaws except as contemplated by this Agreement;
(h) Incur any indebtedness for borrowed money other than in the
ordinary course of business;
(i) Take any action that would or is reasonably likely to result
in a material breach of any provision of this Agreement or the Stock Option
Agreements or in any of its representations and warranties set forth in this
Agreement or the Stock Option Agreements being untrue on and as of the Closing
Date;
(j) Make or rescind any material express or deemed election
relating to Taxes, settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, or make any material change to any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of its federal income tax return for the taxable
year ending December 31, 1996, except as may be required by applicable law;
(k) Settle any litigation relating to the transactions
contemplated hereby other than any settlement which would not (i) have a Cross
Material Adverse Effect (if settled by Cross) or an Interpore Material Adverse
Effect (if settled by Interpore) or (ii) adversely affect the consummation of
the transactions contemplated hereby;
(l) Settle or take any other material action with respect to any
pending litigation;
(m) Cancel or amend any insurance policy; or
(n) Take, or agree in writing or otherwise to take, any of the
actions described in subsections (a) through (m) above.
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Section 5.2. Cooperation; Notice; Cure. Subject to compliance with
applicable law, from the date hereof until the Effective Time, each of Cross and
Interpore shall confer on a regular and frequent basis with one or more
representatives of the other party to report on the general status of ongoing
operations and shall promptly provide the other party or its counsel with copies
of all filings made by such party with any Governmental Entity in connection
with this Agreement, the Merger and the transactions contemplated hereby and
thereby. Each of Cross and Interpore shall promptly notify the other in writing
of, and will use all commercially reasonable efforts to cure before the Closing
Date, any event, transaction or circumstance, as soon as practical after it
becomes known to such party, that causes or will cause any covenant or agreement
of Cross or Interpore under this Agreement to be breached or that renders or
will render untrue any representation or warranty of Cross or Interpore
contained in this Agreement. No notice given pursuant to this paragraph shall
have any effect on the representations, warranties, covenants or agreements
contained in this Agreement for purposes of determining satisfaction of any
condition contained herein.
Section 5.3. No Solicitation.
(a) Cross and Interpore each shall not, directly or indirectly,
through any officer, director, employee, financial advisor, representative or
agent of such party (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transaction involving such party
or any of its Subsidiaries, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions with any person (or group of persons) other than Cross or Interpore
or their respective affiliates (a "Third Party") concerning, or provide any
non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to or recommend any Acquisition Proposal; provided,
however, that nothing contained in this Agreement shall prevent Cross or
Interpore, or their respective Board of Directors, from (A) furnishing
non-public information to, or entering into discussions or negotiations with,
any person or entity in connection with an unsolicited bona fide written
Acquisition Proposal by such person or entity or modifying or withdrawing its
recommendation with respect to the transactions contemplated hereby or
recommending an unsolicited bona fide written Acquisition Proposal to the
stockholders of such party, if and only to the extent that (1) the Board of
Directors of such party believes in good faith (after consultation with its
financial advisor) that such Acquisition Proposal is reasonably capable of being
completed on the terms proposed and, after taking into account the strategic
benefits anticipated to be derived from the Merger and the prospects of Cross
and Interpore as a combined company, would, if consummated, result in a
transaction more favorable to the stockholders of such party over the long term
than the transaction contemplated by this Agreement (a "Superior Proposal") and
the Board of Directors of such party determines in good faith after consultation
with outside legal counsel that such action is required for such Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law and (2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, such Board of Directors
receives from such person or entity an executed confidentiality and standstill
agreement with terms no less favorable to such party than those contained in the
Confidentiality Agreements, each dated October 10, 1997 between Interpore and
Cross (the "Confidentiality Agreements"); or (B) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal. Each
of Cross and Interpore agrees not to release any Third Party from, or waive any
provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another person who has made, or who may
reasonably be considered likely to make, an Acquisition Proposal, unless its
Board of Directors determines in good faith after consultation with outside
legal counsel that such action is required for such Board of Directors to comply
with its fiduciary duties to stockholders under applicable law.
(b) Cross and Interpore shall each notify the other party
immediately after receipt by Cross or Interpore (or any of their advisors) of
any Acquisition Proposal or any request for nonpublic information in connection
with an Acquisition Proposal or for access to the properties, books or records
of such party by any person or entity that informs such party that it is
considering making, or has made, an Acquisition Proposal. Such notice shall be
made orally and in writing and shall indicate in reasonable detail the identity
of the offeror and the terms and conditions of such proposal, inquiry or
contact. Such party shall continue to keep the other party hereto informed, on a
current basis, of the status of any such discussions or negotiations and the
terms being discussed or negotiated.
Section 5.4. Joint Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practical after the execution of this
Agreement, Cross and Interpore shall prepare and file with the SEC the Joint
Proxy Statement/Prospectus and the Registration Statement in which the Joint
Proxy Statement/Prospectus will be included as a prospectus, provided that Cross
and Interpore may delay the filing of the Registration Statement until
preliminary approval of the Joint Proxy Statement/Prospectus by the SEC. Cross
and Interpore shall use all reasonable efforts to cause the Registration
Statement to become effective as soon
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after such filing as practical. The Joint Proxy Statement/Prospectus shall
include the recommendation of the Board of Directors of Cross in favor of
adoption of this Agreement and the Merger and the recommendation of the Board of
Directors of Interpore in favor of adoption of this Agreement and the Merger;
provided that the Board of Directors of either party may modify or withdraw such
recommendation if such Board of Directors believes in good faith after
consultation with outside legal counsel that the modification or withdrawal of
such recommendation is required for such Board of Directors to comply with its
fiduciary duties under applicable law.
(b) Cross and Interpore shall make all necessary filings with
respect to the Merger under the Securities Act, the Exchange Act, applicable
state blue sky laws and the rules and regulations thereunder.
(c) If at any time prior to the Effective Time any event relating
to Cross or any of its Affiliates, officers or directors should be discovered by
Cross which should be set forth in an amendment to the Registration Statement or
a supplement to the Joint Proxy Statement/Prospectus, Cross shall promptly
inform Interpore. If at any time prior to the Effective Time any event relating
to Interpore or any of its Affiliates, officers or directors should be
discovered by Interpore which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement/Prospectus,
Interpore shall promptly inform Cross.
Section 5.5. NASDAQ Quotation and Listing. Each of Cross and Interpore
agrees to continue the quotation and listing of Cross Common Stock and Interpore
Common Stock, respectively, on NASDAQ SmallCap Market and the NASDAQ National
Market, respectively, during the term of this Agreement.
Section 5.6. Access to Information. Upon reasonable notice, Cross and
Interpore shall each (and shall cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its personnel, properties, books,
contracts, commitments and records and, during such period, each of Cross and
Interpore shall, and shall cause each of their respective Subsidiaries to,
furnish promptly to the other (a) copies of monthly financial reports and
development reports, (b) a copy of each report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of federal securities laws and (c) all other information concerning
its business, properties and personnel as such other party may reasonably
request. The parties will hold any such information which is nonpublic in
confidence in accordance with the Confidentiality Agreements. No information or
knowledge obtained in any investigation pursuant to this Section 5.6 shall
affect or be deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to consummate the
Merger.
Section 5.7. Stockholders' Meetings. Cross and Interpore each shall
call a meeting of its respective stockholders to be held as promptly as
practicable for the purpose of voting upon this Agreement and the Merger.
Subject to Sections 5.3 and 5.4, Cross and Interpore shall, through their
respective Boards of Directors, recommend to their respective stockholders
adoption of this Agreement and approval of such matters and shall coordinate and
cooperate with respect to the timing of such meetings and shall use their best
efforts to hold such meetings on the same day and as soon as practicable after
the date hereof. Unless otherwise required to comply with the applicable
fiduciary duties of the respective directors of Cross and Interpore, as
determined by such directors in good faith after consultation with outside legal
counsel, each party shall use all reasonable efforts to solicit from
stockholders of such party proxies in favor of such matters. Cross and Interpore
intend to submit additional proposals to their respective stockholders at the
Cross Stockholders' Meeting and the Interpore Stockholders' Meeting,
respectively, separate from the proposals referred to in the first sentence of
this Section 5.7, including Interpore's proposal to reincorporate by merger into
a Delaware corporation. The approval by Cross's stockholders or Interpore's
stockholders, as the case may be, of such additional proposals shall not be a
condition to the closing of the Merger under this Agreement.
Section 5.8. Legal Conditions to Merger.
(a) Cross and Interpore shall each use all reasonable efforts to
(i) take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary and proper under applicable law to consummate and
make effective the transactions contemplated hereby as promptly as practicable,
(ii) obtain from any Governmental Entity or any other third party any consents,
licenses, permits, waivers, approvals, authorizations, or orders required to be
obtained or made by Cross or Interpore or any of their Subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby including, without
limitation, the Merger, and (iii) as promptly as practicable, make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement and the Merger required under (A) the Securities Act and the
Exchange Act, and any other applicable federal or state securities laws, and (B)
any other applicable law. Cross and Interpore shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing
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party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith.
Cross and Interpore shall use their reasonable efforts to furnish to each other
all information required for any application or other filing to be made pursuant
to the rules and regulations of any applicable law (including all information
required to be included in the Joint Proxy Statement/Prospectus and the
Registration Statement) in connection with the transactions contemplated by this
Agreement.
(b) Cross and Interpore agree, and shall cause each of their
respective Subsidiaries, to cooperate and to use their respective reasonable
efforts to obtain any government clearances required for Closing (including
through compliance with any applicable foreign government reporting
requirements), to respond to any government requests for information, and to
contest and resist any action, including any legislative, administrative or
judicial action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Order") that restricts, prevents or prohibits the consummation
of the Merger or any other transactions contemplated by this Agreement. The
parties hereto will consult and cooperate with one another, and consider in good
faith the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to any federal, state or foreign antitrust or fair trade law.
Cross and Interpore shall cooperate and work together in any proceedings or
negotiations with any Governmental Entity relating to any of the foregoing.
Notwithstanding anything to the contrary in this Section 5.8, neither Cross nor
Interpore, nor any of their respective Subsidiaries, shall be required to take
any action that would reasonably be expected to substantially impair the overall
benefits expected, as of the date hereof, to be realized from the consummation
of the Merger.
(c) Each of Cross and Interpore shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, all reasonable efforts to obtain any
third party consents related to or required in connection with the Merger.
Section 5.9. Public Disclosure. Cross and Interpore shall use all
reasonable efforts to agree on the form and content of their respective press
releases, which press releases shall (i) announce the transactions contemplated
hereby and (ii) contain disclosure of Cross's and Interpore's respective
financial results for the quarter and year ended December 31, 1997. Thereafter,
Cross and Interpore shall consult with each other before issuing, and use all
reasonable efforts to agree upon, any press release or other public statement
with respect to any of the transactions contemplated hereby and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law.
Section 5.10. Nonrecognition Exchange. From and after the date hereof
and until the Effective Time, neither Cross nor Interpore, nor any of their
respective Subsidiaries or other Affiliates shall knowingly take any action, or
knowingly fail to take any action, that is reasonably likely to jeopardize the
treatment of the Merger as a reorganization described in Section 368(a) of the
Code. Each party shall provide reasonable cooperation to Porter, Wright, Morris
& Arthur to enable Porter, Wright, Morris and Arthur to issue their opinion as
set forth in Section 6.2(c).
Section 5.11. Pooling Accounting. From and after the date hereof and
until the Effective Time, neither Cross nor Interpore, nor any of their
respective Subsidiaries or other Affiliates shall knowingly take any action, or
knowingly fail to take any action, that is reasonably likely to jeopardize the
treatment of the Merger as a pooling of interests for accounting purposes. Cross
and Interpore shall each provide reasonable cooperation to Coopers & Lybrand,
L.L.P. and Ernst & Young LLP to enable them to issue their respective letters as
set forth in Section 6.1(e).
Section 5.12. Affiliate Agreements.
(a) Upon the execution of this Agreement, Cross will provide
Interpore with a list of those persons who are, in Cross's reasonable judgment,
"affiliates" of Cross, within the meaning of Rule 145 or for purposes (each such
person who is an "affiliate" of Cross within the meaning of Rule 145 is referred
to as an "Affiliate") promulgated under the Securities Act ("Rule 145"). Cross
shall provide Interpore such information and documents as Interpore shall
reasonably request for purposes of reviewing such list and shall notify
Interpore in writing regarding any change in the identity of its Affiliates
prior to the Closing Date. Cross shall use all reasonable efforts to deliver or
cause to be delivered to Interpore within 30 days following the date hereof (and
in any case at least 30 days prior to the Effective Time) from each of its
Affiliates, an executed Affiliate Agreement, in substantially the form of
Exhibit E attached hereto (each, a "Cross Affiliate Agreement," and together,
the "Cross Affiliate Agreements").
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(b) Upon the execution of this Agreement, Interpore will provide
Cross with a list of those persons who are, in Interpore's reasonable judgment,
Affiliates of Interpore. Interpore shall provide Cross such information and
documents as Cross shall reasonably request for purposes of reviewing such list
and shall notify Cross in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. Interpore shall use all reasonable efforts
to deliver or cause to be delivered to Interpore within 30 days following the
date hereof (and in any case at least 30 days prior to the Effective Time) from
each of its Affiliates, an executed Affiliate Agreement, in substantially the
form of Exhibit F attached hereto (each, a "Interpore Affiliate Agreement," and
together, the "Interpore Affiliate Agreements").
Section 5.13. NASDAQ Listing. Interpore shall use all reasonable
efforts to cause the shares of Interpore Common Stock to be issued in the Merger
and upon exercise of Cross Stock Options to be authorized for inclusion in the
NASDAQ National Market, prior to the Effective Time, subject to official notice
of issuance.
Section 5.14. Cross Stockholder Agreement Legend. Cross will inscribe
upon any Certificate representing Subject Shares tendered by a Stockholder (as
defined in the Cross Stockholder Agreement) for such purpose the following
legend: "THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF CROSS
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDER AGREEMENT DATED AS
OF FEBRUARY 11, 1998, AND ARE SUBJECT TO THE TERMS THEREOF. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF CROSS."
Section 5.15. Interpore Stockholder Agreement Legend. Interpore will
inscribe upon any Certificate representing Subject Shares tendered by a
Stockholder (as defined in the Interpore Stockholder Agreement) for such purpose
the following legend: "THE SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE, OF
INTERPORE REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDER AGREEMENT
DATED AS OF FEBRUARY 11, 1998, AND ARE SUBJECT TO THE TERMS THEREOF. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF INTERPORE."
Section 5.16. Stock Plans.
(a) At the Effective Time, each outstanding option to purchase
shares of Cross Common Stock (an "Cross Stock Option") under the Cross Stock
Plans, whether vested or unvested, shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under such Cross
Stock Option, the same number of shares of Interpore Common Stock as the holder
of such Cross Stock Option would have been entitled to receive pursuant to the
Merger, had such holder exercised such option in full immediately prior to the
Effective Time (rounded downward to the nearest whole number), at a price per
share (rounded downward to the nearest whole cent) equal to (y) the aggregate
exercise price for the shares of Cross Common Stock purchasable pursuant to such
Cross Stock Option immediately prior to the Effective Time divided by (z) the
number of full shares of Interpore Common Stock deemed purchasable pursuant to
such Cross Stock Option in accordance with the foregoing.
(b) As soon as practicable after the Effective Time, Interpore
shall deliver to the participants in the Cross Stock Plans appropriate notice
setting forth such participants' rights pursuant thereto and the grants pursuant
to Cross Stock Plans shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 5.15 after giving effect to
the Merger).
(c) Interpore shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Interpore Common Stock for
delivery under Cross Stock Plans assumed in accordance with this Section 5.16.
As soon as practicable after the Effective Time, Interpore shall amend its
registration statement on Form S-8 (or any successor or other appropriate
forms), with respect to the shares of Interpore Common Stock deemed purchasable
pursuant to the Cross Stock Options and shall use its reasonable efforts to
maintain the effectiveness of such registration statement (and maintain the
current status of the prospectus contained therein) for so long as such options
remain outstanding.
(d) The Board of Directors of Cross shall, prior to or as of the
Effective Time, take all necessary actions, pursuant to and in accordance with
the terms of the Cross Stock Plans and the instruments evidencing the Cross
Stock Options, to provide for the conversion of the Cross Stock Options into
options to acquire Interpore Common Stock in accordance with this Section 5.16
without obtaining consent of the holders of the Cross Stock Options in
connection with such conversion; provided, however, that Cross shall use all
reasonable efforts to obtain from each holder of Cross Stock Options a waiver of
any right of such holder to receive any cash payment which may become due with
respect to any Cross Stock Options that are exercisable immediately prior to the
Effective Time as a result of the consummation of the transactions contemplated
hereby.
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(e) The Board of Directors of Cross shall, prior to or as of the
Effective Time, take appropriate action to approve the deemed cancellation of
the Cross Stock Options for purposes of Section 16(b) of the Exchange Act. The
Board of Directors of Interpore shall, prior to or as of the Effective Time,
take appropriate action to approve the deemed grant of options to purchase
Interpore Common Stock under the Cross Stock Options (as converted pursuant to
this Section 5.16) for purposes of Section 16(b) of the Exchange Act.
Section 5.17. Brokers or Finders. Each of Cross and Interpore
represents, as to itself, its Subsidiaries and its Affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement
except Piper Jaffray Inc., whose fees and expenses will be paid by Cross in
accordance with Cross's agreement with such firm (a copy of which has been
delivered by Cross to Interpore prior to the date of this Agreement), and
Genesis Merchant Group Securities LLC, whose fees and expenses will be paid by
Interpore in accordance with Interpore's agreement with such firm (a copy of
which has been delivered by Interpore prior to the date of this Agreement). Each
of Interpore and Cross agrees to indemnify and hold the other harmless from and
against any and all claims, liabilities or obligations with respect to any such
fees, commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or any of its Affiliates.
Section 5.18. Indemnification.
(a) From and after the Effective Time, each of Cross and
Interpore agrees that it will indemnify and hold harmless each present and
former director and officer of Cross and Interpore and their respective
Subsidiaries, determined as of the Effective Time (the "Indemnified Parties"),
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities or amounts paid in settlement incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that Cross or Interpore, as the case may be, would have been permitted
under Delaware or California law, as applicable, and its certificate or articles
of incorporation or bylaws in effect on the date hereof to indemnify such
Indemnified Party (and such party shall also advance expenses as incurred to the
fullest extent permitted under applicable law, provided the Indemnified Party to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such Indemnified Party is not entitled to
indemnification).
(b) For a period of six years after the Effective Time, Interpore
shall maintain (to the extent available in the market) in effect a directors'
and officers' liability insurance policy covering those persons who are
currently covered by Cross's or Interpore's directors' and officers' liability
insurance policy (copies of which have been heretofore delivered by Cross and
Interpore to each other) with coverage in amount and scope at least as favorable
as Cross's or Interpore's existing coverage; provided that in no event shall
Interpore be required to expend in the aggregate in excess of 200% of the annual
premium currently paid by Cross and Interpore for such coverage; and if such
premium would at any time exceed 200% of the such amount, then Interpore shall
maintain insurance policies which provide the maximum and best coverage
available at an annual premium equal to 200% of such amount.
(c) The provisions of this Section 5.18 are intended to be an
addition to the rights otherwise available to the current officers and directors
of Cross and Interpore by law, charter, statute, bylaw or agreement, and shall
operate for the benefit of, and shall be enforceable by, each of the Indemnified
Parties, their heirs and their representatives.
Section 5.19. Stock Option Agreements. Interpore and Cross each agree
to fully perform their respective obligations under the Stock Option Agreements.
Section 5.20. No Warn Act Activities . From the date hereof through the
Closing Date, Cross shall not effectuate (i) a "plant closing" (as defined in
the WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of Cross's or the
Subsidiaries' business, of (ii) a "mass layoff" (as defined in the WARN Act)
affecting any site of employment or facility of Cross's or the Subsidiaries'
business without giving all notices required by the WARN Act, or any similar
state law or regulation and Cross shall assume all liability for any alleged
failure to give such notice and indemnify and hold harmless Interpore and its
Affiliates for any and all claims asserted under the WARN Act or any similar
state law or regulation because of a "plant closing" or a "mass layoff"
occurring on or before the Closing Date. For purposes of this Agreement, the
Closing Date is the "effective date" for purposes of the WARN Act.
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Section 5.21. Post-Merger Corporate Governance; Employment Arrangements.
(a) Immediately following the Effective Time, the total number of
persons serving on the Board of Directors of Interpore shall be six (unless
otherwise agreed in writing by Interpore and Cross prior to the Effective Time),
three of whom shall be Interpore Directors and three of whom shall be Cross
Directors (as such terms are defined below). In the event that, prior to the
Effective Time, any person so selected to serve as an Interpore Director after
the Effective Time is unable or unwilling to serve in such position, the Board
of Directors of Interpore shall designate, at its sole discretion, another of
its members to serve in such person's stead. In the event that, prior to the
Effective Time, any person so selected to serve as a Cross Director after the
Effective Time is unable or unwilling to serve in such position, the Board of
Directors of Cross shall designate, at its sole discretion, another of its
members to serve in such person's stead. The persons to serve initially on the
Board of Directors of Interpore immediately after the Effective Time who are
"Interpore Directors" shall be David C. Mercer, William A. Eisenecher and G.
Bradford Jones; and the persons to serve initially on the Board of Directors of
Interpore at the Effective Time who are "Cross Directors" shall be Joseph A.
Mussey, Daniel A. Funk and Robert J. Williams. The Board of Directors of
Interpore immediately following the Effective Time shall be divided into three
classes, and the Interpore Directors and Cross Directors shall be evenly spread
between Interpore's three classes of directors as follows: Messrs. Mercer and
Mussey shall serve until the third annual meeting of Interpore's stockholders
following the Effective Time; (ii) Messrs. Eisenecher and Funk shall serve until
the second annual meeting of Interpore's stockholders following the Effective
Time; and (iii) Messrs. Jones and Williams shall serve until the first annual
meeting of Interpore's stockholders following the Effective Time.
(b) Immediately following the Effective Time: (i) David C.
Mercer, the current President and Chief Executive Officer of Interpore, shall
hold the position of Chief Executive Officer and Chairman of the Board of
Interpore, (ii) Joseph A. Mussey, the current President and Chief Executive
Officer of Cross, shall hold the position of President and Chief Operating
Officer of Interpore, (iii) Richard L. Harrison, the current Vice President and
Chief Financial Officer of Interpore, shall hold the position of Senior Vice
President and Chief Financial Officer of Interpore and (iv) Paul A. Miller, the
current Vice President and Chief Financial Officer of Cross, shall hold the
position of Vice President, Administration and Business Development of
Interpore. If any of the persons identified above in this Section 5.21(b) is
unable or unwilling to hold such offices as set forth above, his successor shall
be selected by the Board of Directors of Interpore in accordance with the Bylaws
of Interpore. None of Messrs. Mercer, Mussey, Harrison or Miller shall have any
right, remedy or cause of action under this Section 5.21, nor shall they be
third party beneficiaries of this Section 5.21.
(c) Each of Interpore and Cross shall cause Interpore to
incorporate the provisions contained in this Section 5.21(a), as appropriate,
into the Bylaws of Interpore in effect at the Effective Time, which provisions
shall thereafter be amended only with the approval of 75% of the members of the
Board of Directors of Interpore.
Section 5.22. Conveyance Taxes. Cross and Interpore shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees or any similar taxes which become payable
in connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
Section 5.23. Transfer Taxes. Cross shall pay, and Interpore shall pay,
on behalf of the stockholders of Cross and Interpore, respectively, any transfer
taxes imposed on the stockholders of Cross and Interpore, respectively, by any
State of the United States (and any interest with respect to such taxes) (the
"Transfer Taxes"), which become payable in connection with the transactions
contemplated by this Agreement. Cross and Interpore shall cooperate in the
preparation, execution and filing of any required returns with respect to such
Transfer Taxes (including returns on behalf of the stockholders of Cross and
Interpore). The Joint Proxy Statement/Prospectus shall provide that the
stockholders of Cross and Interpore shall be deemed to have (i) authorized Cross
and Interpore, respectively, to prepare, execute and file any tax returns
relating to Transfer Taxes and pay any Transfer Taxes arising in connection with
the Merger, in each case, on behalf of such holders and (ii) agreed to be bound
by the values and allocations established by Cross and Interpore in the
preparation of any return with respect to the Transfer Taxes, if applicable.
Section 5.24. Stockholder Litigation. Each of Cross and Interpore shall
give the other the reasonable opportunity to participate in the defense of any
stockholder litigation against Cross or Interpore, as applicable, and its
directors relating to the transactions contemplated hereby.
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Section 5.25. Employee Benefits; Severance.
(a) After the Effective Time, Interpore's management shall submit
to Interpore's Board of Directors for its approval an annual bonus plan for
management employees for the 1998 fiscal year, which plan shall replace the
current Cross and Interpore annual bonus plans, and shall calculate the amounts
payable to participants thereunder in accordance with the terms of such plan.
(b) For purposes of determining eligibility to participate,
vesting, entitlement to benefits and in all other respects where length of
service is relevant (except for pension benefit accruals) under any employee
benefit plan or arrangement covering employees of Cross and its Subsidiaries
("Cross Employees") or employees of Interpore and its Subsidiaries ("Interpore
Employees") following the Effective Time, Interpore shall cause such plans or
arrangements to recognize service credit for service with Cross or Interpore (as
applicable) and any of their respective Subsidiaries to the same extent such
service was recognized under the applicable employee benefit plans immediately
prior to the Effective Time.
(c) Immediately prior to the Effective Time, Cross shall
terminate the Danninger Medical Technology, Inc. Retirement Express Savings Plan
(the "Cross 401(k) Plan"), and as soon as practicable following the Effective
Time, Cross shall prepare and file with the IRS an application for a
determination letter with respect to the qualified status of the Cross 401(k)
Plan.
(d) Interpore agrees to use all reasonable efforts, including
obtaining any necessary employee consents, to prevent the automatic funding of
any escrow, trust or similar arrangement pursuant to any employment agreement,
arrangement or benefit plan that arises in connection with the execution of this
Agreement or the consummation of any of the transactions contemplated hereby.
Section 5.26. Supplemental Indenture. Within a reasonable time after
the Effective Time, Interpore agrees to enter into a Supplemental Indenture (the
"Supplemental Indenture") with the Trustee under that certain Indenture between
Cross and Fifth Third Bank, dated as of May 15, 1996 (the "Existing Indenture"),
in connection with the issuance by Cross of its 8.5% Convertible Subordinated
Debentures Due 2003 (the "Debentures"). The Supplemental Indenture shall provide
that after the Effective Time, the holder of each Debenture shall have the right
to convert such Debenture into the same number of shares of Interpore Common
Stock that such holder would have been entitled to receive in the Merger if such
Debenture had been converted into Cross Common Stock immediately prior to the
Effective Time, subject to adjustment pursuant to Section 5.04 of the Existing
Indenture.
Section 5.27. No Tax Offset Payments. Cross shall not make any "Tax
Offset Payment" (as such term is defined in Section 10 of the Danninger Medical
Technology, Inc. 1994 Stock Option Plan).
ARTICLE VI.
CONDITIONS TO MERGER
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger
. The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction or waiver by each party prior to the
Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved in the manner required under the DGCL and the CCC by the
respective holders of the issued and outstanding shares of capital stock of
Cross and Interpore.
(b) Approvals. Other than the filings provided for by Section
1.2, all authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any Governmental
Entities, the failure of which to file, obtain or occur is reasonably likely to
have a Cross Material Adverse Effect or an Interpore Material Adverse Effect,
shall have been filed, been obtained or occurred. Without limiting the foregoing
sentence, the SEC shall have not indicated its opposition to the pooling of
interests accounting treatment of the Merger.
(c) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order.
(d) No Injunctions. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any order, executive order, stay,
decree, judgment or injunction or statute, rule, regulation
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which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(e) Pooling Letters. Cross and Interpore shall have received
letters, dated as of the Closing Date, from Coopers & Lybrand, L.L.P. and Ernst
& Young LLP, respectively, addressed to Cross and Interpore (i) regarding their
concurrence with the respective conclusions of management of Cross and
Interpore, as to the appropriateness of the pooling of interests accounting,
under Accounting Principles Board Opinion No. 16 for the transactions
contemplated hereby and (ii) stating that the basis for such concurrence is
their belief that the criteria for such accounting treatment have been met, it
being agreed that Cross and Interpore shall each provide reasonable cooperation
to Coopers & Lybrand, L.L.P. and Ernst & Young LLP to enable them to issue such
letters.
(f) NASDAQ Listing. The shares of Interpore Common Stock to be
issued in the Merger and upon exercise of Cross Stock Options shall have been
authorized for inclusion in the NASDAQ National Market, subject to official
notice of issuance.
Section 6.2. Additional Conditions to Obligations of Cross. The
obligation of Cross to effect the Merger is subject to the satisfaction of each
of the following conditions prior to the Effective Time, any of which may be
waived in writing exclusively by Cross:
(a) Representations and Warranties. The representations and
warranties of Interpore set forth in this Agreement shall be true and correct as
of the date of this Agreement and (except to the extent such representations
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except for, (i) changes contemplated by this Agreement and
(ii) inaccuracies or changes which, individually or in the aggregate, have not
had and are not reasonably likely to have an Interpore Material Adverse Effect
or a material adverse effect upon the consummation of the transactions
contemplated hereby; and Cross shall have received a certificate signed on
behalf of Interpore by the chief executive officer and the chief financial
officer of Interpore to such effect.
(b) Performance of Obligations of Interpore. Interpore shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Cross shall have
received a certificate signed on behalf of Interpore by the chief executive
officer and the chief financial officer of Interpore to such effect.
(c) Tax Opinion. Cross shall have received the opinion of Porter,
Wright, Morris & Arthur, counsel to Cross, based upon reasonably requested
representation letters and dated the Closing Date, to the effect that the Merger
will be treated as a reorganization described in Section 368(a) of the Code.
This condition shall be deemed to have been waived by Cross if Cross fails to
take all reasonable steps, including making all necessary representations, to
enable Porter, Wright, Morris & Arthur to issue their opinion. In rendering such
tax opinion, Porter, Wright, Morris & Arthur shall be entitled to make certain
reasonable qualifications and assumptions and to rely upon the representations
contained in Sections 3.16 and 4.16 of this Agreement and such other
representations as it reasonably deems necessary, including, without limitation,
representations of Cross's officers and stockholders holding in excess of five
percent (5%) of the outstanding Cross Common Stock, and representations of
officers of Interpore, in each case reasonably satisfactory in form and
substance to Porter, Wright, Morris & Arthur.
(d) No Trigger of Interpore Rights Plan. No event shall have
occurred that has or would result in the triggering of any right or entitlement
of stockholders of Interpore under the Interpore Rights Plan, or will occur as a
result of the consummation of the Merger.
Section 6.3. Additional Conditions to Obligations of Interpore. The
obligations of Interpore to effect the Merger are subject to the satisfaction of
each of the following conditions prior to the Effective Time, any of which may
be waived in writing exclusively by Interpore:
(a) Representations and Warranties. The representations and
warranties of Cross set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, except for, (i) changes contemplated by this
Agreement and (ii) inaccuracies or changes which, individually or in the
aggregate, have not had and are not reasonably likely to have a Cross Material
Adverse Effect, or a material adverse effect upon the consummation of the
transactions contemplated hereby; and Interpore shall have received a
certificate signed on behalf of Cross by the chief executive officer and the
chief financial officer of Cross to such effect.
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(b) Performance of Obligations of Cross. Cross shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date; and Interpore shall
have received a certificate signed on behalf of Cross by the chief executive
officer and the chief financial officer of Cross to such effect.
(c) Resignation of Edward R. Funk. Edward R. Funk shall have
resigned his employment with Cross and its Subsidiaries, and Cross shall have
terminated (i) Mr. Funk's current employment agreements with Cross and its
Subsidiaries, (ii) that certain Split Dollar Insurance Plan between Cross and
Edward R. Funk Irrevocable Trust Life Insurance Trust #1 as the Owner dated
11/10/88 and (iii) that certain Split Dollar Insurance Plan between Cross and
Edward R. Funk Irrevocable Trust Life Insurance Trust #2 as the Owner dated
11/10/88.
(d) Insurance. Cross shall have obtained products liability
insurance policies covering any Cross spinal fixation products used in surgeries
on or after January 1, 1995 and on or before December 31, 1996, for claims
brought on or before December 31, 2003, without regard to the date of injury,
with coverage in an amount equal to $5 million per occurrence and $5 million in
the aggregate per calendar year, for a total purchase price not to exceed
$400,000; provided such policies shall not contain exclusions other than those
reasonably acceptable to Interpore. Such insurance coverage shall be in addition
to Cross's existing coverage.
(e) Appraisal Rights. Stockholders of Cross making written demand
pursuant to Section 262(d)(1) of the DGCL to exercise appraisal rights with
respect to the Merger shall hold fewer than five percent (5%) of the outstanding
shares of Cross Common Stock.
(f) Dissenters' Rights. Stockholders of Interpore making written
demand pursuant to Chapter 13 of the CCC to exercise dissenters' rights with
respect to the Merger shall hold fewer than five percent (5%) of the outstanding
shares of Interpore Common Stock.
ARTICLE VII.
TERMINATION AND AMENDMENT
Section 7.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 7.1(b) through 7.1(h), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Cross or Interpore:
(a) by mutual written consent of Cross and Interpore; or
(b) by either Cross or Interpore if the Merger shall not have
been consummated by June 30, 1998 (provided that (i) either Cross or Interpore
may extend such date to August 31, 1998 by providing written notice thereof to
the other party on or prior to June 30, 1998 (August 31, 1998, as it may be so
extended, shall be referred to herein as the "Outside Date") and (ii) the right
to terminate this Agreement under this Section 7.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the Merger to occur on or before such
date); or
(c) by either Cross or Interpore if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other nonappealable final action, in
each case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) (i) by Cross or Interpore, if, at the Interpore Stockholders'
Meeting (including any adjournment or postponement), the requisite vote of the
stockholders of Interpore in favor of the approval and adoption of this
Agreement and the Merger shall not have been obtained; or (ii) by Interpore or
Cross if, at the Cross Stockholders' Meeting (including any adjournment or
postponement), the requisite vote of the stockholders of Cross in favor of the
approval and adoption of this Agreement and the Merger shall not have been
obtained; or
(e) by Cross, if (i) the Board of Directors of Interpore shall
have withdrawn or modified its recommendation of this Agreement or the Merger
(provided that Cross's right to terminate this Agreement under such clause
(e)(i) shall not be available if at such time Interpore would be entitled to
terminate this Agreement under Section 7.1(h) without giving effect to the cure
period); (ii) after the receipt by Interpore of an Acquisition Proposal, Cross
requests in writing that the Board of Directors of Interpore reconfirm its
recommendation of this Agreement and the Merger to the stockholders of Interpore
and the Board of Directors of Interpore fails to do so within 10 business days
after its receipt of Cross's request; (iii) the Board of Directors of Interpore
shall have
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recommended to the stockholders of Interpore an Alternative Transaction (as
defined in Section 7.3(e)); (iv) a tender offer or exchange offer for 20% or
more of the outstanding shares of Interpore Common Stock is commenced (other
than by Cross or an Affiliate of Cross) and the Board of Directors of Interpore
recommends that the stockholders of Interpore tender their shares in such tender
or exchange offer; or (v) for any reason Interpore fails to call and hold the
Interpore Stockholders' Meeting by the Outside Date (provided that Cross's right
to terminate this Agreement under such clause (e)(v) shall not be available if
at such time Interpore would be entitled to terminate this Agreement under
Section 7.1(h) without giving effect to the cure period); or
(f) by Interpore, if (i) the Board of Directors of Cross shall
have withdrawn or modified its recommendation of this Agreement or the Merger
(provided that Interpore's right to terminate this Agreement under such clause
(f)(i) shall not be available if at such time Cross would be entitled to
terminate this Agreement under Section 7.1(h) without giving effect to the cure
period); (ii) after the receipt by Cross of an Acquisition Proposal, Interpore
requests in writing that the Board of Directors of Cross reconfirm its
recommendation of this Agreement and the Merger to the stockholders of Interpore
and the Board of Directors of Cross fails to do so within 10 business days after
its receipt of Interpore's request; (iii) the Board of Directors of Cross shall
have recommended to the stockholders of Cross an Alternative Transaction (as
defined in Section 7.3(e)); (iv) a tender offer or exchange offer for 20% or
more of the outstanding shares of Cross Common Stock is commenced (other than by
Interpore or an Affiliate of Interpore) and the Board of Directors of Cross
recommends that the stockholders of Cross tender their shares in such tender or
exchange offer; or (v) for any reason Cross fails to call and hold the Cross
Stockholders' Meeting by the Outside Date (provided that Interpore's right to
terminate this Agreement under such clause (f)(v) shall not be available if at
such time Cross would be entitled to terminate this Agreement under Section
7.1(h) without giving effect to the cure period); or
(g) by Cross or Interpore, prior to the approval of this
Agreement by the stockholders of such party, if, as a result of a Superior
Proposal received by such party from a Third Party, the Board of Directors of
such party determines in good faith after consultation with outside legal
counsel that accepting such Superior Proposal is required for such Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law; provided, however, that no termination shall be effective pursuant to this
Section 7.1(g) under circumstances in which a termination fee is payable by the
terminating party pursuant to Section 7.3(b)(iii) or (c)(iii), unless
concurrently with such termination, such termination fee is paid in full by the
terminating party in accordance with Section 7.3(b)(iii) or (c)(iii), as
applicable; or
(h) by Cross or Interpore, if (A) there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) will cause the conditions set
forth in Section 6.2(a) or (b) (in the case of termination by Cross) or 6.3(a)
or (b) (in the case of termination by Interpore) not to be satisfied, and (ii)
shall not have been cured within 20 business days following receipt by the
breaching party of written notice of such breach from the other party; or (B)
any event shall have occurred which makes it impossible for the conditions set
forth in Article VI hereof (other than Section 6.1(a), 6.1(e), 6.2(d) and
6.3(c)) to be satisfied, provided that any termination pursuant to this clause
(B) shall not be effective until 20 business days after notice thereof is
delivered by the party seeking to terminate to the other party, and shall be
automatically rescinded if (1) such condition is solely for the benefit of the
party receiving such notice and (2) such party, prior to such 20th business day,
irrevocably waives satisfaction of such condition based on such event.
Section 7.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Cross,
Interpore, or their respective officers, directors, stockholders or Affiliates,
except as set forth in Sections 5.17 and 7.3 and except that such termination
shall not limit liability for a willful breach of this Agreement; provided that,
the provisions of Sections 5.17 and 7.3 of this Agreement, the Stock Option
Agreements and the Confidentiality Agreements shall remain in full force and
effect and survive any termination of this Agreement.
Section 7.3. Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated.
(b) Cross shall pay Interpore a termination fee of $2.0 million
upon the earliest to occur of the following events:
(i) the termination of this Agreement by either Interpore
or Cross pursuant to Section 7.1(d)(ii), but only if a proposal for an
Alternative Transaction (as defined below) involving Cross shall
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have been publicly announced prior to the Cross Stockholders' Meeting and either
a definitive agreement for an Alternative Transaction is entered into, or an
Alternative Transaction is consummated, within eighteen months of such
termination;
(ii) the termination of this Agreement by Interpore
pursuant to Section 7.1(f); or
(iii) the termination of this Agreement by Cross pursuant
to Section 7.1(g).
Cross's payment of a termination fee pursuant to this subsection
shall be the sole and exclusive remedy of Interpore against Cross and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise to
such payment. Notwithstanding the foregoing, if and to the extent that Interpore
has purchased shares of Cross Common Stock pursuant to the Interpore Stock
Option Agreement prior to the payment of the $2.0 million fee provided for
herein (the "Fee Payment Date"), the amount payable to Interpore under this
Section 7.3(b), together with (i)(x) the net cash amount received by Interpore
prior to the Fee Payment Date pursuant to Cross's repurchase of Shares (as
defined in the Interpore Stock Option Agreement) pursuant to Section 7 of the
Interpore Stock Option Agreement, less (y) Interpore's purchase price for such
Shares, and (ii)(x) the amounts received by Interpore prior to the Fee Payment
Date pursuant to the sale of Shares (or any other securities into which such
Shares are converted or exchanged), less (y) Interpore's purchase price for such
Shares, shall not exceed $2.0 million.
(c) Interpore shall pay Cross a termination fee of $2.0 million
upon the earliest to occur of the following events:
(i) the termination of this Agreement by either Cross or
Interpore pursuant to Section 7.1(d)(i), but only if a proposal for an
Alternative Transaction (as defined below) involving Interpore shall have been
publicly announced prior to the Interpore Stockholders' Meeting and either an
Alternative Transaction is entered into, or an Alternative Transaction is
consummated, within eighteen months of such termination;
(ii) the termination of this Agreement by Cross pursuant
to Section 7.1(e); or
(iii) the termination of this Agreement by Interpore
pursuant to Section 7.1(g).
Interpore's payment of a termination fee pursuant to this
subsection shall be the sole and exclusive remedy of Cross against Interpore and
any of its Subsidiaries and their respective directors, officers, employees,
agents, advisors or other representatives with respect to the occurrences giving
rise to such payment. Notwithstanding the foregoing, if and to the extent that
Cross has purchased shares of Interpore Common Stock pursuant to the Cross Stock
Option Agreement prior to the Fee Payment Date, the amount payable to Cross
under this Section 7.3(c), together with (i)(x) the net cash amount received by
Cross prior to the Fee Payment Date pursuant to Interpore's repurchase of Shares
(as defined in the Cross Stock Option Agreement) pursuant to Section 7 of the
Cross Stock Option Agreement, less (y) Cross's purchase price for such Shares,
and (ii)(x) the amounts received by Cross prior to the Fee Payment Date pursuant
to the sale of Shares (or any other securities into which such Shares are
converted or exchanged), less (y) Cross's purchase price for such Shares, shall
not exceed $2.0 million.
(d) The fees payable pursuant to Section 7.3(b) or 7.3(c) shall
be paid concurrently with the first to occur of the events described in Section
7.3(b)(i), (ii) or (iii) or 7.3(c)(i), (ii) or (iii), respectively.
(e) As used in this Agreement, "Alternative Transaction" means
either (i) a transaction pursuant to which any Third Party acquires more than
20% of the outstanding shares of Cross Common Stock or Interpore Common Stock,
as the case may be, pursuant to a tender offer or exchange offer or otherwise,
(ii) a merger or other business combination involving Cross or Interpore
pursuant to which any Third Party (or the stockholders of a Third Party)
acquires more than 20% of the outstanding shares of Cross Common Stock or
Interpore Common Stock, as the case may be, or the entity surviving such merger
or business combination, (iii) any other transaction pursuant to which any Third
Party acquires control of assets (including for this purpose the outstanding
equity securities of Subsidiaries of Cross or Interpore, and the entity
surviving any merger or business combination including any of them) of Cross or
Interpore having a fair market value (as determined by the Board of Directors of
Cross or Interpore, as the case may be, in good faith) equal to more than 20% of
the fair market value of all the assets of Cross or Interpore, as the case may
be, and their respective Subsidiaries, taken as a whole, immediately prior to
such transaction, or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
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Section 7.4. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Cross or Interpore, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 7.5. Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained here. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Nonsurvival of Representations, Warranties and Agreements.
None of the representations, warranties and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Sections 1.4, 2.1, 2.2, 5.17, 5.18,
5.20 and 5.24 and Article VIII, the agreements of the Affiliates delivered
pursuant to Section 5.12 and the Confidentiality Agreements.
Section 8.2. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Cross, to
Cross Medical Products, Inc.
5160 Blazer Memorial Parkway
Suite A
Dublin, Ohio 43017
Attn: Joseph A. Mussey
Telecopy: (614) 718-0528
with a copy to
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
Attn: Curtis A. Loveland, Esq.
Telecopy: (614) 227-2100
(b) if to Interpore, to
Interpore International
181 Technology Drive
Irvine, California 92718
Attn: David C. Mercer
Telecopy: (714) 453-1884
with a copy to:
Latham & Watkins
650 Town Center Drive
20th Floor
Costa Mesa, California 92626-1925
Attn: Charles K. Ruck, Esq.
Telecopy: (714) 755-8290
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Section 8.3. Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement", "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
February 11, 1998.
Section 8.4. Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 8.5. Entire Agreement; No Third Party Beneficiaries. This
Agreement and all documents and instruments referred to herein (a) constitute
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 5.17 are not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder;
provided that the Confidentiality Agreements shall remain in full force and
effect until the Effective Time. Each party hereto agrees that, except for the
representations and warranties contained in this Agreement, neither Cross nor
Interpore makes any other representations or warranties, and each hereby
disclaims any other representations and warranties made by itself or any of its
officers, directors, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement or
the transactions contemplated hereby, notwithstanding the delivery or disclosure
to the other or the other's representatives of any documentation or other
information with respect to any one or more of the foregoing.
Section 8.6. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable conflicts of law.
Section 8.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
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IN WITNESS WHEREOF, Cross and Interpore have caused this Agreement to be
signed by their respective duly authorized officers as of the date first written
above.
INTERPORE INTERNATIONAL, A CALIFORNIA
CORPORATION
By: /s/ DAVID C. MERCER
---------------------------------------
Name: David C. Mercer
Title: President and Chief Executive
Officer
BUCKEYE INTERNATIONAL, INC., A DELAWARE
CORPORATION
By: /s/ DAVID C. MERCER
---------------------------------------
Name: David C. Mercer
Title: President and Chief Executive
Officer
CROSS MEDICAL PRODUCTS, INC., A DELAWARE
CORPORATION
By: /s/ JOSEPH A. MUSSEY
---------------------------------------
Name: Joseph A. Mussey
Title: President and Chief Executive
Officer
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<PAGE> 202
ANNEX II.
FAIRNESS OPINION OF GENESIS
GENESIS MERCHANT GROUP
SECURITIES
February 11, 1998
Board of Directors
Interpore International
181 Technology Drive
Irvine, California 92718
Gentlemen:
We understand that Interpore International, a California corporation
("Interpore" or the "Company"), Break Acquisition Corporation, a Delaware
corporation ("NewCo"), and Cross Medical Products, Inc., a Delaware corporation
("Cross") propose to enter into an Agreement and Plan of Merger ("Agreement"),
dated as of February 11, 1998, pursuant to which Cross will merge its assets and
liabilities into NewCo in a pooling transaction in exchange for 1.275 (the
"Exchange Ratio") shares of Interpore common stock for each share of Cross
common stock (the "Merger") outstanding at the closing of the Merger. The terms
of the Merger are more fully described in the Agreement.
You have requested our opinion with respect to the fairness to Interpore,
from a financial point of view as of the date hereof, of the Exchange Ratio to
be used in calculating the number of Interpore common shares to be issued to
Cross shareholders in exchange for each common share of Cross held by them at
the close of the Merger. In arriving at the opinion set forth herein, we have,
among other things:
(i) review the financial terms and conditions of the Agreement;
(ii) ANALYZED CERTAIN HISTORICAL BUSINESS AND FINANCIAL INFORMATION
RELATING TO THE COMPANY AND CROSS;
(iii) HELD DISCUSSIONS WITH CERTAIN MEMBERS OF THE MANAGEMENT OF THE COMPANY
AND CROSS CONCERNING THE BUSINESS, OPERATIONS AND PROSPECTS OF
INTERPORE AND CROSS;
(iv) REVIEWED CERTAIN BUSINESS AND FINANCIAL INFORMATION WITH RESPECT TO
THE COMPANY AND CROSS, INCLUDING FINANCIAL FORECASTS PREPARED AND
PROVIDED BY THE MANAGEMENT OF INTERPORE AND CROSS, RESPECTIVELY;
(v) REVIEWED THE COMPANY'S AND CROSS' ANNUAL REPORTS AND FORMS 10-K FOR
THE THREE YEARS ENDED DECEMBER 31, 1996 AND THE COMPANY'S AND CROSS'
FORMS 10-Q FOR THE QUARTERS ENDED MARCH 31, JUNE 30, AND SEPTEMBER 30,
1997;
(vi) REVIEWED CERTAIN FINANCIAL STATISTICS OF PUBLICLY-TRADED
COMPANIES WE DEEMED REASONABLY COMPARABLE TO THE COMPANY AND CROSS;
(vii) compared the financial terms of the Merger with those of similar
transactions we deemed comparable;
(viii)reviewed the price and trading history of the Company's and Cross'
common stock; and
(ix) performed such other studies, analyses, and investigations as we
deemed appropriate.
In connection with our opinion, we have assumed and relied upon the accuracy
and completeness of all financial and other information supplied or otherwise
made available by Interpore and Cross and we have neither attempted
independently to verify nor have we assumed any responsibility for verification
of such information. We have not made or obtained or assumed any responsibility
for making or obtaining independent evaluations or appraisals of the assets of
Interpore or Cross, nor have we been furnished with any such evaluations or
appraisals. With respect to the financial projections referred to above, we have
assumed that they have been reasonably prepared on bases reflecting the best
available estimate and judgment of the management of Interpore and Cross as
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<PAGE> 203
The Board of Directors
February 11, 1998
Page 2
to the future financial performance of the Company and Cross and that Interpore
and Cross will perform substantially in accordance with such projections. We
assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based. We have not been engaged to evaluate and
have not evaluated any potential future product liability costs and damages of
Cross or the effect of such costs and damages on the fairness of the Exchange
Ratio. We have assumed that the Merger will be consummated on the terms
described in the agreement without any waiver or modification to any of the
material terms and conditions relating to Interpore. Our conclusions are based
solely on information available to us on or before the date hereof and reflect
economic, market and other conditions as of such date.
This opinion has been prepared solely for the benefit and use of the Board
of Directors of Interpore in connection with its consideration of the Merger.
This opinion does not constitute a recommendation to any shareholder as to
whether or not such investor should vote for or against the Merger. In addition,
Interpore has agreed to indemnify Genesis Merchant Group Securities for certain
liabilities which may arise out of the rendering of this opinion.
In rendering this opinion, we have not been engaged to act as an agent or
fiduciary of, and the Board of Directors has expressly waived to the fullest
extent permitted by law any duties or liabilities we may otherwise be deemed to
have had to, the Company's equity holders or any other third party.
On the basis of, and subject to the foregoing, and based upon such other
matters as we consider relevant, it is our opinion that, as of the date hereof,
the Exchange Ratio is fair to Interpore from a financial point of view.
Very truly yours,
/S/ GENESIS MERCHANT GROUP SECURITIES
Genesis Merchant Group Securities
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<PAGE> 204
ANNEX III.
FAIRNESS OPINION OF PIPER JAFFRAY
February 11, 1998
The Board of Directors
Cross Medical Products, Inc.
5160-A Blazer Memorial Parkway
Dublin, OH 43017
Attention: Joseph A. Mussey
Chief Executive Officer
Members of the Board:
In connection with the proposed transaction ("Transaction") in which
Interpore International Acquisition Corporation, a wholly-owned subsidiary of
Interpore International ("Interpore"), shall be merged with and into Cross
Medical Products, Inc. ("Cross") and Cross shall thereupon be a wholly-owned
subsidiary of Interpore, you have requested our opinion as to the fairness, from
a financial point of view, to the common stockholders of Cross of the proposed
consideration to be received by the common stockholders of Cross in the
Transaction pursuant to the Agreement referred to below. Under the terms of the
Agreement and Plan of Merger (the "Agreement"), at the effective time of the
Transaction, each issued and outstanding share of Cross Common Stock will be
converted into 1.2750 shares of Interpore Common Stock. The terms and conditions
of the Merger, including the cash to be paid in respect of fractional shares are
more fully set forth in the Agreement. The Transaction is intended to qualify as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code") and will be treated as a
pooling-of-interests for accounting purposes.
Piper Jaffray Inc., as a customary part of its investment banking business,
is engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of Cross
in connection with the Transaction and will receive a fee for our services which
is contingent upon consummation of the Transaction. In addition, we will receive
a separate fee for providing this opinion. This opinion fee is not contingent
upon the consummation of the Transaction. Cross has also agreed to indemnify us
against certain liabilities in connection with our services. In the ordinary
course of our business, we and our affiliates may actively trade securities of
Cross and Interpore for our own account or the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) a draft copy of the Agreement and Plan of
Merger dated February 9, 1998, (ii) certain public information related to
Interpore, (iii) certain publicly available financial and securities data of
Interpore and selected public companies deemed comparable to Interpore, (iv)
certain internal financial information of Interpore on a stand-alone basis
prepared for financial planning purposes and furnished by the management of
Interpore, (v) to the extent publicly available, information concerning selected
transactions deemed comparable to the proposed Transaction, (vi) certain
publicly available information relative to Cross and selected public companies
deemed comparable to Cross, (vii) certain internal financial information of
Cross on a stand-alone basis prepared for financial planning purposes, and on a
combined company basis with Interpore, prepared and furnished by Cross
management and (viii) certain publicly available financial and securities data
of Cross. We had discussions with members of the management of (a) Cross
concerning the financial condition, current operating results and business
outlook for both Cross and Interpore on a stand-alone basis and the combined
company resulting from the Transaction as well as the amount and timing of the
incremental revenue, cost savings and related expenses expected to result from
the Transaction, and (b) Interpore concerning the financial condition, current
operating results and business outlook for Interpore and the combined company
resulting from the Transaction as well as the amount and timing of the
incremental revenue, cost savings and related expenses expected to result from
the Transaction.
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided to us by Cross,
Interpore or otherwise made available to us, and have not assumed responsibility
for the independent verification of such information. Neither Cross nor
Interpore publicly disclose internal financial information of the type provided
to Piper Jaffray in connection with Piper Jaffray's review of the Transaction.
Such information was prepared for financial planning purposes and was not
prepared with the expectation of public disclosure. We have relied upon the
assurances of the managements of Cross and Interpore
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The Board of Directors
February 11, 1998
Page 2
that the information provided to us as set forth above by Cross and Interpore
has been prepared on a reasonable basis, and, with respect to financial planning
data and other business outlook information, reflects the best currently
available estimates, and that they are not aware of any information or facts
that would make the information provided to us incomplete or misleading. Without
limiting the generality of the foregoing, we have assumed that neither Cross nor
Interpore is a party to any material pending transaction, including external
financial, recapitalization, acquisition or merger discussions, other than the
Transaction or in the ordinary course of business.
We have assumed that the final form of the Agreement will be substantially
similar to the last draft reviewed by us, without modification or waiver of
material terms or conditions by Cross or Interpore. We have also assumed that
the Transaction contemplated by the Agreement will constitute a "reorganization"
within the meaning of Section 368(a) of the Code and that the Transaction will
be treated as a pooling-of-interests for accounting purposes. In addition, in
arriving at our opinion, we have assumed that, in the course of obtaining the
necessary regulatory approvals for the Transaction, no restrictions, including
any divestiture requirements will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
In arriving at our opinion, we have not performed any appraisals or
valuations of any specific assets or liabilities of Cross or Interpore, and have
not been furnished with any such appraisals or valuations. We express no opinion
regarding the liquidation value of any entity.
In arriving at our opinion, we have also assumed, based on discussions with
management and legal representatives of Cross, that the Transaction will not
result in a change in control of Cross under applicable state corporate law. Our
opinion herein is limited to the consideration to be received by the holders of
common stock in the Transaction pursuant to the Agreement and we have made no
evaluation for purposes of expressing an opinion, and express no opinion
concerning, any other terms of the Agreement or any other agreement entered into
in connection with the Transaction, including without limitation the Stockholder
Agreements and the Stock Option Agreements (each as defined in the Agreement).
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of Cross or Interpore Common Stock have
traded or may trade at any future time. We have not undertaken to reaffirm or
revise this opinion or otherwise comment upon any events occurring after the
date hereof and do not have any obligation to update, revise or reaffirm this
opinion.
This opinion is directed to the Board of Directors of Cross and is not
intended to be and does not constitute a recommendation to any stockholder as to
how such stockholder should vote with respect to the Transaction. We were not
requested to opine as to, and this opinion does not address, the basic business
decision to proceed with or effect the Transaction. This opinion shall not be
published or otherwise used, nor shall any public references to us be made,
without our prior written approval.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the consideration proposed to be
received by the common stockholders of Cross in the Transaction pursuant to the
Agreement is fair, from a financial point of view, to the common stockholders of
Cross as of the date hereof.
Sincerely,
/S/ PIPER JAFFRAY INC.
Piper Jaffray Inc.
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ANNEX IV.
CHAPTER 13 OF THE CALIFORNIA
GENERAL CORPORATION LAW
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
sec. 1300. SHAREHOLDER IN SHORT-FORM MERGER; PURCHASE AT FAIR MARKET VALUE;
"DISSENTING SHARES"; "DISSENTING SHAREHOLDER"
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
sec. 1301. NOTICE TO HOLDER OF DISSENTING SHARES OF REORGANIZATION APPROVAL;
DEMAND FOR PURCHASE OF SHARES; CONTENTS OF DEMAND
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of
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price constitutes an offer by the corporation to purchase at the price stated
any dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
sec. 1302. STAMPING OR ENDORSING DISSENTING SHARES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
sec. 1303. DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST
THEREON; WHEN PRICE TO BE PAID
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
sec. 1304. ACTION BY DISSENTERS TO DETERMINE WHETHER SHARES ARE DISSENTING
SHARES OR FAIR MARKET VALUE OF DISSENTING SHARES OR BOTH; JOINDER OF
SHAREHOLDERS; CONSOLIDATION OF ACTIONS; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
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(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
sec. 1305. DUTY AND REPORT OF APPRAISERS; COURT'S CONFIRMATION OF REPORT;
DETERMINATION OF FAIR MARKET VALUE BY COURT; JUDGMENT, AND PAYMENT;
APPEAL; COSTS OF ACTION
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
sec. 1306. PREVENTION OF PAYMENT TO HOLDERS OF DISSENTING SHARES OF FAIR MARKET
VALUE; EFFECT
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
sec. 1307. DISPOSITION OF DIVIDENDS UPON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
sec. 1308. RIGHTS AND PRIVILEGES OF DISSENTING SHARES; WITHDRAWAL OF DEMAND FOR
PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
sec. 1309. WHEN DISSENTING SHARES LOSE THEIR STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
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(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
sec. 1310. SUSPENSION OF PROCEEDINGS FOR COMPENSATION OR VALUATION PENDING
LITIGATION
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
sec. 1311. SHARES TO WHICH CHAPTER INAPPLICABLE
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
sec. 1312. ATTACK ON VALIDITY OF REORGANIZATION OR SHORT-FORM MERGER; RIGHTS OF
SHAREHOLDERS; BURDEN OF PROOF
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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ANNEX V.
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
DELAWARE CORPORATIONS CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
sec. 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
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incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
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(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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ANNEX VI.
REINCORPORATION AGREEMENT
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
INTERPORE DELAWARE, INC.,
A DELAWARE CORPORATION
AND
INTERPORE INTERNATIONAL,
A CALIFORNIA CORPORATION
This Agreement and Plan of Merger (this "Agreement") dated as of March
26, 1998, is by and between INTERPORE DELAWARE, INC., a Delaware corporation
(hereinafter sometimes called "Interpore Delaware"), and INTERPORE
INTERNATIONAL, a California corporation (hereinafter called "Interpore
California"). Interpore Delaware and Interpore California are sometimes
hereinafter referred to as the "constituent corporations."
STIPULATIONS AND RECITALS
1. Interpore Delaware is a corporation duly organized and existing under
the laws of the State of Delaware, with its registered office located at
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. Interpore Delaware has a capitalization of fifty-five million
(55,000,000) authorized shares divided into two classes designated "Common
Stock" and "Preferred Stock": (a) 50,000,000 shares of Common Stock, par value
$.01 per share, and (b) 5,000,000 shares of Preferred Stock, par value $.01 per
share. Of the total number of authorized shares of Preferred Stock, 594,000
shares constitutes a separate series designated Series E. Interpore Delaware has
1,000 shares of Common Stock issued and outstanding, all of which are owned by
Interpore California.
2. Interpore California is a corporation duly organized and existing
under the laws of the State of California, with its principal office located at
181 Technology Drive, Irvine, California 92718. Interpore California has a
capitalization of 20,890,358 authorized shares divided into two classes
designated "Common Stock" and "Preferred Stock": (a) 20,000,000 shares of Common
Stock, no par value, and (b) 890,358 shares of Preferred Stock, no par value. Of
the total number of authorized shares of Preferred Stock, 594,000 shares
constitutes a separate series designated Series E. Interpore California has
7,110,898 shares of Common Stock issued and outstanding and 32,906 shares of
Series E Preferred Stock issued and outstanding.
3. Interpore Delaware and Interpore California have entered into this
Agreement in accordance with Section 252 of the General Corporation Law of the
State of Delaware (the "DGCL") and Section 1108 of the California Corporations
Code (the "CCC") providing for the merger of Interpore California with and into
Interpore Delaware (the "Merger"), which Agreement has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations.
4. The boards of directors of the constituent corporations deem it
desirable and in the best interests of the corporations and their shareholders
that Interpore California be merged into Interpore Delaware in accordance with
the provisions of Section 252 of the DGCL and Chapter 11 of the CCC, in order
that the transaction qualify as a "reorganization" within the meaning of
Sections 368(a)(1)(A) and 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended.
5. The CCC permits a merger of a business corporation of the State of
California with and into a business corporation of another jurisdiction.
6. The DGCL permits the merger of a business corporation of another
jurisdiction with and into a business corporation of the State of Delaware.
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7. The Agreement has been approved and adopted by the requisite
percentages of the outstanding voting stock of Interpore California and
Interpore Delaware.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly entered into by Interpore
Delaware and approved by resolutions adopted by its Board of Directors and by
its sole stockholder and being thereunto duly entered into by Interpore
California and approved by resolutions adopted by its Board of Directors and by
the requisite vote of its shareholders at its 1998 Annual Meeting of
Shareholders, the Merger and the terms and conditions thereof and the mode of
carrying the same into effect, together with any provisions required or
permitted to be set forth herein are hereby determined and agreed upon as
follows:
SECTION ONE -- STATEMENT OF MERGER
Interpore California shall, pursuant to the provisions of the DGCL, be
merged with and into Interpore Delaware, and from and after the effective date
of the Merger, Interpore California shall cease to exist and Interpore Delaware
shall continue to exist pursuant to the provisions of the DGCL. Interpore
Delaware, as the surviving corporation from and after the effective date of the
Merger, is sometimes hereinafter referred to as the "Surviving Corporation."
SECTION TWO -- TERMS AND CONDITIONS
(a) On the effective date of the Merger, the separate existence of
Interpore California shall cease, and Interpore Delaware shall succeed to all
the rights, privileges, immunities, and franchises, and all the property, real,
personal and mixed, of Interpore California, without the necessity for any
separate transfer. Interpore Delaware shall thereafter be responsible and liable
for all liabilities and obligations of Interpore California, and neither the
rights of creditors nor any liens on the property of Interpore California shall
be impaired by the Merger.
(b) Upon approval of this Agreement by shareholders of Interpore
California and the sole stockholder of Interpore Delaware, the sole stockholder
of Interpore Delaware shall be deemed to have adopted and approved (i) the stock
option plans of Interpore California, and (ii) all options that are outstanding
under such stock options plans immediately prior to the Merger. Such plans,
options and warrants shall be deemed adopted and approved on the same terms and
conditions existing under such plans, options and warrants immediately prior to
the Merger.
SECTION THREE -- CONVERSION OF SHARES
The manner and basis of converting the shares of Interpore California
into shares of Interpore Delaware upon the effective date of the Merger shall be
as follows:
(a) Each share of Common Stock of Interpore California issued and
outstanding on the effective date of the Merger shall be converted into one
share of Common Stock of the Surviving Corporation, which shall thereafter be
issued and outstanding shares of Common Stock of the Surviving Corporation.
(b) Each share of Series E Preferred Stock of Interpore California
issued and outstanding on the effective date of the Merger shall be converted
into one share of Series E Preferred Stock of the Surviving Corporation, which
shall thereafter be issued and outstanding shares of Series E Preferred Stock of
the Surviving Corporation.
(c) Each share of the 1,000 shares of Common Stock of Interpore Delaware
issued and outstanding on the effective date of the Merger shall be canceled and
shall cease to exist.
(d) After the effective date of the Merger, the conversion and exchange
of shares provided by this Section Three shall be effected as follows:
(i) No certificates for shares of the Surviving Corporation's
Common Stock will be issued to holders of any of the shares of Interpore
California's Common Stock upon consummation of the Merger.
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(ii) Certificates representing shares of Interpore California's
Common Stock shall upon the consummation of Merger be deemed for all
purposes to represent that number of shares of Common Stock of the
Surviving Corporation receivable in exchange therefor as provided in
Section 3(a) hereof.
(iii) Certificates representing shares of Interpore California's
Series E Preferred Stock shall upon the consummation of Merger be deemed
for all purposes to represent that number of shares of Series E
Preferred Stock of the Surviving Corporation receivable in exchange
therefor as provided in Section 3(a) hereof.
(iv) Interpore California, as the holder of a certificate for
shares of Common Stock in Interpore Delaware described in paragraph (c)
of this Section Three, shall surrender such certificate for
cancellation.
(d) Each option under Interpore California's stock option plans
outstanding immediately prior to the Merger shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become an option or right to purchase a number of shares of the Surviving
Corporation's Common Stock equal to the number of shares of Common Stock of
Interpore California subject to such option, without change in the exercise
price therefor and otherwise upon the same terms and conditions of such option.
SECTION FOUR -- CERTIFICATE OF INCORPORATION
Attached hereto as Exhibit A and made a part hereof is a copy of the
Certificate of Incorporation of Interpore Delaware (the "Certificate") as the
same shall be in force and effect at the effective time of the Merger. The
Certificate shall continue to be the certificate of incorporation of the
Surviving Corporation following the effective date of the Merger until the same
shall be thereafter altered or amended; provided, however, that on the effective
date, Article FIRST of the Certificate shall be amended to read, in its
entirety, as follows:
"FIRST: The name of the Corporation (hereinafter the
"Corporation") is:
Interpore International, Inc."
SECTION FIVE -- BYLAWS
The bylaws of Interpore Delaware shall continue to be the bylaws of the
Surviving Corporation following the effective date of the Merger until the same
shall be thereafter altered or amended.
SECTION SIX -- DIRECTORS
The directors of Interpore California as of the effective date of the
Merger shall be the directors of the Surviving Corporation from and after the
effective date of the Merger. All of such directors shall hold their
directorships until the election and qualification of their respective
successors, or until their prior resignation, removal or death.
SECTION SEVEN -- OFFICERS
The officers of Interpore California as of the effective date of the
Merger shall be the officers of the Surviving Corporation from and after the
effective date of the Merger. All of such officers shall hold their offices
until the election and qualification of their respective successors or until
their tenure is otherwise terminated in accordance with the bylaws of the
Surviving Corporation, or until their prior resignation or death.
SECTION EIGHT -- DEFERRAL, TERMINATION AND AMENDMENT
The parties hereto may amend, modify, supplement or terminate this
Agreement at any time prior to the effective date of the Merger, whether prior
to or after approval of the Merger and this Agreement by the shareholders of
Interpore California and the sole stockholder of Interpore Delaware, without
shareholder or stockholder approval, in such manner as may be agreed upon by
Interpore California and Interpore Delaware in writing.
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<PAGE> 216
SECTION NINE - AGREEMENT ON FILE
An executed copy of this Agreement is on file at the principal place of
business of Interpore Delaware located in the State of California, 181
Technology Drive, Irvine, California 92718.
SECTION TEN - FURTHER ASSURANCES
In the event that this Agreement shall have been fully approved and
adopted on behalf of Interpore California in accordance with the provisions of
the CCC and on behalf of Interpore Delaware in accordance with the provisions of
the DGCL, the constituent corporations agree that they will cause to be executed
and filed and recorded any document or documents prescribed by the laws of the
State of California and by the laws of the State of Delaware, and that they will
cause to be performed all necessary acts within the State of California and the
State of Delaware and elsewhere to effectuate the Merger.
The boards of directors and the proper officers of Interpore California
and of Interpore Delaware are hereby authorized, empowered and directed to do
any and all acts and things, and to make, execute, deliver, file and record any
and all instruments, papers and documents which shall be or become necessary,
proper or convenient to carry out or put into effect any of the provisions of
this Agreement.
SECTION ELEVEN - EFFECTIVE DATE
The Merger shall have become effective on the date of filing of a
certificate of merger with the Secretary of State of the State of Delaware in
accordance with Sections 252(c) and 103 of the DGCL.
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IN WITNESS WHEREOF, Interpore Delaware and Interpore California, as duly
authorized by their respective boards of directors, have caused this Agreement
to be executed and acknowledged as of the date first set forth above.
INTERPORE DELAWARE, INC.,
a Delaware corporation
By:/s/ DAVID C. MERCER
--------------------------------------
David C. Mercer
President
Attest:
By:/s/ RICHARD L. HARRISON
--------------------------------------
Richard L. Harrison
Secretary
INTERPORE INTERNATIONAL,
a California corporation
By:/s/ DAVID C. MERCER
--------------------------------------
David C. Mercer
President
Attest:
By:/s/ RICHARD L. HARRISON
--------------------------------------
Richard L. Harrison
Secretary
VI-5
<PAGE> 218
ANNEX VII.
DELAWARE CERTIFICATE OF INCORPORATION
CERTIFICATE OF INCORPORATION
OF
INTERPORE DELAWARE, INC.
The undersigned, a natural person, for the purpose of organizing
a corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter the
"Corporation") is:
Interpore Delaware, Inc.
SECOND: The name and address, including street, number, city and
county, of the registered agent of the Corporation in the State of Delaware are:
THE CORPORATION TRUST COMPANY
Corporation Trust Center
1209 Orange Street
Wilmington, New Castle County, Delaware 19801
THIRD: The nature of the business and the purposes to be
conducted and promoted by the Corporation shall be to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH:
1. The Corporation is authorized to issue a total of 55,000,000
shares of stock (the "Capital Stock") consisting of two classes of shares
designated as "Common Stock" and "Preferred Stock," respectively. The number of
shares of Common Stock authorized to be issued is 50,000,000, par value $0.01
per share and the number of shares of Preferred Stock authorized to be issued is
5,000,000, par value $0.01 per share.
2. The shares of Preferred Stock may be issued from time to time
in one or more series, as provided for herein or as provided for by the Board of
Directors as permitted hereby. All shares of Preferred Stock shall be of equal
rank and shall be identical, except in respect of the terms fixed herein for the
series provided for herein or fixed by the Board of Directors for series
provided for by the Board of Directors as permitted hereby. All shares of any
one series shall be identical in all respects with all the other shares of such
series, except the shares of any one series issued at different times may differ
as to the dates from which dividends thereon may be cumulative.
3. The Board of Directors is hereby authorized, by resolution or
resolutions, to establish, out of the unissued shares of Preferred Stock not
then allocated to any series of Preferred Stock, additional series of Preferred
Stock. Before any shares of any such additional series are issued, the Board of
Directors shall fix and determine, and is hereby expressly empowered to fix and
determine, by resolution or resolutions, the number of shares constituting such
series and the distinguishing characteristics and the relative rights,
preferences, privileges and immunities, if any, and any qualifications,
limitations or restrictions thereof, of the shares thereof, so far as not
inconsistent with the provisions of this Article FOURTH. Without limiting the
generality of the foregoing, the Board of Directors may fix and determine:
(a) The designation of such series and the number of shares which
shall constitute such series of such shares;
(b) The rate of dividend, if any, payable on shares of such
series;
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(c) Whether the shares of such series shall be cumulative,
non-cumulative or partially cumulative as to dividends, and the dates from which
any cumulative dividends are to accumulate;
(d) Whether the shares of such series may be redeemed, and, if
so, the price or prices at which and the terms and conditions on which shares of
such series may be redeemed;
(e) The amount payable upon shares of such series in the event of
the voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Corporation;
(f) The sinking fund provisions, if any, for the redemption of
shares of such series;
(g) The voting rights, if any, of the shares of such series;
(h) The terms and conditions, if any, on which shares of such
series may be converted into shares of Capital Stock of the Corporation of any
other class or series;
(i) Whether the shares of such series are to be preferred over
shares of Capital Stock of the Corporation of any other class or series as to
dividends, or upon the voluntary or involuntary dissolution, liquidation, or
winding up of the affairs of the Corporation, or otherwise; and
(j) Any other characteristics, preferences, limitations, rights,
privileges, immunities or terms not inconsistent with the provisions of this
Article FOURTH.
4. Except as otherwise provided in this Certificate of
Incorporation, each holder of Common Stock shall be entitled to one vote for
each share of Common Stock held by him on all matters submitted to stockholders
for a vote and each holder of Preferred Stock of any series that is voting stock
shall be entitled to such number of votes for each share held by him as may be
specified in the resolutions providing for the issuance of such series.
5. Except as otherwise provided by law, the presence, in person
or by proxy, of the holders of record of issued and outstanding shares of
Capital Stock entitling the holders thereof to cast a majority of the votes
entitled to be cast by the holders of issued and outstanding shares of Capital
Stock entitled to vote shall constitute a quorum at all meetings of the
stockholders.
6. No share or shares of Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from the
shares which the Corporation be authorized to issue.
FIFTH: The name and the mailing address of the incorporator are
as follows:
Charles K. Ruck
650 Town Center Drive, 20th Floor
Costa Mesa, California 92626-1925
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, which shall consist
of not less than five or more than nine Directors, the exact number of Directors
to be determined from time to time by resolution adopted by affirmative vote of
a majority of the entire Board of Directors, subject to any bylaw requiring the
affirmative vote of a larger percentage of the members of the Board of
Directors. The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III. Class I, Class II and Class III
shall each consist of an equal number of Directors to the extent practicable.
Class I Directors shall be initially elected for a term expiring at the first
annual meeting of stockholders of the Corporation following the date hereof,
Class II Directors shall be elected for a term expiring at the second annual
meeting of stockholders of the Corporation following the date hereof, and Class
III Directors shall be elected for a term expiring at the third annual meeting
of stockholders of the Corporation following the date hereof. At each annual
meeting of stockholders following the date hereof, successors to the class of
Directors whose term expires at that annual meeting shall be elected for a three
year term. If the number of Directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain a number of Directors in each
class as nearly equal as possible, and any additional Director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class,
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but in no case will a decrease in the number of Directors shorten the term of
any incumbent Director. A Director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, prior to death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of Directors and any other vacancy
may only be filled by a majority of the Directors then in office, even if less
than a quorum, or by a sole remaining Director. Any Director elected to fill a
vacancy not resulting from an increase in the number of Directors shall have the
same remaining term as that of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or
more series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect Directors at an annual or special
meeting of stockholders, the election, term of office, removal, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto (including the
resolutions of the Board of Directors pursuant to Article FOURTH), and such
Directors so elected shall not be divided into classes pursuant to this Article
SEVENTH unless expressly provided by such terms.
EIGHTH: The personal liability of the Directors of the
Corporation is hereby eliminated to the fullest extent permitted by paragraph
(7) of subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented.
NINTH:
1. In addition to any affirmative vote required by law or this
Certificate of Incorporation (including any resolutions of the Board of
Directors pursuant to Article FOURTH) or the Bylaws of the Corporation, and
except as otherwise expressly provided in Section 2 of this Article NINTH, a
Business Combination (as hereinafter defined) with, or proposed by or on behalf
of, any Interested Stockholder (as hereinafter defined) or any Affiliate or
Associate (as hereinafter defined) of any Interested Stockholder or any person
who thereafter would be an Affiliate or Associate of such Interested Stockholder
shall, except as otherwise prohibited by applicable law, require the affirmative
vote of (i) not less than 75% of the votes entitled to be cast by the holders of
all of the then outstanding shares of Voting Stock (as hereinafter defined),
voting together as a single class and (ii) not less than a majority of the votes
entitled to be cast by holders of all the then outstanding Voting Stock, voting
together as a single class, excluding Voting Stock beneficially owned by such
Interested Stockholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or separate
class vote may be specified, by law or in any agreement with any national
securities exchange or otherwise.
2. The provisions of Section 1 of this Article NINTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law or by
any other provision of this Certification of Incorporation (including any
resolutions of the Board of Directors pursuant to Article FOURTH) or the Bylaws
of the Corporation, or any agreement with any national securities exchange, or
other national market if all the conditions specified in either of the following
subparagraphs (a) or (b) are met or, in the case of Business Combination not
involving the payment of consideration to the holders of the Corporation's
outstanding Capital Stock (as hereinafter defined), if the condition specified
in the following subparagraph (a) is met:
(a) The Business Combination shall have been approved, either
specifically or as a transaction which is in an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of, or announcement or public disclosure of the
intention to acquire, beneficial ownership of the Voting Stock that caused the
Interested Stockholder to become an Interested Stockholder) of the Continuing
Directors (as hereinafter defined).
(b) All of the following conditions shall have been met:
(i) The aggregate amount of cash and the Fair
Market Value (as hereinafter defined), as of the date of the
consummation of the Business Combination of consideration other
than cash to be received per share by holders of Common Stock in
such Business Combination shall be at least equal to the highest
amount determined under clauses (1) and (2) below:
(1) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the Interested
Stockholder for any share of Common Stock in connection with the
acquisition by the Interested Stockholder of beneficial ownership
of shares of Common Stock (x) within the two-year period
immediately prior to the first public announcement of the
proposed Business
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Combination (the "Announcement Date") or (y) in the transaction
in which it became an Interested Stockholder, whichever is
higher, in either case as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to common stock; and
(2) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date on which the
Interested Stockholder became an Interested Stockholder (the
"Determination Date"), whichever is higher.
(ii) The aggregate amount of cash and the Fair
Market Value, as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per
share by holders of shares of each class or series of outstanding
Capital Stock, other than Common Stock, shall be at least equal
to the highest amount determined under clauses (1), (2) and (3)
below:
(1) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the Interested
Stockholder for any share of such class or series of Capital
Stock in connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of such class or
series of Capital Stock (x) within the two-year period
immediately prior to the Announcement Date or (y) in the
transaction in which it became an Interested Stockholder,
whichever is higher, in either case as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock;
(2) the Fair Market Value per share of such
class or series of Capital Stock on the Announcement Date or on
the Determination Date, whichever is higher, as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock; and
(3) (if applicable) the highest preferential
amount per share to which the holders of shares of such class or
series of Capital Stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation regardless of whether the
Business Combination to be consummated constitutes such an event.
(4) The provisions of this subparagraph
(b)(ii) shall be required to be met with respect to every class
or series of outstanding Capital Stock, whether or not the
Interested Stockholder has previously acquired beneficial
ownership of any shares of a particular class or series of
Capital Stock.
(iii) The consideration to be received by holders
of a particular class or series of outstanding Capital Stock
shall be in cash or in the same form as previously has been paid
by or on behalf of the Interested Stockholder in connection with
its direct or indirect acquisition of beneficial ownership of
shares of such class or series of Capital Stock. If the
consideration so paid for shares of any class or series of
Capital Stock varied as to form, the form of consideration for
such class or series of Capital Stock shall be either cash or the
form used to acquire beneficial ownership of the largest number
of shares of such class or series of Capital Stock previously
acquired by the Interested Stockholder.
(iv) After the Determination Date and prior to the
consummation of such Business Combination: (a) except as approved
by a majority of the Continuing Directors, there shall have been
no failure to declare and pay at the regular date therefor any
full periodic dividends (whether or not cumulative) payable in
accordance with the terms of any outstanding Capital Stock; (b)
there shall have been no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any stock split, stock dividend or subdivision of the
Common Stock), except as approved by a majority of the Continuing
Directors; (c) there shall have been an increase in the annual
rate of dividends paid on the Common Stock as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that
has the effect of reducing the number of outstanding shares of
Common Stock, unless the failure so to increase such annual rate
is approved by a majority of the Continuing Directors; and (d)
such Interested Stockholders shall not have become the beneficial
owner of any additional shares of Capital Stock except as part of
the transaction that results in such Interested Stockholder
becoming an Interested Stockholder and except in a transaction
that, after giving effect thereto, would not result in any
increase in the Interested Stockholder's percentage beneficial
ownership of any class or series of Capital Stock.
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(v) A proxy or information statement describing
the proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the rules
and regulations thereunder (the "Act") (or any subsequent
provisions replacing such Act, rules or regulations) shall be
mailed to all stockholders of the Corporation at least 30 days
prior to the consummation of such Business Combination (whether
or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions). The proxy
or information statement shall contain on the first page thereof,
in a prominent place, such statement, if any, as to the
advisability (or inadvisability) of the Business Combination that
the Continuing Directors, or any of them, may choose to make and,
if deemed advisable by a majority of the Continuing Directors,
the opinion of an investment banking firm selected by a majority
of the Continuing Directors as to the fairness (or not) of the
terms of the Business Combination from a financial point of view
to the holders of the outstanding shares of Capital Stock other
than the Interested Stockholder and its Affiliates or Associates,
such investment banking firm to be paid a reasonable fee for its
services by the Corporation.
(vi) Such Interested Stockholder shall not have
made any major change in the Corporation's business or equity
capital structure without the approval of a majority of the
Continuing Directors.
(vii) After the Determination Date, such
Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by
the Corporation, whether in anticipation of or in connection with
such Business Combination or otherwise.
3. The following definitions shall apply with respect to this
Article NINTH:
(a) The term "Business Combination" shall mean:
(i) any merger or consolidation of the Corporation
or any Subsidiary (as hereinafter defined) with (i) any
Interested Stockholder or (ii) any other company (whether or not
itself an Interested Stockholder) which is, or after such merger
or consolidation would be, an Affiliate or Associate of an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to purchase or
sell, agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a
series of transactions) with or for the benefit of any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder involving any assets, securities or commitments of
the Corporation, any Subsidiary or any Interested Stockholder or
any Affiliate or Associate of any Interested Stockholder which
(except for any arrangement, whether as employee or consultant or
otherwise, other than as director, pursuant to which any
Interested Stockholder or any Affiliate or Associate thereof
shall, directly or indirectly, have any control over or
responsibility for the management of any aspect of the business
or affairs of the Corporation, with respect to which arrangement
the value test set forth below shall not apply), together with
all other such arrangements (including all contemplated future
events), has an aggregate Fair Market Value and/or involves
aggregate commitments of $100,000,000 or more or constitutes more
than 5 percent of the book value of the total assets (in the case
of transactions involving assets or commitments other than
capital stock) or 5 percent of the stockholders' equity (in the
case of transactions in capital stock) of the entity in question
(the "Substantial Part"), as reflected in the most recent fiscal
year-end consolidated balance sheet of such entity existing at
the time the stockholders of the Corporation would be required to
approve or authorize the Business Combination involving the
assets, securities and/or commitments constituting any
Substantial Part; provided, that if stockholders' equity is
negative, the fair market value of the outstanding Capital Stock
at the date of such balance sheet shall be used in lieu thereof
in determining if a transaction involves a Substantial Part; or
(iii) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation or for any
amendment to the Corporation's Bylaws; or
(iv) any reclassification of securities (including
any reverse stock split), or recapitalization of the Corporation,
or any merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
otherwise involving an Interested Stockholder) that has the
effect, directly or indirectly, of increasing the proportionate
share of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of any
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Subsidiary, that is beneficially owned by any Interested
Stockholder or any affiliate or Associate of any Interested
Stockholder; or
(v) any agreement, contract or other arrangement
providing for any one or more of the actions specified in the
foregoing clauses (i) to (iv).
(b) The term "Voting Stock" shall mean all Capital Stock which by
its terms may be voted on all matters submitted to stockholders of the
Corporation generally.
(c) The term "person" shall mean any individual, firm, company or
other entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Capital Stock.
(d) The term "Interested Stockholder" shall mean any person
(other than (i) the Corporation or any Subsidiary, any profit-sharing, employee
stock ownership or other employee benefit plan of the Corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity and (ii) Cross Medical Products, Inc., a Delaware
corporation, Buckeye International, Inc., a Delaware corporation and any
Subsidiary thereof) who (a) is, or has announced or publicly disclosed a plan or
intention to become, the beneficial owner of Voting Stock representing ten
percent or more of the votes entitled to be cast by the holders of all the then
outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of the
Corporation and at any time within the two-year period immediately prior to the
date in question was the beneficial owner of Voting Stock representing ten
percent or more of the votes entitled to be cast by the holders of all the then
outstanding shares of Voting Stock; or (c) is an assignee of or has otherwise
succeeded to any Voting Stock which was at any time within the two-year period
immediately prior to the date in question beneficially owned by an Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933, as amended.
(e) A person shall be a "beneficial owner" of any Capital Stock
(i) which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (ii) which such person or any of its Affiliates or
Associates has, directly or indirectly, (a) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (b)
the right to vote pursuant to any agreement, arrangement or understanding (but
neither such person nor any such Affiliate or Associate shall be deemed to be
the beneficial owner of any shares of Voting Stock solely by reason of a
revocable proxy granted for a particular meeting of stockholders, pursuant to a
public solicitation of proxies for such meeting, and with respect to which
shares neither such person nor any such Affiliate or Associate is otherwise
deemed the beneficial owner); or (iii) which is beneficially owned, directly or
indirectly, by any other person with which such person or any of its Affiliates
or Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except to the extent contemplated by the
parenthetical clause (b) in this Section or disposing of any shares of Capital
Stock; provided that: (x) no director or officer of the Corporation (nor any
Affiliate or Associate of any such director or officer) shall, solely by reason
of any or all of such directors or officers acting in their capacities as such,
be deemed the "beneficial owner" of any shares of Capital Stock that are
beneficially owned by any other such director or officer; (y) in the case of any
employee stock ownership or similar plan of the Corporation or of any Subsidiary
in which the beneficiaries thereof possess the right to vote the shares of
Voting Stock held by such plan, no such plan nor any trustee with respect
thereto (nor any Affiliate or Associate of such trustee), solely by reason of
such capacity of such trustee, shall be deemed the "beneficial owner" of the
shares of Voting Stock held under such plan; and (z) no person shall be deemed
the "beneficial owner" of any shares of Voting Stock held in any voting trust,
employee stock ownership plan or any similar plan or trust if such person does
not possess the right to vote such shares. For the purposes of determining
whether a person is an Interested Stockholder pursuant to subparagraph (d) of
this Section 3, the number of shares of Capital Stock deemed to be outstanding
shall include shares deemed beneficially owned by such person through
application of this subparagraph (e) of Section 3, but shall not include any
other shares of Capital Stock that may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(f) The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 under the Act as in
effect on the date that this Article NINTH is approved by the Board (the term
"registrant" in said Rule 12b-2 meaning in this case the Corporation).
(g) The term "Subsidiary" means any company of which a majority
of any class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of
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Interested Stockholder set forth in subparagraph (d) of this Section 3, the term
"Subsidiary" shall mean only a company of which a majority of each class of
equity security is beneficially owned by the Corporation.
(h) The term "Continuing Director" means any member of the Board
of Directors of the Corporation (the "Board of Directors"), while such person is
a member of the Board of Directors, who is not an Affiliate or Associate or
representative of the Interested Stockholder and was a member of the Board of
Directors prior to the time that the Interested Stockholder became an Interested
Stockholder, and any director who is thereafter chosen to fill any vacancy or
newly-created directorship on the Board of Directors or who is elected and who,
in either event, is not an Affiliate or Associate or representative of the
Interested Stockholder and, in connection with such person's initial assumption
of office, is recommended for appointment or election by a majority of the
Continuing Directors then on the Board.
(i) The term "Fair Market Value" means (a) in the case of cash,
the amount of such cash; (b) in the case of stock the highest closing sales
price during the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange--Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Act on which
such stock is listed, or, if such stock is not listed on any such exchange, the
highest closing sales price or bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on the Nasdaq
National Market or any similar system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Continuing Directors in good faith; and
(c) in the case of property other than cash or stock, the fair market value of
such property on the date in question as determined in good faith by a majority
of the Continuing Directors.
(j) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in subparagraphs (b)(i) and (b)(ii) of Section 2 of this Article NINTH
shall include the shares of Common Stock and/or the shares of any other class or
series of Capital Stock retained by the holders of such shares.
4. A majority of the Continuing Directors shall have the power
and duty to determine for the purposes of this Article NINTH, on the basis of
information known to them after reasonable inquiry, all questions arising under
this Article NINTH including, without limitation, (a) whether a person is an
Interested Stockholder, (b) the number of shares of Capital Stock or other
securities beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether a Proposed Action (as hereinafter
defined) is with, or proposed by, or on behalf of, an Interested Stockholder or
an Affiliate or Associate of an Interested Stockholder, (e) whether the assets
that are the subject of any Business Combination have, or the consideration to
be received for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$100,000,000 or more, (f) whether the assets or securities that are the subject
of any Business Combination constitute a Substantial Part, and (g) whether the
applicable conditions set forth in subparagraph (ii) of paragraph (b) of this
Article NINTH have been met with respect to any Business Combination. Any such
determination made good faith shall be binding and conclusive on all parties.
5. Nothing contained in this Article NINTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
6. The fact that any Business combination complies with the
provisions of Section 2 of this Article NINTH shall not be construed to impose
any fiduciary duty, obligation or responsibility on the Board of Directors, or
any member thereof, to approve such Business Combination or recommend its
adoption or approval to the stockholders of the Corporation, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of or actions and
responses taken with respect to such Business Combination.
7. For the purpose of this Article NINTH, a Business Combination
or any proposal to amend, repeal or adopt any provision of this Certificate of
Incorporation inconsistent with this Article NINTH (collectively, "Proposed
Action") is presumed to have been proposed by, or on behalf of, an Interested
Stockholder or a person who thereafter would become such if (1) after the
Interested Stockholder became such, the Proposed Action is proposed following
the election of any director of the Corporation who with respect to such
Interested Stockholder, would not qualify to serve as a Continuing Director or
(2) such Interested Stockholder, Affiliate, Associate or person votes for the
adoption of any such Proposed Action, unless as to such Interested Stockholder,
Affiliate, Associate or person, a majority of the Continuing Directors makes a
good faith determination that such Proposed Action is not proposed by or on
behalf of such Interested Stockholder, Affiliate, Associate or person, based on
information known to them after reasonable inquiry.
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8. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Certificate of Incorporation or the Bylaws of the Corporation), or any proposal
to amend, repeal or adopt any provision of this Certificate of Incorporation
inconsistent with this Article NINTH which is proposed by or on behalf of an
Interested Stockholder or an Affiliate or Associate of an Interested Stockholder
shall require the affirmative vote of (i) the holders of not less than 75% of
the votes entitled to be cast by the holders of all the then outstanding shares
of Voting Stock, voting together as a single class, and (ii) the holders of not
less than a majority of the votes entitled to be cast by the holders of the then
outstanding shares of Voting Stock, voting together as a single class, excluding
Voting Stock beneficially owned by such Interested Stockholder, provided,
however, that this Section 8 shall not apply to, and such vote shall not be
required for, any amendment, repeal or adoption unanimously recommended by the
Board of Directors if all of such directors are persons who would be eligible to
serve as Continuing Directors within the meaning of Section 3, subparagraph (h)
of this Article NINTH.
TENTH:
1. Of the total number of authorized shares of Preferred Stock,
594,000 shares shall constitute a separate series designated as Series E
Preferred Stock.
2. The rights, preferences, privileges and restrictions granted
to and imposed upon the Series E Preferred Stock, are set forth below in this
Article TENTH.
(a) Definitions. For purposes of this Article TENTH, the
following definitions shall apply:
(i) "Board" shall mean the Board of Directors of
the Corporation.
(ii) "Common Stock" shall mean the Common Stock of
the Corporation.
(iii) "Conversion Price" shall mean the price per
share at which the Series E is convertible into Common Stock
which is equal to $5.00 per share and adjusted as provided
herein.
(iv) "Corporation" shall mean Interpore Delaware,
Inc., a Delaware corporation.
(v) "Effective Date" shall mean the date of filing
this Certificate of Incorporation.
(vi) "Series E" shall mean the Series E Preferred
Stock of the Corporation.
(vii) "Sale Price" shall mean the price per share
at which the Series E is originally issued which is $5.00 per
share.
(viii) "Subsidiary" shall mean any corporation at
least 50% of whose outstanding voting stock is at the time owned
directly or indirectly by the Corporation or by one or more of
such subsidiary corporations.
(b) Dividends.
(i) Rights to Dividends. The holders of the then
outstanding Series E shall be entitled to receive, when, as and
if declared by the Board, out of funds legally available
therefor, dividends per share equal to the amount of dividends
paid per share on any outstanding shares of Common Stock of the
Corporation. Any such dividend shall be payable within sixty (60)
days following the close of each fiscal year. The Corporation, at
its option, may make any dividend payment on the Series E in
shares of Common Stock or cash, or both, with each share of
Common Stock being valued for this purpose at its fair market
value, as determined in good faith by the Board, as of the date
such dividend becomes payable. Dividends on the Series E shall
not be cumulative and shall not accrue and the Corporation shall
not be obligated to pay dividends unless and until declared by
the Board, whether or not the earnings of the Corporation in that
or any previous fiscal year are sufficient to pay dividends in
whole or in part.
(ii) Priority. Series E shall rank prior to shares
of Common Stock, with respect to dividends. If the Corporation
has insufficient funds available for the payment of full
dividends
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on each share of Series E outstanding, then the dividends payable
with respect to each share of Series E shall be equal to the
amount which results from multiplying the total amount of funds
available for such distribution by a fraction, (i) the numerator
of which is the dividend rate for such series multiplied by the
total number of shares of such series then outstanding, and (ii)
the denominator of which is the sum of the dividend rate for the
Series E multiplied by the total number of shares of Series E
then outstanding. Unless full dividends on the shares of Series E
for the then current dividend period shall have been paid or
declared and a sum sufficient for the payment thereof set apart,
(1) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on any shares of Common Stock, and
(2) no shares of Common Stock shall be purchased, redeemed or
acquired by the Corporation and no monies shall be paid into or
set aside or made available for a sinking fund for the purchase,
redemption or acquisition thereof. Notwithstanding the foregoing,
the Corporation shall not be prohibited from repurchasing shares
of Common Stock from the directors, officers or employees of the
Corporation or any Subsidiary pursuant to agreements under which
the Corporation has the option to repurchase such shares upon the
occurrence of certain events, including, without limitation, the
termination of employment, where such repurchase has been duly
authorized by the Board.
(c) Liquidation Rights.
(i) Series E Preference. In the event of any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary (collectively, a "Dissolution"),
the holders of each share of Series E then outstanding shall be
entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders (the "Dissolution
Amount"), whether such assets are capital, surplus, or earnings,
before any payment or declaration and setting apart for payment
of any amount shall be made with respect to any shares of Common
Stock; at a liquidation price per share of Series E equal to the
sum of (x) three times its Sale Price, plus (y) an amount equal
to $0.50 per share per annum from the date of original issue to
and including the date full payment shall be tendered to the
holders of the Series E with respect to such Dissolution, less an
amount equal to the aggregate amount of dividends actually paid
per share of Series E from the date of original issue, provided
however, that in no event shall the Dissolution Amount exceed
$7.50. If upon any Dissolution, the assets to be distributed to
the holders of the Series E shall be insufficient to permit the
payment to such stockholders of the full preferential amounts
aforesaid, then the total amount of the assets of the Corporation
expressed in dollars available for distribution shall be divided
equally among the number of shares of such series outstanding at
the time of Dissolution such that each share of Series E receives
the same per share amount in Dissolution.
(ii) Remaining Assets. After the payment or
distribution to the holders of the Series E of the full
preferential amounts aforesaid, the holders of the Common Stock
then outstanding shall be entitled to receive ratably all
remaining assets of the Corporation to be distributed.
(iii) Reorganization. A consolidation or merger of
the Corporation with or into any other corporation or
corporations or the sale of all or substantially all of the
assets of. the Corporation, other than a consolidation, merger or
sale of all or substantially all of the assets of the Corporation
in which the stockholders of the Corporation receive solely
Capital Stock (other than cash in lieu of fractional shares) of
the acquiring corporation or of the direct or indirect parent
corporation or subsidiary corporation of the acquiring
corporation, shall be deemed a Dissolution of the Corporation as
that term is used in this Section 2.
(d) Redemption.
(i) Redemption at the Corporation's Option. The
Corporation at its option, may elect to redeem, in whole or in
part, the Series E for the Redemption Price hereinafter
specified; provided, however, that the Company shall not redeem
any Series E or give notice of redemption of any Series E, for
which the Company does not have sufficient and lawful funds to
use to redeem such shares.
(ii) Redemption Notice. The Corporation shall, not
less than 30 days nor more than 60 days prior to the Redemption
Date (as hereinafter defined) for such Series E, mail written
notice, or if the address of the holder is outside the United
States of America telegraph or facsimile written notice
("Redemption Notice"), expenses prepaid, to each holder of record
of such Series E to be redeemed at its post office address or
facsimile number, as appropriate, last shown on the records of
the Corporation. The Redemption Notice shall states:
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(1) Whether all or less than all the
outstanding shares of Series E are to be redeemed and the total
number of shares of such series being redeemed;
(2) The number of shares of Series E held by
the holder which the Corporation intends to redeem;
(3) The Redemption Date and Redemption
Price; and
(4) The time, place and manner in which the
holder is to surrender to the Corporation its certificate or
certificates representing the shares of Series E to be redeemed.
(iii) Redemption Price. The redemption price (the
"Redemption Price") for the Series E shall be an amount per share
in cash equal to the Sale Price, plus an amount equal to $0.40
per annum per share of Series E, in each case, from the date of
original issue to and including the date of redemption of such
shares of Series E (the "Redemption Date") less, an amount equal
to the aggregate amount of dividends actually paid per share with
respect to such share from the date of original issue; provided,
however, that in no event shall the Redemption Price exceed $7.50
per Share.
(iv) Surrender of Stock. On or before the
applicable Redemption Date, each holder of shares of Series E to
be redeemed, unless the holder has exercised its right to convert
the shares as provided in Section 6 hereof, shall surrender the
certificate or certificates representing such shares to the
Company, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price for such
shares shall be payable on the Redemption Date to the order of
the person whose name appears on such certificate or certificates
as the owner thereof, and each surrendered certificate shall be
canceled and retired. If less than all of the shares represented
by any such certificate are redeemed, a new certificate
representing the unredeemed shares shall be issued to the holder
of such shares.
(v) Termination of Rights. If the Redemption
Notice is duly given, and if on the Redemption Date the
Redemption Price is either paid or made available for payment
through the arrangement specified in subparagraph (f) below, then
notwithstanding that the certificates evidencing any of the
shares of Series E to be redeemed have not been surrendered, all
rights with respect to such shares shall forthwith as of the
Redemption Date cease and terminate, except only the right of the
holders to receive the Redemption Price without interest upon
surrender of their certificates thereof.
(vi) Deposit of Funds. At least three days prior
to the Redemption Date, the Corporation shall deposit with any
bank or trust company having a capital and surplus of at least
$100,000,000, as a trust fund, a sum equal to the aggregate
Redemption Price of all shares of the Series E to be redeemed on
the Redemption Date and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay
the Redemption Price to the respective holders upon the surrender
of their share certificates. From and after the Redemption Date,
the shares shall be deemed to be redeemed and no longer
outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights
with respect thereto, except the right to receive from the bank,
trust company or the Corporation payment of the Redemption Price
of the shares, without interest, upon surrender of their
certificates therefor. Any monies so deposited and unclaimed at
the end of two years from the Redemption Date shall be released
or repaid to the Corporation, after which the holders of shares
to be redeemed shall be entitled to receive payment of the
Redemption Price only from the Corporation.
(e) Voting Rights. Each holder of shares of Series E shall be
entitled to vote on all matters, including the election of directors to the
Board. Each holder of shares of Series E shall be entitled to the number of
votes equal to the largest number of full shares of Common Stock into which such
shares of Series E could be converted pursuant to the provisions of subparagraph
(f) hereof, at the record date for the determination of the stockholders
entitled to vote on such mattes or, if no such record date is established, at
the date such vote is taken. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held. Except as otherwise expressly
provided herein or as required by law, the holders of Series E and the holders
of Common Stock shall vote together and not as separate classes.
(f) Conversion. The holders of Series E shall have the following
conversion rights (the "Conversion Rights").
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(i) Right to Convert; Automatic Conversion. Each
share of Series E shall be convertible, at any time or from time
to time, at the option of the holder thereof, into fully paid and
nonassessable shares of Common Stock, at the Conversion Price in
effect at the time of conversion; provided, however, that the
conversion rights provided herein expire as to those shares of
Series E to be redeemed pursuant to subparagraph (d) of this
Article TENTH seven (7) calendar days prior to the applicable
Redemption Date. Each share of Series E shall automatically be
converted into shares of Common Stock at the Conversion Rate at
the time in effect for such shares of Series E immediately upon
the consummation of the Corporation's sale of its Common Stock in
a bona fide, firm commitment underwriting involving a public
offering of more than $10,000,000 (total price to public)
pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which as of the
Effective Date, was not less than $8.00 per share (adjusted to
reflect subsequent stock dividends, stock splits or
recapitalization). In addition, each share of Series E shall
automatically be converted into shares of Common Stock at the
Conversion Rate at the time in effect for such shares of Series E
at such time as the Common Stock shall, for at least twenty out
of any thirty consecutive trading days, have had a (i) closing
price of not less than $10.00 if traded on a national securities
exchange, (ii) a last sales price of not less than $10.00, if
listed as a National Market Issue under the Nasdaq-NMS or (iii)
mean between the closing representative bid and asked prices for
the stock of not less than $10.00 as reported by Nasdaq or
successor quotation system.
(ii) Conversion Rate. Each share of Series E shall
be convertible into that number of shares of Common Stock which
results from dividing the Sale Price by the Conversion Price in
effect at the time of conversion (the "Conversion Rate"). The
Conversion Prices shall be subject to adjustment from time to
time as provided below.
(iii) Mechanics of Conversion. Before any holder
of Series E shall be entitled to convert Series E into shares of
Common Stock, the holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series E or Common
Stock, and shall give written notice to the Corporation at such
office that such holder elects to convert the Series E and shall
state therein the number of shares of Series E being converted.
Thereupon, the Corporation shall promptly issue and deliver at
such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is
entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such
surrender of the shares of Series E to be converted, and the
person entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock on such date.
(iv) Adjustment for Stock Splits and Combinations.
If the Corporation at any time or from time to time after the
Effective Date effects a subdivision of the outstanding Common
Stock, the Conversion Price then in effect immediately before
that subdivision shall be proportionately decreased, and
conversely, if the Corporation at any time or from time to time
after the Effective Date combines the outstanding shares of
Common Stock, the Conversion Price then in effect immediately
before the combination shall be proportionately increased. Any
adjustment under this subparagraph (iv) shall become effective at
the close of business on the date the subdivision or combination
becomes effective.
(v) Adjustment for Certain Dividends and
Distributions. In the event the Corporation at any time or from
time to time after the Effective Date makes, or fixes a record
date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the
Conversion Price then in effect shall be decreased as of the time
of such issuance or, in the event such record date is fixed, as
of the close of business on such record date, by multiplying the
Conversation Price then in effect by a fraction (i) the numerator
of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date, and (ii) the denominator
of which shall be the sum of (A) the total number of shares of
Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date
plus (B) the number of shares of Common Stock issuable in payment
of such dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if
such distribution is not fully made on the date fixed therefor,
the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this subparagraph
(v) as of the time of actual payment of such dividends or
distributions.
(vi) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time or from
time to time after the Effective Date makes, or fixes a record
date for the
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determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each
such event provision shall be made so that the holders of Series
E shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount
of securities of the Corporation which they would have received
had their Series E been converted into Common Stock on the date
of such event and had they thereafter, during the period from the
date of such event to and including the Conversion Date, retained
such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such
period under this subparagraph (f) with respect to the rights of
the holders of the Series E.
(vii) Adjustment for Reclassification, Exchange
and Substitution. If the Common Stock issuable upon the
conversion of the Series E is changed into the same or a
different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend or
a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Certificate of Incorporation),
then and in any such event each holder of Series E shall have the
right thereafter to convert such stock into the kind and amount
of stock and other securities and property receivable upon such
reorganization, reclassification or other change, by holders of
the number of shares of Common Stock into which such shares of
Series E could have been converted immediately prior to such
reorganization, reclassification or change, all subject to
further adjustment as provided herein.
(viii) Reorganizations, Mergers, Consolidations or
Sales of Assets. If at any time or from time to time there is a
capital reorganization of the Corporation (other than a
recapitalization, subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this subparagraph
(f) or a merger or consolidation of the Corporation with or into
another corporation, or the sale of all or substantially all of
the Corporation's properties and assets to any other person
(other than a merger, consolidation or sale of all or
substantially all of the assets of the Corporation governed by
subparagraph (c)(iii) above), then, as a part of such
reorganization, merger, consolidation or sale, provision shall be
made so that the holders of the Series E shall thereafter be
entitled to receive upon conversion of the Series E, if not
liquidated, redeemed or purchased pursuant to subparagraph (c) or
(d), the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation
resulting from such merger or consolidation or sale, to which a
holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this subparagraph (f) with respect to the rights of
the holders of the Series E after the reorganization, merger,
consolidation or sale to the end that the provisions of this
Section 6 (including adjustment of the Conversion Price then in
effect and the number of shares purchasable upon conversion of
the Series E) shall be applicable after that event and be as
nearly equivalent as may be practicable.
(ix) Sale of Shares Below Conversion Price.
(1) If at any time or from time to time
after the Effective Date, the Corporation issues or sells, or is
deemed by the express provisions of this subparagraph (ix) to
have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other
distribution on any class of stock as provided in subparagraph
(vi) above and other than upon a subdivision or combination of
shares of Common Stock as provided in subparagraph (iv) above,
for an Effective Price (as hereinafter defined) less than the
then existing Conversion Price of any shares of Series E (or, if
an adjusted Conversion Price shall be in effect by reason of a
previous adjustment, then less than such adjusted Conversion
Price), then and in such case the then existing Conversion Price
of the Series E, as applicable, shall be reduced, as of the
opening of business on the date of such issue or sale, to a price
determined by multiplying that Conversion Price for each such
series by a fraction (i) the numerator of which shall be (A) the
number of shares of Common Stock outstanding at the close of
business on the day immediately preceding the date of such issue
or sale plus (B) the number of shares of Common Stock which the
aggregate consideration received (or by the express provisions
hereof deemed to have been received) by the Corporation for the
total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price, and (ii) the denominator of
which shall be the number of shares of Common Stock outstanding
at the close of business on the date of such issue after giving
effect to such issue of Additional Shares of Common Stock.
Conversion Price adjustments shall be made separately for Series
E; provided, however, that no adjustment shall be made for the
Series E if the Conversion Price of the Series E is less than the
Effective Price.
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(2) For the purpose of making any adjustment
required under this subparagraph (ix), the consideration received
by the Corporation for any issue or sale of securities shall (i)
to the extent it consists of cash be computed at the net amount
of cash received by the Corporation after deduction of any
expenses payable by the Corporation in connection with such issue
or sale and any underwriting or similar commissions,
compensation, or concessions paid or allowed by the Corporation
in connection with such issue or sale, (ii) to the extent it
consists of property other than cash, be computed at the fair
value of that property as determined in good faith by the Board,
and (iii) if Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined) or rights or options to
purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or
securities or other assets of the Corporation for a consideration
which covers both, be computed as the portion of the
consideration so received that may be determined in good faith by
the Board to be allocable to such Additional Shares of Common
Stock, Convertible Securities or rights or options.
(3) For the purpose of the adjustment
required under this subparagraph (ix), if the Corporation issues
or sells any rights or options for the purchase of Additional
Shares of Common Stock or stock or other securities convertible
into Additional Shares of Common Stock (such convertible stock or
securities being hereinafter referred to as "Convertible
Securities") for an Effective Price less than the Conversion
Price then in effect for Series E, then in each such case, for
purposes of adjusting the Conversion Price of such shares, the
Corporation shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities the
maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received in
consideration for the issuance of such shares an amount equal to
the total amount of the consideration, if any, received by the
Corporation for the issuance of such rights or options or
Convertible Securities, plus, in the case of options or rights,
the minimum amounts of consideration, if any, payable to the
Corporation upon the exercise of such options or rights, and, in
the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Corporation (other than by
cancellation of liabilities or obligations evidenced by such
Convertible Securities). If the Conversion Price was adjusted
upon the issuance of such rights, options or Convertible
Securities, no further adjustment of the Conversion Price of such
shares shall be made as a result of the actual issuance of
Additional Shares of Common Stock on the exercise of any such
rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall
expire without having been exercised, the Conversion Price
adjusted upon the issuance of such rights, options or Convertible
Securities shall be readjusted to the Conversion Price which
would have been in effect had an adjustment been made on the
basis that the only Additional Shares of Common Stock so issued
were the Additional Shares of Common Stock, if any, were issued
or sold for the consideration actually received by the
Corporation upon such exercise, plus the consideration, if any,
actually received by the Corporation for the granting of all such
rights or options, whether or not exercised, plus the
consideration, if any, for issuing or selling the Convertible
Securities actually converted, plus the consideration, if any,
actually received by the Corporation (other than by cancellation
of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities.
(4) For the purpose of the adjustment
required under this subparagraph (ix), if the Corporation issues
or sells any rights or options for the purchase of Convertible
Securities and the Effective Price for the underlying Additional
Shares of Common Stock is less than the Conversion Price then in
effect for Series E, then in each such case, for purposes of
adjusting the Conversion Price of such shares, the Corporation
shall be deemed to have issued at the time of the issuance of
such rights or options the maximum number of Additional Shares of
Common Stock issuable upon conversion of the total amount of
Convertible Securities covered by such rights or options and to
have received as consideration for the issuance of such
Additional Shares of Common Stock an amount equal to the amount
of consideration, if any, received by the Corporation for the
issuance of such rights or options plus the minimum amount of
consideration, if any, payable to the Corporation upon the
exercise of such rights or options plus the minimum amount of
consideration, if any, payable to the Corporation (other than by
cancellation of liabilities or obligations evidenced by such
Convertible Securities) upon the conversion of such Convertible
Securities. If the Conversion Price was adjusted upon the
issuance of such rights or options, no further adjustment of the
Conversion Price for such shares shall be made as a result of the
actual issuance of the Convertible Securities upon the exercise
of such rights or options or upon the actual issuance of
Additional Shares of Common Stock upon
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the conversion of such Convertible Securities. The provisions of
paragraph (3) above for the readjustment of the applicable
Conversion Price upon the expiration of rights or options or the
rights of conversion of Convertible securities shall apply
mutatis mutandis to the rights, options and Convertible
Securities referred to in this subparagraph (4).
(5) "Additional Shares of Common Stock" as
used herein shall mean all shares of Common Stock issued by the
Corporation after the Effective Date, whether or not subsequently
reacquired or retired by the Corporation, other than (i) shares
of Common Stock issued upon conversion of the Series E, (ii) not
more than 538,632 shares of Common Stock (appropriately adjusted
for stock splits, stock combinations, stock dividends and
recapitalizations) issuable to key officers and employees of the
Corporation in connection with the sale of the Series E, whether
upon the exercise of stock options or otherwise, (iii) not more
than 100,000 shares of Common Stock (appropriately adjusted for
stock splits, stock combinations, stock dividends, and other
recapitalizations) issuable whether upon the exercise of stock
options or otherwise, to directors, officers, employees and
consultants of the Corporation who prior to December 13, 1990,
had not held any shares of Common Stock or options to purchase
shares of Common Stock, (iv) shares of Common Stock issuable to
directors, officers, employees and consultants of the Corporation
pursuant to the exercise of options outstanding as of the
Effective Date, (v) 99,851 shares of Common Stock issuable
pursuant to options granted to directors, officers, and employees
of the Corporation under the Interpore International First
Amended and Restated Stock Option Plan in connection with the
cancellation of certain outstanding options to purchase shares of
Common Stock with an exercise price in excess of the Common
Stock's fair market value, as determined by the Board, (vi)
Common Stock (appropriately adjusted for stock splits, stock
combinations, stock dividends, and other recapitalizations)
issuable pursuant to the exercise of certain (A) warrants at a
per-share exercise price equal to or exceeding the then highest
Conversion Price for the Series E issued by the Corporation in
connection with the issuance of the Series E, or (B) warrants
issued by the Corporation in connection with any other financings
of the Corporation obtained on or prior to the Effective Date.
The "Effective Price" of Additional Shares of Common Stock shall
mean the amount determined by dividing the aggregate
consideration received, or deemed to have been received by the
Corporation for such issue under this subparagraph (ix), by the
total number of Additional Shares of Common Stock issued or sold,
or deemed to have been issued or sold by the Corporation under
this subparagraph (ix).
(x) Accountants' Certificate of Adjustment. In
each case of an adjustment or readjustment of the Conversion
Price or the number of shares of Common Stock or other securities
issuable upon conversion of the Series E, the Corporation, at its
expense, shall cause independent public accountants of recognized
standing selected by the Corporation (who may be the independent
public accountants then auditing the books of the Corporation) to
compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of
the Series E at the holder's address as shown in the
Corporation's books. The certificate shall set forth the
adjustment or readjustment, showing in detail the facts upon
which the adjustment or readjustment is based, including a
statement of (i) the consideration received or deemed to be
received by the Corporation for any Additional Shares of Common
Stock is issued or sold or deemed to have been issued or sold,
(ii) the Conversion Price for the Series E at the time in effect,
(iii) number of Additional Shares of Common Stock and (iv) the
type and amount, if any, of other property which at the time
would be received upon conversion of the Series E.
(xi) Notices of Record Date. In the event of any
taking by the Corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution,
or any capital reorganization of the Corporation, any
reclassification or recapitalization of the Capital Stock of the
Corporation or any transfer of all or substantially all of the
assets of the Corporation to any other person or any voluntary or
involuntary dissolution, liquidation or winding up of the
Corporation, the Corporation shall mail, or if the address of the
holder is outside the United States of America facsimile or
telegram, to each holder of Series E, at least thirty (30) days
prior to the record date specified therein, a notice specifying
(i) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of
such dividend or distribution, (ii) the date on which any such
reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the date, if any, that is to be
fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other
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<PAGE> 232
property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up.
(xii) Fractional Shares. No fractional shares of
Common Stock shall be issued upon conversion of Series E. In lieu
of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to the product of
such fraction multiplied by the fair market value of one share of
the Corporation's Common Stock on the date of conversion, as
determined in good faith by the Board.
(xiii) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and keep
available out (of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the
shares of the Series E, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series E; and if at any time the
number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then
outstanding shares of the Series E, the Corporation will take
such corporate and other action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of share as shall be
sufficient for such purpose.
(xiv) Notices. Any notice required by the
provisions of this subparagraph (f) to be given to the holder of
any shares of the Series E shall be deemed given upon the earlier
of actual receipt or 72 hours after the same has been deposited
in the United States mail, by certified or registered mail,
return receipt requested, postage prepaid, and addressed to each
holder of record at its address appearing on the books of the
Corporation or if the address of the holder is outside of the
United States of America, 72 hours after the notice has been sent
by telegram or facsimile to such holder.
(xv) Payment of Taxes. The Corporation will pay
all taxes (other than taxes based upon income) and other
governmental charges that may be imposed with respect to the
issue or delivery of shares of Common Stock upon conversion of
shares of Series E, including, without limitation, any tax or
other charge imposed in connection with any transfer involved in
the issue and delivery of shares of Common Stock in a name other
than that in which the shares of Series E so converted were
registered.
(xvi) No Dilution or Impairment. The Corporation
shall not amend its Certificate of Incorporation or participate
in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary
action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in
good faith assist in carrying out all such action as may be
reasonably necessary or appropriate in order to protect the
conversion rights of the holders of the Series E against dilution
or other impairment.
(g) Merger; Consolidation.
(i) At any time, in the event of (i) any
consolidation or merger of the Corporation with or into any other
corporation or other entity or person, or any other corporate
reorganization, in which the Corporation shall not be the
continuing or surviving entity of such consolidation, merger or
reorganization, or any transaction or series of related
transactions by the Corporation in which in excess of 50% of the
Corporation's voting power is transferred, or any sale of all or
substantially all of the Corporation's voting power is
transferred, or any sale of all or substantially all of the
assets of the Corporation and (ii) such transaction is not
governed by Section (c)(iii), then any holder of Series E may
elect in writing at the time of the stockholder vote on the
transaction to receive for each share of Series E an amount equal
to the amount payable with respect to such share of Series E in
the event of a Dissolution as provided in Section (c)(i) the
Dissolution Amount. The Dissolution Amount shall be paid at the
closing of any such transaction in cash or securities delivered
by the acquiring corporation as consideration for such
consolidation, merger, reorganization or sale, or in a
combination thereof. Such election shall not impair such holder's
right to exercise its conversion rights pursuant to subparagraph
(f) thereafter but prior to the closing of such transaction. Such
payments shall be made with respect to Series E by (A) redemption
of such shares pursuant to subparagraph (d)(ii), (d)(iv) and
(d)(v) hereof (provided that in such event, the moment
immediately prior to the closing of such transaction shall, for
purposes of this subparagraph, be deemed to be the "Redemption
Date," and only twenty (20) days' prior notice of the date fixed
for redemption need be given, and further provided that any
reference to
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<PAGE> 233
"Redemption Price" in subparagraph (d)(iii), for purposes of this
subparagraph (g) only, shall mean the Dissolution Amount) or (B)
purchase of such shares of Series E by the surviving corporation,
entity or person. In addition, such payments shall be made with
respect to Series E in the same priority and with the same
preferences as provided in subparagraph (c)(i)and (c)(ii) hereof.
The consent to such transaction by the holders of the Series E
who have so elected shall be deemed to have been given.
(ii) Any securities to be delivered to the holders
of the Series E pursuant to subparagraph (g)(i) above shall be
valued as follows:
(1) Securities not subject to investment
letter or other similar restrictions on free marketability:
(A) If traded on a securities exchange, the
value shall be deemed to be the average of the closing prices of
the securities on such exchange over the 30-day period ending
three (3) days prior to the closing;
(B) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid prices
over the 30-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the
value shall be the fair market value thereof, as mutually
determined by the Corporation and the holders of not less than a
majority of the then outstanding shares of the Series E.
(2) The method of valuation of securities
subject to investment letter or other restrictions on free
marketability shall be to make an appropriate discount from the
market value determined as above in (i) (A), (B) or (C) to
reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the holders of a majority of
the then outstanding shares of Series E.
(iii) In the event the requirements of
subparagraph (g)(i) are not complied with, the Corporation shall
forthwith either:
(1) cause such closing to be postponed until
such time as the requirements of this Section have been complied
with, or
(2) cancel such transaction, in which event
the rights, preferences and privileges of the holders of the
Series E shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date
of the first notice referred to in subparagraph (g)(iv) hereof.
(iv) The Corporation shall give each holder of
record of Series E written notice of such impending transaction
not later than twenty (20) days prior to the stockholders'
meeting called, to approve such transaction, or twenty (20) days
prior to the closing of such transaction, whichever is earlier,
and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall
describe the material terms and conditions of the impending
transaction and the provisions of this Section 7, and the
Corporation shall thereafter give such holders prompt notice of
any material changes. The transaction shall in no event take
place sooner than twenty (20) days after the Corporation has
given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material
changes provided for herein, provided, however, that such periods
may be shortened upon the written consent of the holders of a
majority of the shares of Series E then outstanding.
(v) The provisions of this subparagraph (g) are in
addition to the protective provisions of subparagraph (h) hereof.
(h) Restrictions and Limitations. The Corporation shall not amend
its Certificate of Incorporation without the approval by vote of the holders of
more than 50% of the then outstanding shares of the Series E, voting separately
as a series, if such amendment would change any of the rights, preferences or
privileges of or limitations on the shares of such Series E.
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<PAGE> 234
ELEVENTH: The Corporation shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
TWELFTH:
1. The Board of Directors shall have the power to make, adopt,
alter, amend, change or repeal the Bylaws of the Corporation by resolution
adopted by the affirmative vote of a majority of the entire Board of Directors,
subject to any bylaw requiring the affirmative vote of a larger percentage of
the members of the Board of Directors.
2. Stockholders may not make, adopt, alter, amend, change or
repeal the Bylaws of the Corporation except upon the affirmative vote of at
least 75% of the votes entitled to be cast by the holders of all outstanding
shares then entitled to vote generally in the election of directors, voting
together as a single class.
THIRTEENTH: Special meetings of the stockholders of the
Corporation, for any purpose or purposes, may only be called at any time by a
majority of the entire Board of Directors or by either the Chairman or the
President of the Corporation.
FOURTEENTH: No stockholder action may be taken except at an
annual or special meeting of stockholders of the Corporation and stockholders of
the Corporation may not take any action by written consent in lieu of a meeting.
FIFTEENTH: To the fullest extent permitted by the General
Corporation Law of the State of Delaware, this Certificate of Incorporation may
be amended by the Board of Directors, with respect to corrections not affecting
the rights, preferences and privileges of the Corporation's stockholders.
Signed on March 25, 1998
/s/ CHARLES K. RUCK
-----------------------------
Charles K. Ruck
Incorporator
VII-17
<PAGE> 235
ANNEX VIII.
DELAWARE BYLAWS
BYLAWS
OF
INTERPORE DELAWARE, INC.
A DELAWARE CORPORATION
ARTICLE I.
OFFICES
Section 1.1 Registered Office. The registered office shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2 Other Offices. The corporation may also have offices
at such other places both within the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meetings. Meetings of stockholders shall be
held at any place within or without the State of Delaware designated by the
Board of Directors. In the absence of any such designation, stockholders'
meetings shall be held at the principal executive office of the corporation.
Section 2.2 Annual Meeting of Stockholders. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
Section 2.3 Quorum; Adjourned Meetings and Notice Thereof. A
majority of the stock issued and outstanding and entitled to vote at any meeting
of stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat.
Section 2.4 Voting. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes, or the Certificate of Incorporation, or these Bylaws, a different vote
is required in which case such express provision shall govern and control the
decision of such question.
Section 2.5 Proxies. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Each stockholder
shall have one vote for each share of stock having voting power, registered in
his name on the books of the corporation on the record date set by the Board of
Directors as provided in Article V, Section 5.6 hereof. All elections shall be
had and all questions decided by a plurality vote.
VIII-1
<PAGE> 236
Section 2.6 Special Meetings. Unless otherwise prescribed by
statute or by the Certificate of Incorporation, special meetings of the
stockholders, for any purpose, or purposes, may only be called by the Chairman
of the Board and shall be called by the Chairman of the Board at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Section 2.7 Notice of Stockholder's Meetings. Whenever
stockholders are required or permitted to take any action at a meeting, a
written notice of the meeting shall be given which notice shall state the place,
date and hour of the meeting, and, in the case of a special meeting, the purpose
or purposes for which the meeting is called. The written notice of any meeting
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
corporation.
Section 2.8 Maintenance and Inspection of Stockholder List. The
officer who has charge of the stock ledger of the corporation shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 2.9 No Stockholder Action by Written Consent Without a
Meeting. Subject to the rights of the holders of any series of Preferred Stock
with respect to such series of Preferred Stock, any action required or permitted
to be taken by the stockholders of the Corporation must be effected at an annual
or special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
ARTICLE III.
DIRECTORS
Section 3.1 Number, Election and Tenure. The total number of
persons serving on the Board of Directors shall be not less than five (5) nor
more than nine (9) the exact number of directors to be determined from time to
time by resolution adopted by affirmative vote of a majority of the entire Board
of Directors. The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III. Class I, II and III shall each
consist of two directors. Class I directors shall be initially elected for a
term expiring at the first annual meeting of stockholders of the Corporation
following the date of adoption of these Bylaws, Class II directors shall be
initially elected for a term expiring at the second annual meeting of
stockholders of the Corporation following the date of adoption of these Bylaws,
and Class III directors shall be initially elected for a term expiring at the
third annual meeting of stockholders of the Corporation following the date
adoption of these Bylaws. At each annual meeting of stockholders following the
date hereof, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a decrease
in the number of directors shorten the term of any incumbent director. The
provisions of this Article III, Section 1 may be amended only with the approval
of 75% of the members of the Board of Directors of the Corporation. The initial
directors shall be and shall be classified as followed: G. Bradford Jones and
George Smyth shall be Class I directors and shall serve until the first annual
meeting of stockholders of the Corporation; William Eisenecher and Guy Nohra
shall be Class II directors and shall serve until the second annual meeting of
stockholders of the Corporation; and David C. Mercer shall be a Class III
director and shall serve until the third annual meeting of stockholders of the
Corporation.
Section 3.2 Vacancies. Vacancies on the Board of Directors by
reason of death, resignation, retirement, disqualification, removal from office,
or otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery of the State of
Delaware (the "Court of Chancery") may, upon application of any
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stockholder or stockholders holding at least ten percent of the total number of
the shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office.
Section 3.3 Powers. The property and business of the corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
Section 3.4 Directors' Meetings. The directors may hold their
meetings and have one or more offices, and keep the books of the corporation
outside of the State of Delaware.
Section 3.5 Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board.
Section 3.6 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board on no fewer than
forty-eight hours' notice to each director, either personally or by mail, by
facsimile or by telegram; special meetings shall be called by the Chairman of
the Board or the Secretary in like manner and on like notice on the written
request of two directors unless the Board consists of only one director; in
which case special meetings shall be called by the Chairman of the Board or
Secretary in like manner or on like notice on the written request of the sole
director.
Section 3.7 Quorum. At all meetings of the Board of Directors a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at any meeting at which there is a quorum,
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these Bylaws. If a quorum shall not be present at any meeting of the Board of
Directors the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. If only one director is authorized, such sole director shall
constitute a quorum.
Section 3.8 Action Without Meeting. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.9 Telephonic Meetings. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 3.10 Committees of Directors. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the Bylaws of the corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 3.11 Minutes of Committee Meetings. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors when required.
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Section 3.12 Compensation of Directors. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
Section 3.13 Indemnification.
(a) The corporation shall, to the fullest extent
permitted by the Delaware General Corporation Law (the "DGCL"), as the same
exists or may hereafter be amended (but in the case of any such amendment, only
to the extent that such amendment permits the corporation to provide broader
indemnification rights than said law permitted the corporation to provide prior
to such amendment), indemnify any and all persons whom it shall have power to
indemnify under the DGCL from and against any and all of the expenses,
liabilities or other matters referred to in or covered by the DGCL, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
(b) The corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(c) The corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such Court of Chancery
or such other court shall deem proper.
(d) To the extent that a director, officer,
employee or agent of the corporation shall be successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in paragraphs
(a) and (b) of this Section 13, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(e) Any indemnification under paragraphs (a) and
(b) of this Section 13 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
paragraphs (a) and (b) of this Section 13. Such determination shall be made (1)
by a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
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(f) Expenses (including attorneys' fees) incurred
by an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(g) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
(h) The Board of Directors may authorize, by a vote
of a majority of a quorum of the Board of Directors, the corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under this Section 13.
(i) For purposes of this Section 13, references to
"the corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Section 13 with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(j) For purposes of this Section 13, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Section 13.
(k) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 13 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(l) The Court of Chancery is hereby vested with
exclusive jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this Section 13 or under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Court of Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
ARTICLE IV.
OFFICERS
Section 4.1 Officers. The officers of this corporation shall be
chosen by the Board of Directors and shall include a President, a Secretary, and
a Chief Financial Officer. The corporation may also have at the discretion of
the Board of Directors such other officers as are desired, including a Chairman
of the Board, one or more Vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 4.3 hereof. In the event there are two or more
Vice Presidents, then one or more may be designated as Executive Vice President,
Senior Vice President, or other similar or dissimilar title. At the time of the
election of officers, the directors may by resolution determine the
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order of their rank. Any number of offices may be held by the same person,
unless the Certificate of Incorporation or these Bylaws otherwise provide.
Section 4.2 Election of Officers. The Board of Directors, at its
first meeting after each annual meeting of stockholders, shall choose the
officers of the corporation.
Section 4.3 Subordinate Officers. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board.
Section 4.4 Compensation of Officers. The salaries of all
officers and agents of the corporation shall be fixed by the Board of Directors.
Section 4.5 Term of Office; Removal and Vacancies. The officers
of the corporation shall hold office until their successors are chosen and
qualify in their stead. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. If the office of any officer or officers becomes vacant
for any reason, the vacancy shall be filled by the Board of Directors.
Section 4.6 Chairman of the Board. The Chairman of the Board, if
such an officer be elected, shall, if present, preside at all meetings of the
Board of Directors and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or prescribed by
these Bylaws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in Section 4.7 of this Article IV.
Section 4.7 President. Subject to such supervisory powers, if
any, as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the President shall be the Chief Executive Officer of
the corporation, unless such an officer is elected separately by the Board of
Directors, and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
Section 4.8 Vice President. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
Section 4.9 Secretary. The Secretary shall attend all sessions of
the Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose; and
shall perform like duties for the standing committees when required by the Board
of Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these Bylaws. He shall keep in
safe custody the seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
Section 4.10 Assistant Secretaries. The Assistant Secretary, or
if there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 4.11 Chief Financial Officer. The Chief Financial Officer
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys, and other valuable effects in the name
and to the credit of the corporation, in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
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disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
corporation. If required by the Board of Directors, he shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 4.12 Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Chief Financial Officer, perform the duties and exercise the
powers of the Chief Financial Officer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE V.
CERTIFICATES OF STOCK
Section 5.1 Certificates. Every holder of stock of the
corporation shall be entitled to have a certificate signed by, or in the name of
the corporation by, the Chairman or Vice Chairman of the Board of Directors, or
the President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Chief Financial Officer or an Assistant Treasurer of the
corporation, certifying the number of shares represented by the certificate
owned by such stockholder in the corporation.
Section 5.2 Signatures on Certificates. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the date of issue.
Section 5.3 Statement of Stock Rights, Preferences, Privileges.
If the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the DGCL, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 5.4 Lost Certificates. The Board of Directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5.5 Transfers of Stock. Upon surrender to the
corporation, or the transfer agent of the corporation, of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 5.6 Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days
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prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5.7 Registered Stockholders. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VI.
GENERAL PROVISIONS
Section 6.1 Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 6.2 Payment of Dividends. Before payment of any dividend
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.
Section 6.3 Checks. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 6.4 Fiscal Year. The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
Section 6.5 Corporate Seal. The corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 6.6 Manner of Giving Notice. Whenever, under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given by
facsimile or by telegram.
Section 6.7 Waiver of Notice. Whenever any notice is required to
be given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed to be equivalent to notice. Except as otherwise
provided in Section 222 of the DGCL, attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened.
Section 6.8 Annual Statement. The Board of Directors shall
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
ARTICLE VII.
AMENDMENTS
Section 7.1Amendment by Directors or Stockholders. These Bylaws may be altered,
amended or repealed or new Bylaws may be adopted by the stockholders or by the
Board of Directors, when such power is conferred upon the Board of Directors by
the Certificate of Incorporation, at any regular meeting of the stockholders or
of the Board of Directors or at any special meeting of the stockholders or of
the Board of Directors if notice of such alteration, amendment, repeal or
adoption of new Bylaws be contained in the notice of such special meeting. If
the power to adopt, amend or repeal Bylaws is conferred upon the Board of
Directors by the Certificate of Incorporation it shall not divest or limit the
power of the stockholders to adopt, amend or repeal Bylaws.
VIII-8
<PAGE> 243
[INTERPORE LETTERHEAD]
April 8, 1998
Dear Interpore Series E Preferred Shareholder:
As you are probably aware, on February 11, 1998, Interpore entered into a
Definitive Merger Agreement with Cross Medical Products of Dublin, Ohio. The
transaction was approved by both companies' board of directors, and closing of
the transaction is subject to the approval by the shareholders of each company
at the annual shareholders' meetings to be held on May 6, 1998.
Enclosed are Annual Report, Joint Proxy Statement/Prospectus, Proxy Card and
Proxy Card Return Envelope. Please read the materials carefully. Details about
the merger and reasons for the reincorporation are set forth in the
accompanying Joint Proxy Statement/Prospectus. Interpore's board of directors
has recommended that the shareholders of Interpore vote in favor of the merger,
in favor of a change of Interpore's state of incorporation from California to
Delaware, and in favor of the re-election of the existing members of the
Interpore board of directors.
Although the holders of Series E Preferred Stock make up a small percentage of
the total ownership of Interpore, YOUR VOTE IS VERY IMPORTANT. The
reincorporation requires the majority approval of each class of Interpore
capital stock.
We welcome your attendance at the Interpore Annual Meeting. Whether or not you
expect to attend the meeting in person, however, please complete, sign, date
and promptly return the enclosed proxy in the accompanying postage-paid
envelope. The prompt return of your proxy will save expenses involved in
further communication. Your proxy will not affect your rights to vote in person
in the event you should attend the meeting. FAILURE TO RETURN A PROPERLY
EXECUTED PROXY CARD OR TO VOTE IN PERSON AT THE INTERPORE ANNUAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AND AGAINST THE
REINCORPORATION.
In the past, our common stock transfer agent, U.S. Stock Transfer
Corporation, has served as transfer agent for the Series E Preferred Stock.
However, this year, I will be serving as the transfer agent. Feel free to
contact me should you have any questions about the merger or any other matters
discussed in the Joint Proxy Statement.
Sincerely,
Richard L. Harrison
Vice President
Chief Financial Officer and Secretary
