<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 0-22958
INTERPORE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3043318
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
181 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618-2402
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 453-3200
Not applicable
------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 7, 1999, there were 14,102,403 shares of the registrant's
common stock issued and outstanding.
<PAGE> 2
INTERPORE INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page(s)
-------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1999 (unaudited) and December 31, 1998 .............. 3
Condensed Consolidated Statements of Income (unaudited)
for the three month periods ended March 31, 1999 and
March 31, 1998 ................................................ 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three month periods ended March 31, 1999 and
March 31, 1998 ................................................ 5
Notes to Condensed Consolidated Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................. 13
</TABLE>
2
<PAGE> 3
INTERPORE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,007 $ 7,908
Accounts receivable, less allowance for doubtful
accounts of $534 and $506 in 1999 and 1998,
respectively 7,278 6,418
Inventories 12,090 12,115
Prepaid expenses 1,338 1,205
Deferred income taxes 1,426 1,426
Other current assets 231 436
-------- --------
Total current assets 30,370 29,508
Property, plant and equipment, net 1,693 1,467
Deferred income taxes 2,559 2,559
Intangible assets, net 378 338
Other assets 318 330
-------- --------
Total assets $ 35,318 $ 34,202
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current portion of capital lease obligations $ 15 $ 15
Accounts payable 1,109 609
Accrued compensation and related expenses 888 1,010
Accrued royalties 373 300
Reserve for products liability claims 177 232
Accrued disposition costs 209 250
Accrued merger-related expenses and restructuring charges 618 726
Other accrued liabilities 577 873
-------- --------
Total current liabilities 3,966 4,015
-------- --------
Long-term liabilities:
Long-term debt 3,152 3,152
Deferred income taxes 55 55
Obligations under capital leases, net 25 29
-------- --------
Total long-term liabilities 3,232 3,236
-------- --------
Contingencies
Stockholders' equity:
Series E convertible preferred stock, voting, par
value $.01 per share: Authorized shares - 594,000;
issued and outstanding shares - 31,573 at March 31,
1999 and 32,906 at December 31, 1998; aggregate
liquidation value of $237 at March 31, 1999 and
$247 at December 31, 1998 -- --
Preferred stock, par value $.01 per share: Authorized
shares - 4,406,000; outstanding shares - none -- --
Common stock, par value $.01 per share: Authorized
shares - 50,000,000; issued and outstanding shares
- 14,096,029 at March 31, 1999 and 14,059,690 at
December 31, 1998 141 140
Additional paid-in-capital 44,048 43,962
Accumulated deficit (12,960) (14,042)
-------- --------
31,229 30,060
Less treasury stock, at cost - 605,000 shares at
March 31, 1999 and December 31, 1998 (3,109) (3,109)
-------- --------
Total stockholders' equity 28,120 26,951
-------- --------
Total liabilities and stockholders' equity $ 35,318 $ 34,202
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE> 4
INTERPORE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 8,986 $ 7,370
Cost of goods sold 2,809 1,836
-------- --------
Gross profit 6,177 5,534
-------- --------
Operating expenses:
Research and development 912 861
Selling and marketing 3,264 2,739
General and administrative 1,015 1,036
Merger-related expenses -- 68
-------- --------
Total operating expenses 5,191 4,704
-------- --------
Income from operations 986 830
-------- --------
Interest income 96 240
Interest expense (85) (133)
Other income 85 65
-------- --------
Total interest and other income, net 96 172
-------- --------
Income before taxes 1,082 1,002
Income tax provision -- 59
-------- --------
Net income $ 1,082 $ 943
======== ========
Net income per share:
Basic $ .08 $ .07
Diluted $ .08 $ .07
Shares used in computing net income per share:
Basic 13,462 13,817
Diluted 14,277 15,239
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE> 5
INTERPORE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,082 $ 943
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 214 165
Changes in operating assets and liabilities:
Accounts receivable (860) (497)
Inventories 25 (736)
Prepaid expenses (133) (212)
Other assets 219 668
Accounts payable 500 28
Accrued liabilities (549) (784)
-------- --------
Net cash provided by (used in) operating activities 498 (425)
-------- --------
INVESTING ACTIVITIES
Sales of short-term investments, net -- 2,856
Capital expenditures (413) (104)
Expenditures for patent rights (69) (9)
-------- --------
Net cash provided by (used in) investing activities (482) 2,743
-------- --------
FINANCING ACTIVITIES
Repayment of long-term debt and capital lease obligations (4) (4)
Proceeds from exercise of stock options 87 249
-------- --------
Net cash provided by financing activities 83 245
-------- --------
Net increase in cash and cash equivalents 99 2,563
Cash and cash equivalents at beginning of period 7,908 11,809
-------- --------
Cash and cash equivalents at end of period $ 8,007 $ 14,372
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE> 6
INTERPORE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Interpore International, Inc., doing business as Interpore Cross
International ("Interpore Cross"), is a medical device company that operates in
one business segment: the design, manufacture and marketing of synthetic bone
and tissue products and spinal implant devices. The products are distributed in
the United States and internationally.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared without audit, pursuant to Securities and Exchange Commission
regulations. In the opinion of management, the accompanying condensed
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position at March 31, 1999 and the consolidated results of operations
and cash flows for the three month periods ended March 31, 1999 and 1998.
The accompanying condensed consolidated financial statements include the
accounts of Interpore Cross and its subsidiaries after elimination of all
significant intercompany transactions.
The results of operations and cash flows for the three months ended
March 31, 1999 are not necessarily indicative of results to be expected for
future quarters or the full year.
The merger of Interpore and Cross has been accounted for as a
pooling-of-interests. Accordingly, financial information for all periods
presented has been restated to include the financial information of each
company.
These consolidated financial statements should be read in conjunction
with the financial statements included in Interpore Cross' Annual Report on Form
10-K for the year ended December 31, 1998, as filed with the Securities and
Exchange Commission.
3. BUSINESS COMBINATION
On May 7, 1998, Interpore International ("Interpore") merged with Cross
Medical Products, Inc. ("Cross"), a publicly traded Ohio-based worldwide
supplier of spinal implant systems used to treat degenerative conditions and
deformities of the spine. Shareholders of Cross received 1.275 shares of
Interpore common stock for each share of issued and outstanding Cross common
stock. Accordingly, Interpore issued 6.7 million shares of its common stock to
Cross shareholders in exchange for all of the outstanding common stock of Cross.
In addition, approximately 895,000 shares of Interpore Cross common stock were
reserved for issuance upon the exercise of assumed Cross stock options.
6
<PAGE> 7
4. INVENTORIES
Inventories are stated at the lower of average cost or market.
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw materials $ 1,063 $ 1,024
Work-in-process 391 279
Finished goods 10,636 10,812
------- -------
$12,090 $12,115
======= =======
</TABLE>
5. CONTINGENCIES
Cross and a number of other spinal implant manufacturers were named as
defendants in various products liability lawsuits alleging injuries from 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, class certification was denied. This
forced the plaintiffs to file individual, rather than class action suits. Over
1,100 such suits were initially filed; however, Cross was dismissed from these
lawsuits for failure of the plaintiffs to state a viable claim. A large number
of plaintiffs filed new lawsuits against Cross and others alleging, in addition
to damages from spinal implants, a conspiracy among manufacturers, physicians
and other spinal implant industry members to defraud the public and market
products without the proper regulatory approvals. Cross was named as a
defendant, among others, in approximately 797 such lawsuits. Interpore Cross
cannot estimate precisely the number of such lawsuits that may eventually be
filed or in how many lawsuits Cross will be named as a defendant. In
approximately 235 of these cases, which involved products manufactured by
Acromed, another spinal implant manufacturer, Cross has been dismissed as a
defendant. Cross has also been dismissed as a defendant from approximately 79
additional cases. Of the remaining conspiracy cases, none involve products
manufactured by Cross.
The conspiracy cases remain coordinated for pretrial purposes only.
Plaintiffs in the conspiracy 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 are substantial and exceed
the limits of Cross' products liability insurance policies, Interpore Cross
believes that Cross has affirmative defenses, and that these individual lawsuits
are otherwise without merit.
The lawsuits are being defended by Cross' insurance carrier, in some
cases under a reservation of rights. Cross maintains claims made products
liability insurance policies with at least $5 million of coverage both per
occurrence and in the aggregate. Interpore Cross and Cross believe that they
have adequate insurance for their businesses, however, there can be no assurance
that the limits of 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. Future operating results could be
materially adversely affected by the cost of defending litigation or the formal
resolution of pending cases or future claims, whether or not such defense costs,
cases or claims are covered by insurance.
Aside from the conspiracy litigation, the nature of Interpore Cross'
business subjects it to products liability and various other legal proceedings
from time to time. In the opinion of management, the amount of ultimate
liability with respect to any known proceedings or claims, excluding the
conspiracy litigation, will not materially affect the financial position or
results of operations of Interpore Cross.
7
<PAGE> 8
6. LONG-TERM DEBT
The 8.5% Convertible Subordinated Debentures (the "Debentures") due June
1, 2003 are convertible at any time before maturity, unless previously redeemed,
into shares of Interpore Cross common stock at a conversion price of $6.37 per
share. Beginning July 1, 1999 and on July 1 of each succeeding year, Interpore
Cross will be obligated to redeem any Debentures tendered by June 1, 1999 or
June 1 of any succeeding year, respectively, at 100% of the principal amount
thereof plus accrued interest, subject to an annual limitation of $25,000 per
holder and an annual aggregate limitation of $262,500. During the first three
months of 1999, no Debentures were converted into shares of Interpore Cross
common stock. The fair value of the Debentures approximates the book value at
March 31, 1999 and December 31, 1998.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DESCRIPTION OF BUSINESS
Interpore International, Inc. ("Interpore Cross") designs, manufactures
and markets synthetic bone and tissue products and spinal implant devices. Our
merger with Cross Medical Products, Inc. ("Cross") in May 1998 has significantly
increased our focus on the spine market, one of the fastest growing areas within
the orthopaedic marketplace. We report our sales in two product categories: bone
biologics and spinal products.
Bone biologics are comprised of Pro Osteon(R) bone graft substitute
products and OEM hydroxyapatite products. These products are derived from coral
and serve as a lattice for new bone growth when implanted into a bone defect.
The unique, interconnected porous architecture of the product is a key to its
success as a bone graft substitute. Bone graft substitutes such as Pro Osteon
offer distinct advantages over autografts and allografts. In an autograft, bone
is taken from another part of the patient's body, and frequently creates pain,
longer recovery, and risk of other complications for the patient. An allograft,
or bone taken from a cadaver, carries the risk of implant rejection or disease
transmission. Bone biologics also includes our recently introduced AGF(TM)
(Autologous Growth Factors(TM)) related products, which can be used with a bone
graft material, such as Pro Osteon, to encourage bone growth. AGF is comprised
of concentrated growth factors derived from platelets in the patient's own blood
during the surgical procedure.
In the spine products category, we offer the Synergy(TM) Spinal System,
which is used to facilitate spine fusions in patients suffering from
degenerative conditions and deformities of the spine. These conditions
frequently cause severe pain and loss of muscle function in patients. The
Synergy System is comprised of titanium or stainless steel hooks, rods and
screws and the instruments required for the surgeon to assemble a construct
which restores the natural anatomy, keeping it immobilized while a bone graft
eventually fuses the vertebrae naturally.
Prior to the merger, we distributed our bone biologics products through
employee direct sales representatives and commissioned independent agents in the
U.S., and through stocking distributors outside the U.S. In the U.S. we had been
converting to direct representatives because we believed, with only bone graft
products in our product portfolio, we could get more focused sales time compared
to independent agents carrying other product lines. Cross was distributing its
products in the U.S. solely through independent agents, and internationally
through stocking distributors. In the U.S., both companies' sales forces were
calling directly on the same decision-maker - the orthopaedic/spine surgeon,
providing part of the rationale for the merger. Once the merger was completed,
the respective companies' product portfolios were combined, and as a result we
found we could attract independent agents that desired our complementary product
portfolio and that possessed strong surgeon relationships, an important factor
for competing in this industry. Therefore, we expect to continue to increase our
use of independent agents for the domestic distribution of both bone biologics
and spine products.
Currently, the surgeon is the key decision maker with respect to the
purchase of our products, and the hospital pays our invoices directly. However,
for many other medical device products, the purchasing decision has been assumed
by hospital purchasing departments, buying groups or managed care organizations.
Also, for some other medical device products, insurance companies and Medicare
have refused to reimburse the hospital, or the company directly in the case of
direct-to-insurer billing by the company, and therefore reimbursement becomes an
issue. These factors have not been an issue for us to-date. However, in the
future there can be no assurance that the decision-making responsibility will
not shift from the surgeon, or that reimbursement will not become an issue
affecting our revenues. Other factors potentially affecting continued revenue
growth include: the pricing practices of our competitors, competitive new
product introductions, and our ability to continue to attract and retain
qualified direct sales representatives, independent agents, and distributors.
Sales to our OEM customers and our international distributors are affected by
their purchasing practices, and in the case of international sales, by the
financial capacity of our distributors and the economic conditions in their
countries. Continued revenue growth may also depend upon our ability to
successfully introduce new products or product improvements. See "Certain
Business Considerations" in our 1998 Annual Report on Form 10-K.
9
<PAGE> 10
SIGNIFICANT EVENTS
In February 1998, we entered into an agreement to merge with Cross, a
publicly traded Ohio-based worldwide supplier of spinal implant systems used to
treat degenerative conditions and deformities of the spine. The shareholders of
both companies approved the merger on May 6, 1998 and it became effective on May
7, 1998. We exchanged approximately 6.7 million shares of our common stock for
all of the common stock of Cross. We accounted for the merger as a
pooling-of-interests.
RESULTS OF OPERATIONS
The following table presents our results of operations as percentages:
<TABLE>
<CAPTION>
Three months ended March 31, Change
---------------------------- -------------
1999 1998 1999 vs. 1998
----- ----- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 21.9%
Cost of goods sold 31.3% 24.9% 53.0%
----- ----- ----
Gross profit 68.7% 75.1% 11.6%
----- ----- ----
Operating expenses:
Research and development 10.2% 11.7% 5.9%
Selling and marketing 36.3% 37.2% 19.2%
General and administrative 11.3% 14.0% (2.0%)
Merger related expenses -- .9% n/a
----- ----- ----
Total operating expenses 57.8% 63.8% 10.4%
----- ----- ----
Income from operations 10.9% 11.3% 18.8%
===== ===== ====
</TABLE>
For the quarter ended March 31, 1999, net sales of $9.0 million were
$1.6 million or 21.9% higher than net sales of $7.4 million for the same period
of 1998.
<TABLE>
<CAPTION>
Three months ended March 31, Change
---------------------------- ---------------------
1999 1998 Amount %
------ ------ ------ ----
<S> <C> <C> <C> <C>
Spinal implant product sales $4,843 $3,663 $1,180 32.2%
Bone biologics product sales 4,143 3,707 436 11.8%
------ ------ ------ ----
Total net sales $8,986 $7,370 $1,616 21.9%
====== ====== ====== ====
</TABLE>
Sales of spinal implant products increased in the quarter ended March
31, 1999 by $1.2 million or 32.2% to $4.8 million compared to $3.7 million for
the quarter ended March 31, 1998. The increase reflects continued market
penetration of this relatively new system, aided by the improved distribution
and greater domestic territory coverage following the merger.
Sales of bone biologics products increased by $436,000 or 11.8% to $4.1
million for the three months ended March 31, 1999 compared to $3.7 million for
the three months ended March 31, 1998. Our new AGF related products, used to
collect and concentrate growth factors from the patient's blood, were sold to
selected pre-launch reference sites and accounted for $319,000 of the increase
in sales of bone biologics products. OEM bone biologics products, which are
dependent upon the ordering patterns of two customers, increased by $203,000 or
188% in the first quarter of 1999 compared to the same quarter of 1998. Pro
Osteon sales decreased by $86,000 or 2% versus the same quarter of 1998. We
believe the lack of growth in Pro Osteon sales was primarily related to the
shift in domestic distribution from direct sales representatives to independent
agents which we believe were focusing a greater portion of their efforts on
spinal products sales.
10
<PAGE> 11
Total domestic sales of bone biologics and spinal implant products
increased 28.5% or $1.5 million to $6.8 million for the three months ended March
31, 1999 compared to $5.3 million for the same period of 1998. International
sales increased $96,000 or 4.7% to $2.1 million for the first quarter of 1999
from $2.0 million for the first quarter of 1998.
For the quarter ended March 31, 1999, the gross margin was 68.7% of
sales compared to 75.1% of sales for the quarter ended March 31, 1998. The gross
margin in the first quarter of 1998 was the highest of 1998, largely due to
favorable manufacturing variances at Cross. The remaining quarters of 1998
experienced an average gross margin of 71% of sales. Additionally, spinal
implant products have lower gross margins than our bone biologics products, and
the comparatively higher growth in sales of spinal implant products versus bone
biologics products reduced the weighted average gross margin on total sales.
Total operating expenses for the quarter ended March 31, 1999 increased
by 10.4% or $487,000 to $5.2 million as compared to $4.7 million for the same
quarter of 1998. As a percentage of sales, total operating expenses decreased
from 63.8% in the first quarter of 1998 to 57.8% in the first quarter of 1999.
Research and development expenses increased by 5.9% or $51,000 due primarily to
the hiring of personnel for spinal implant product development projects. Selling
and marketing expenses increased $525,000 or 19.2% compared to the first quarter
of 1998 primarily due to increased commissions on higher sales. General and
administrative expenses decreased by 2.0% or $21,000, the result of efficiencies
realized following the merger and consolidation of facilities. There were no
merger-related expenses during the first quarter of 1999.
The $76,000 or 44.2% decrease in net interest and other income relates
to a reduction in interest income partially offset by reduced interest expense.
During 1998, cash and cash equivalents declined due to the payment of
merger-related expenses, restructuring charges and non-recurring charges; the
repurchase of our common stock; and the redemption of convertible debentures.
Average cash and cash equivalents balances were accordingly lower in the first
quarter of 1999 versus the first quarter of 1998, reducing interest income.
Also, the redemption of convertible debentures during 1998 reduced the
associated interest expense in the first quarter of 1999.
No income tax provision was recorded in the first quarter of 1999 and
limited income tax provision was recorded in the first quarter of 1998 due to
the utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, cash and cash equivalents totaled $8.0 million as
compared to $7.9 million as of December 31, 1998. Total working capital
increased to $26.4 million from $25.5 million and the current ratio improved to
7.7 at March 31, 1999 from 7.3 at December 31, 1998.
Our $8.0 million of cash and cash equivalents at March 31, 1999 is
available to support the continued investment in the development of our
business, including the development or acquisition of new bone biologic and
spinal implant products, and possible acquisitions of businesses. We have a $5
million revolving line of credit that had no amount outstanding at March 31,
1999 and which expires in July 1999. We intend to negotiate an extension of the
line of credit prior to its expiration, but there can be no assurance that an
extension will be obtained.
At March 31, 1999, there were no material commitments for capital
expenditures.
We believe we currently possess sufficient resources to meet the cash
requirements of our operations for at least the next year.
11
<PAGE> 12
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. If not
corrected, many computer applications could fail or create erroneous results by
not recognizing "00" to mean the year 2000. We use only third party software,
and in our Annual Report on Form 10-K for the fiscal year ended December 31,
1997, we reported on our initial assessment of this software.
STATE OF READINESS
In our initial assessment, we contacted the authors of our critical
software programs and determined that each was either already Year 2000
compliant or expected to be Year 2000 compliant by December 31, 1999. We have
identified our remaining software as well as hardware, vendors and customers
(collectively "Elements") and have determined those which we consider to be
mission critical. For Elements determined to be mission critical, we will seek
to obtain assurances of Year 2000 compliance. The assurances sought will be in
the form of vendor or customer certifications, identification of alternatives,
Company-administered testing efforts, or a combination of certain assurances. We
have no way of ensuring that mission critical vendors or customers will be Year
2000 compliant, and their inability to become compliant on a timely basis could
materially impact our operations or financial condition.
COSTS TO ADDRESS OUR YEAR 2000 ISSUES
Through March 31, 1999, we have not incurred any material direct costs
associated with Year 2000 issues. Certain costs associated with the
consolidation of operations following our merger with Cross resulted in
obtaining software/hardware that is Year 2000 compliant. While the process of
evaluating Elements is not complete, at this time, we do not believe that we
will need to replace any material non-compliant systems or hire any Year 2000
solution providers. Therefore, at this time, we estimate that future costs to
address Year 2000 issues should not be material.
RISKS OF OUR YEAR 2000 ISSUES
We have yet to identify any mission critical Element that we expect to
not be Year 2000 compliant. In the continuing process of evaluating Elements, we
will have to rely on third party certifications of Year 2000 compliance. In the
event that mission critical Elements fail to be compliant, we could experience a
material disruption in operations, including, but not limited to: interruption
in supply of parts from vendors, inability to deliver products to customers or
to produce products on schedule, or failure of financial systems, all of which
could materially affect our business and cause a loss of customers.
CONTINGENCY PLANS
We have not established a contingency plan relative to Year 2000 issues.
As our assessment continues, if it is determined that any mission critical
Elements are likely not to be Year 2000 compliant, we will develop a contingency
plan.
- ------------------------
THE QUARTERLY RESULTS CONTAINED HEREIN ARE UNAUDITED AND REFLECT CERTAIN
ASSUMPTIONS OF MANAGEMENT THAT MAY CHANGE. RESULTS OF THE QUARTER MAY NOT BE
REPRESENTATIVE OF RESULTS FOR FUTURE QUARTERS OR INDICATIVE OF OUR FINANCIAL
RESULTS FOR THE YEAR. CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q
ARE FORWARD-LOOKING AND MAY INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT
LIMITED TO: PRODUCT DEMAND AND MARKET ACCEPTANCE RISKS; RISKS RELATED TO THE
DEVELOPMENT OF FUTURE PRODUCTS; RISK THAT WE WILL NOT RECEIVE ADDITIONAL
REGULATORY APPROVAL OF PRODUCTS; AND THE IMPACT OF COMPETITIVE PRODUCTS.
ADDITIONAL INFORMATION ON FACTORS THAT COULD AFFECT OUR FINANCIAL RESULTS AND
GROWTH PROSPECTS IS DISCLOSED IN REPORTS WE FILE FROM TIME TO TIME WITH THE
SECURITIES AND EXCHANGE COMMISSION, INCLUDING IN THE "CERTAIN BUSINESS
CONSIDERATIONS SECTION" OF OUR ANNUAL REPORT ON FORM 10-K.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
Reference is made to the Exhibit Index on Page 15 hereof.
b. Reports on Form 8-K.
No reports on Form 8-K were filed during the fiscal quarter ended
March 31, 1999.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATE: May 10, 1999 INTERPORE INTERNATIONAL, INC.
(Registrant)
By: /s/ David C. Mercer
------------------------------------
David C. Mercer,
Chairman and Chief Executive Officer
By: /s/ Richard L. Harrison
------------------------------------
Richard L. Harrison
Sr. Vice President and
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<C> <S>
3.01 Certificate of Incorporation of Interpore International, Inc. as
amended (1)
3.02 Bylaws of Registrant (1)
3.03 Amendment Number One to Bylaws (17)
4.01 Rights Agreement dated November 19, 1998, between Interpore
International, Inc. and U.S. Stock Transfer Corporation, which includes
the form of Certificate of Determination of the Series A Junior
Participating Preferred Stock of Interpore International, Inc. as
Exhibit A, the form of Right Certificate as Exhibit B and the Summary of
Rights to Purchase Preferred Shares as Exhibit C. (2)
10.01 Revised License Agreement dated March 12, 1984, between Registrant and
Research Corporation Technologies, Inc., as amended by a First Amendment
dated December 7, 1984, and as further amended by a Fourth Amendment
dated July 22, 1988 (3)
10.02 Cancellation and Release Agreement dated March 1, 1993 among Registrant,
Interpore Orthopaedics, Inc., Pfizer, Inc. and Howmedica, Inc. (3)
10.03 Series E Preferred Stock and Common Stock Warrant Purchase Agreement
dated December 19, 1991 (3)
10.04 Series E Preferred Stock Purchase Agreement dated October 30, 1992 (3)
10.05 Single Tenant Lease dated July 25, 1991 between Registrant and The
Irvine Company as amended by a Third Amendment to Lease dated December
11, 1996 (4)
10.06 Amended Schedule to Loan and Security Agreement dated August 11, 1998
among Registrant, Interpore Orthopaedics, Inc., Cross Medical Products,
Inc. and Silicon Valley Bank (5)
10.07 Amendment to the Loan Agreement dated August 11, 1998 among Registrant,
Interpore Orthopaedics, Inc., Cross Medical Products, Inc. and Silicon
Valley Bank (5)
10.08 Amended and Restated Stock Option Plan dated March 19, 1991 (6), First
Amendment to the Amended and Restated Stock Option Plan, effective
October 15, 1991 (3); Amendment to the Amended and Restated Stock Option
Plan dated September 17, 1994 (7)
10.09 1995 Stock Option Plan (8)
10.10 Stock Option Plan for Non-Employee Directors of Interpore
International (9)
10.11 Danninger Medical Technology, Inc. Amended and Restated 1984
Non-Statutory Stock Option Plan (10)
10.12 Danninger Medical Technology, Inc. Amended and Restated 1984 Incentive
Stock Option Plan (10)
10.13 Cross Medical Products Inc. Amended and Restated 1994 Stock Option
Plan (10)
10.14 Asset Purchase Agreement dated March 12, 1997, among Cross Medical
Products, Inc., Danninger Healthcare, Inc. and OrthoLogic Corp. (11)
10.15 Indenture concerning 8.5% Convertible Subordinated Debentures between
Cross Medical Products, Inc. and Fifth Third Bank (12)
10.16 Supplemental Indenture between Interpore International, Inc. and Cross
Medical Products, Inc. and Fifth Third Bank (5)
10.17 Form of Indemnification Agreement (13)
10.18 Schedule of Parties to Form of Indemnification Agreement (14)
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<C> <S>
10.19 Non-Competition Agreement dated September 6, 1996 between Cross Medical
Products, Inc. and Stephen R. Draper (15)
10.20 Agreement between Dr. Edward Funk and Cross Medical Products, Inc. dated
February 11, 1998 (16)
10.21 Form of Employment Agreement dated August 17, 1998 between Interpore
International, Inc. and its executive officers (14)
10.22 Schedule of Parties to Form of Employment Agreement dated August 17,
1998 (14)
10.23 1999 Consultants Stock Option Plan (18)
10.24 Amended and Restated Employee Qualified Stock Purchase Plan dated
November 13, 1998
11.01 Computations of Net Income per Share
27.01 Financial Data Schedule
</TABLE>
- -----------------
(1) Incorporated by reference from our Registration Statement on Form S-4,
Registration No. 333-49487.
(2) Incorporated by reference from our Current Report on Form 8-K dated
December 1, 1998.
(3) Incorporated by reference from our Registration Statement on Form S-1,
Registration No. 33-69872.
(4) Incorporated by reference from our Current Report on Form 8-K dated
February 11, 1998.
(5) Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998.
(6) Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-77426.
(7) Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-86290.
(8) Incorporated by reference from our Proxy Statement for the 1994 Annual
Meeting of Shareholders.
(9) Incorporated by reference from our Proxy Statement for the 1995 Annual
Meeting of Shareholders.
(10) Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 333-53775.
(11) Incorporated by reference from the Cross Medical Products, Inc. Annual
Report on Form 10-K for the year ended December 31, 1996.
(12) Incorporated by reference from the Cross Medical Products, Inc.
Registration Statement on Form S-2, Registration No. 333-02273.
(13) Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998.
(14) Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998.
(15) Incorporated by reference from the Cross Medical Products, Inc.
Quarterly Report on Form 10-Q for the fiscal year ended September 30,
1996.
(16) Incorporated by reference from the Cross Medical Products, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997.
(17) Incorporated by reference from our Annual Report on Form 10-K for the
year ended December 31, 1998.
(18) Incorporated by reference from our Proxy Statement for the 1999 Annual
Meeting of Stockholders.
16
<PAGE> 1
Exhibit 10.24
AMENDED AND RESTATED
INTERPORE INTERNATIONAL, INC.
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
1. PURPOSE. The purpose of this Amended and Restated Interpore
International, Inc. Employee Qualified Stock Purchase Plan (the "Q.S.P. Plan")
is to assist employees of the Company and its Subsidiary Corporations in
acquiring stock ownership interests in the Company, pursuant to a plan which
qualifies as an "employee stock purchase plan" under Code Section 423. The
Q.S.P. Plan is intended to help employees provide for their future security, and
to encourage then to remain in the employ of the Company and its Subsidiary
Corporations.
2. DEFINITIONS. Whenever one of the following terms is used in the
Q.S.P. Plan with the first letter or letters capitalized, it shall have the
following meaning, unless the context clearly indicates to the contrary (such
definitions to be equally applicable to the singular and plural forms of the
terms defined):
(a) "Administrator" shall mean the Company, acting through its chief
executive officer or his or her delegate.
(b) "Authorization Card" shall mean the form prescribed by the
Administrator, which shall include a form of stock purchase agreement pursuant
to which an Eligible Employee shall purchase shares of Stock under the Q.S.P.
Plan and a form of payroll deduction authorization pursuant to which such
Eligible Employee shall authorize the Company to deduct such Eligible Employee's
contributions under the Q.S.P. Plan.
(c) "Base Pay" shall mean gross pay received by an Employee on each
Payday as cash compensation for services to the Company or a Subsidiary
Corporation, excluding overtime payments, sales commissions, incentive
compensation, bonuses and other special-payments, except to the extent that the
inclusion of any such item is specifically designated by the Administrator.
(d) "Board of Directors" shall mean the Board of Directors of the
Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Company" shall mean Interpore International, Inc., a California
corporation.
(g) "Eligible Employee" shall mean any Employee who satisfies the
requirements of Section 4.
(h) "Employee" shall mean any person who renders services to the
Company or any of its Subsidiary Corporations in the status of an employee
within the meaning of Code Section 3121(d). "Employee" shall not include any
director of the Company or its Subsidiary Corporations who does not render
services to the Company or any of its Subsidiary Corporations in the status of
an employee within the meaning of Code Section 3121(d).
(i) "Enrollment Period" shall mean the two week period preceding each
Offering Period determined in accordance with Subsection 6(b).
(j) "Offering Period" shall mean each six month period as provided in
Section 5. Options shall be granted on the first day of an Offering Period and
exercised on the last day of Offering Period, as provided in Section 8.
(k) "Option" shall mean an option granted to an Eligible Employee to
purchase shares of Stock under the Q.S.P. Plan.
1
<PAGE> 2
(l) "Option Price" shall mean the per share exercise price of shares
of Stock to be purchased pursuant to an Option, as provided in Section 9.
(m) "Parent Corporation" shall mean any corporation, other than the
Company, in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
(n) "Payday" of an Employee shall mean the regular and recurring
established day for payment of cash compensation to Employees in the same
classification or position.
(o) "Q.S.P. Plan" shall mean the Interpore International, Inc.
Amended and Restated Employee Qualified Stock Purchase Plan.
(p) "Subsidiary Corporation" shall mean any corporation, other than
the Company, in an unbroken chain of corporations beginning with the Company if,
at the time of the granting of the Option, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
(q) "Stock" shall mean the shares of the Company's Common Stock, $.01
par value.
3. STOCK SUBJECT TO THE Q.S.P. PLAN.
(a) Subject to Section 14, the shares of Stock which may be sold
pursuant to Options granted under the Q.S.P. Plan shall not exceed 300,000
shares.
(b) The Company shall reserve for issuance under the Q.S.P. Plan
300,000 shares of either the Company's authorized but unissued Stock or Stock
held in the Company's treasury.
(c) Any adjustment to the number of shares of Stock reserved for
issuance under the Q.S.P. Plan shall be made only in accordance with Sections 14
(relating to recapitalization) and 17 (relating to amendments of the Q.S.P.
Plan).
4. ELIGIBILITY. Each Employee who on the first day of any Enrollment
Period:
(a) has been employed by the Company or any Subsidiary Corporation
for not less than one (1) year;
(b) is customarily employed by the Company or any Subsidiary
Corporation for more than twenty (20) hours per week; and
(c) is customarily employed by the Company or any Subsidiary
Corporation for more than five (5) months per calendar year, shall become an
Eligible Employee on such day.
5. OFFERING PERIODS.
Options shall be granted under the Q.S.P. Plan in successive six
month Offering Periods until the earlier of the maximum number of shares subject
to sale pursuant to Options have been sold, or the Q.S.P. Plan is terminated.
The Administrator shall determine, in its discretion, the date of commencement
of each Offering Period; provided, that no Offering Period shall commence during
any other Offering Period.
6. PARTICIPATION IN THE Q.S.P. PLAN.
(a) Each Eligible Employee may elect to participate in the Q.S.P.
Plan for an Offering Period by submitting to the Administrator a completed and
executed Authorization Card in accordance with subsection (b). An
2
<PAGE> 3
Eligible Employee who elects to participate in the Q.S.P. Plan for an Offering
Period shall elect on such Authorization Card a whole percentage of Base Pay
(such percentage not to exceed 10% of Base Pay) to be withheld by payroll
deduction, which, upon the exercise of the Option granted to such Eligible
Employee with respect to such Offering Period, shall be contributed to the
Company as payment for shares of Stock purchased pursuant to the Option.
(b) The Authorization Card must be submitted to the Administrator
during the two-week period commencing one month prior to the first day of the
Offering Period and ending two weeks prior to the first day of the Offering
Period in order to participate in the Q.S.P. Plan during such Offering Period.
(c) Except as otherwise provided in subsection (b) and Section 11, an
Employee's Authorization Card shall operate with respect to each Offering Period
commencing after delivery of the Authorization Card to the Administrator for
which such Employee is an Eligible Employee.
7. PAYROLL DEDUCTIONS.
(a) Cash compensation payable to an Eligible Employee who elects to
participate in the Q.S.P. Plan for an Offering Period shall be reduced each
Payday through payroll deductions by an amount equal to the whole percentage of
Base Pay payable on such Payday elected by the Eligible Employee under Section
6.
(b) The amount of each Eligible Employee's payroll deduction shall be
held by the Company and credited to an account established for such Eligible
Employee. Neither the Company nor any Subsidiary Corporation shall pay any
interest on the funds credited to an Eligible Employee's account under the
Q.S.P. Plan.
(c) An Eligible Employee participating in the Q.S.P. Plan may change
his or her payroll deduction percentage for any Offering Period by submitting a
new Authorization Card to the Administrator during the Enrollment Period for
such Offering Period. Such change in payroll deduction percentage shall become
effective on the first day of the Offering Period.
(d) During a leave of absence from the Company or a Subsidiary
Corporation which is approved by the Company or Subsidiary Corporation, as
applicable, and which meets the requirements of Treasury Regulation Section
1.421-7(h)(2), an Eligible Employee may continue to participate in the Q.S.P.
Plan by making cash payments to the Company on each Payday equal to the dollar
amount of the payroll deduction made for such Eligible Employee for the Payday
next preceding the first day of such Eligible Employee's leave of absence.
8. GRANT OF OPTIONS; EXERCISE OF OPTIONS.
(a) Each Eligible Employee participating in the Q.S.P. Plan shall be
granted an option on the first day of the Offering Period for each Offering
Period for which such Eligible Employee elects to participate. The term of each
Option shall end on the last day of the Offering Period for which the Option is
granted, and such Option shall expire immediately thereafter. The number of
shares of Stock subject to each Option shall be the quotient of the total
payroll deductions made for the Eligible Employee during the Offering Period,
divided by the Option Price, excluding fractional shares of Stock; provided,
however, that the number of shares of Stock subject to each Option shall not
exceed 5,000 shares.
(b) Except as otherwise provided in subsection (c), each Eligible
Employee participating in the Q.S.P. Plan shall be deemed to have exercised his
or her Option on the last day of the Offering Period, to the extent that the
balance of payroll deductions credited to such Eligible Employee's account under
the Q.S.P. Plan is sufficient to purchase, at the Option Price, whole shares of
Stock. No fractional shares of Stock shall be purchased upon the exercise of the
Option and any funds credited to such Eligible Employee's account, remaining
after the purchase of whole shares of Stock upon exercise of an option, shall
remain credited to such Eligible Employee's account and carried forward for
purchase of shares of Stock pursuant to the Option, if any, granted to such
Eligible Employee for the next following offering Period.
3
<PAGE> 4
(c) An Eligible Employee's Option shall not be exercised on the last
day of the offering Period if such Eligible Employee instructs the Administrator
in writing at least two weeks prior to the last day of the Offering Period that
such Option is not to be exercised. As soon as practicable after receipt of such
instruction, the Administrator shall pay to such Eligible Employee in cash in
one lump sum the balance of payroll deductions credited to such Eligible
Employee's account under the Q.S.P. Plan, without the payment of any interest
thereon.
(d) If the total number of shares of Stock for which options are to
be exercised on any date exceeds the number of shares remaining unsold under the
Q.S.P. Plan (after deduction of all shares for which Options have theretofore
been exercised), the Administrator shall make a pro rata allocation of the
available remaining shares in as nearly a uniform manner as shall be practicable
and any balance of payroll deductions credited to the accounts of Eligible
Employees which have not been applied to the purchase of shares of Stock shall
be paid to such Eligible Employees in cash in one lump sum as soon as
practicable, without payment of any interest thereon.
(e) Notwithstanding any provision in this Section to the contrary, an
Eligible Employee shall not be granted an Option:
(i) if, immediately after the Option is granted, such Employee
would own stock possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company, any Parent Corporation or any
Subsidiary Corporation. For purposes of determining stock ownership under
this paragraph, the rules of Code Section 425(d) shall apply and stock which
an Eligible Employee may purchase under outstanding options held by such
Eligible Employee shall be treated as stock owned by such Eligible Employee;
or
(ii) which permits such Eligible Employee's rights to purchase
stock under all employee stock purchase plans of the Company, any Parent
Corporation or any Subsidiary Corporation, which qualify under Code Section
423, to accrue at a rate which exceeds $25,000 of the fair market value of
such stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time. For purpose of the
limitations imposed by this paragraph, the right to purchase stock under an
option accrues when the option (or any portion thereof) first becomes
exercisable during the calendar year, the right to purchase stock under an
option accrues at the rate provided in the option (but in no case may such
rate exceed $25,000 of fair market value of such stock determined at the
time such option is granted for any one calendar year), and a right to
purchase stock which has accrued under the option may not be carried over to
any other option.
9. OPTION PRICE.
(a) The per share exercise price of each option (the "Option Price")
shall be an amount equal to the lesser of:
(i) 85% of the fair market value of a share of Stock on the date
the Option is granted (the first day of the Offering Period); or
(ii) 85% of the fair market value of a share of the Stock on the
date such option is exercised (the last day of the Offering Period).
(b) For purposes of subsection (a), the fair market value of a share
of Stock as of a given date shall be:
(i) the closing price of a share of Stock on the principal
exchange on which shares of Stock are then trading, if any, on such date,
or, if shares were not traded on such date, then on the next preceding
trading day during which a sale occurred;
(ii) if such Stock is not traded on an exchange but is quoted on
NASDAQ or a successor quotation system, the last sales price (if the Stock
is then listed as a National Market issue under the NASD National Market
System) or the mean between the closing representative bid and asked prices
(in all other cases) for the Stock of such date as reported by NASDAQ or a
successor quotation system;
4
<PAGE> 5
(iii) if such Stock is not publicly traded on an exchange and not
quoted on NASDAQ or a successor quotation system, the mean between the
closing bid and asked prices for the Stock on such date as determined in
good faith by the Committee; or
(iv) if the Stock is not publicly traded, the fair market value
established by the Administrator acting in good faith.
10. ISSUANCE OF CERTIFICATES.
(a) The Administrator shall, as soon as practicable after the
exercise of any Option, deliver to the Eligible Employee exercising the Option a
certificate evidencing the whole shares of Stock purchased by such Eligible
Employee under the Q.S.P. Plan from funds credited to such Eligible Employee's
account.
(b) In the event the Administrator is required to obtain authority to
issue certificates for any shares of Stock purchased by an Eligible Employee
under the Q.S.P. Plan from any commissioner or agency, the Administrator will
seek to obtain such authority. If the Administrator in unable, after reasonable
efforts, to obtain such authority, the Administrator, the Company and any
Subsidiary Corporations shall be relieved from all liability, and each such
Eligible Employee shall be paid the balance of payroll deductions credited to
such Eligible Employee's account under the Q.S.P. Plan in cash in one lump sum
as soon as practicable, without the payment of any interest thereon.
11. CESSATION OF PARTICIPATION.
(a) Except as otherwise provided in Subsection 7(d), an Eligible
Employee shall cease to participate in the Q.S.P. Plan in the event that:
(i) the Administrator receives written instructions from the
Eligible Employee to terminate such Eligible Employee's participation in the
Q.S.P. Plan;
(ii) the Eligible Employee resigns or is discharged from
employment by the Company or a Subsidiary Corporation, or has a leave of
absence from the Company or a Subsidiary Corporation which is not approved
by the Company or a Subsidiary Corporation or which does not meet the
requirements of Treasury Regulation Section 1.421-7(h)(2); or
(iii) the Employee dies.
(b) Upon cessation of participation by an Eligible Employee, such
Eligible Employee's payroll deductions shall cease. If such cessation of
participation occurs during the last two weeks of an Offering Period, such
Eligible Employee's Option shall be exercised on the last day of the Offering
Period in accordance with Section 8(b). Upon cessation of participation at any
other time, any balance of payroll deductions credited to such Eligible
Employee's account under the Q.S.P. Plan shall be paid to the Employee in cash
in one lump sum as soon as practicable after cessation of participation, without
payment of any interest thereon.
(c) An Eligible Employee shall not be eligible to participate in the
Q.S.P. Plan during the Offering Period which immediately follows the Offering
Period during which such Employee voluntarily terminated participation in the
Q.S.P. Plan under paragraph (a)(i).
12. TRANSFER OF OPTION. Options granted pursuant to the Q.S.P. Plan
shall not be transferable by an Eligible Employee, other than by will or the
laws of descent and distribution, and shall be exercisable during the Eligible
Employee's lifetime only by such Eligible Employee.
13. BENEFICIARY.
(a) Each Eligible Employee shall designate on his or her
Authorization Card a beneficiary or beneficiaries and may, without such
beneficiaries consent, change such designation. Any designation shall be
effective
5
<PAGE> 6
only after it is received by the Administrator and shall be controlling over any
disposition by will or otherwise. Upon the death of an Eligible Employee, the
balance of payroll deductions credited to such Eligible Employee's account shall
be paid or distributed to the designated beneficiary or beneficiaries or, in the
absence of such designation, to the executor or administrator of the Eligible
Employee's estate, and, in either event, neither the Administrator, the Company
nor any Subsidiary Corporation shall be under any further liability to anyone.
14. RECAPITALIZATION. If there shall be any change in the Stock subject
to the Q.S.P. Plan or the Stock subject to any Option, through merger,
consolidation, reorganization, recapitalization, reincorporation, stock split,
stock dividend (in excess of 2% of the fair market value of the Stock) or other
change in the corporate structure of the Company, appropriate adjustments shall
be made by the Administrator to the aggregate number of shares subject to the
Q.S.P. Plan and the number of shares and the price per share subject to
outstanding Options in order to preserve, but not to increase, the benefits of
the Eligible Employees hereunder; provided, however, that subject to any
required action by the shareholders, if the Company shall not be the surviving
corporation in any such merger, consolidation or reorganization, every Option
outstanding shall terminate, unless the surviving corporation shall (subject to
applicable provisions of the Code) issue a new option therefor or assume (with
appropriate changes) the existing Option. If the Option shall terminate by
reason of such merger, consolidation, or reorganization, then any provision
herein to the contrary notwithstanding, any option held by an Eligible Employee
may be exercised, in whole or in part, by such Eligible Employee at any time
prior to or concurrently with consummation of such merger, consolidation or
reorganization.
15. RIGHTS AS A SHAREHOLDER. An Eligible Employee shall have no rights
as a shareholder of the Company with respect to any shares of Stock covered by
Options until the date of the issuance of a certificate for such shares of
Stock. No adjustments shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such certificate is issued,
except as otherwise expressly provided herein.
16. COSTS; INDEMNIFICATIONS.
(a) All costs and expenses incurred in administering the Q.S.P. Plan
shall be paid by the Company.
(b) In addition to such other rights of indemnification as the
Administrator may have as a director or officer of the Company, the Company
shall indemnify and hold the Administrator harmless against any and all
liability, loss, costs, damages, attorneys' fees and other expenses the
Administrator may sustain or incur in connection with administration of the
Q.S.P. Plan, except for liability, loss, costs, damages, attorneys' fees and
other expenses caused by the negligence of the Administrator or his agent;
provided, that within 60 days after the institution of any action, suit or
proceeding the Administrator shall in writing offer the Company the opportunity
to handle, prosecute or defend the same, at the Company's own expense. The
Administrator shall have the right, but not the obligation, to adjust, settle,
or compromise any claim, obligation, debt, demand, suit or judgment against the
Administrator, and if such settlement is approved by independent legal counsel
selected by the Company then the Company shall reimburse the Administrator for
all sums of money the Administrator may pay or become liable to pay against
which the Administrator is indemnified hereunder.
17. AMENDMENT OR TERMINATION OF THE Q.S.P. PLAN. The Board of Directors
may at any time, with respect to any shares of Stock not then subject to Options
suspend or terminate the Q.S.P. Plan, and may amend the Q.S.P. Plan from time to
time as the Board of Directors may deem advisable; provided, however, that
except as provided in Section 14 hereof, the Board of Directors shall not amend
the Q.S.P. Plan in the following respects without the affirmative vote of
approval by a majority of the outstanding shares of Stock of the Company:
(a) To increase the maximum number of shares of Stock subject to the
Q.S.P. Plan;
(b) To change the designation or class of employees eligible to
receive Options under the Q.S.P. Plan; or
(c) In any manner which would cause the Q.S.P. Plan to no longer be
an employee stock purchase plan under Code Section 423.
6
<PAGE> 7
18. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Stock pursuant to the exercise of Options shall be deposited in the
account of the general corporate funds of the Company.
19. APPROVAL OF SHAREHOLDERS. The Q.S.P. Plan shall become effective on
the date of the affirmative vote by a majority of the outstanding shares of
Stock of the Company approving the Q.S.P. Plan (which approval must occur within
12 months before or after the date the Q.S.P. Plan is adopted by the Board of
Directors).
20. NO RIGHTS AS AN EMPLOYEE. Nothing in the Q.S.P. Plan shall be
construed to give any person the right to remain in the employ of the Company or
to affect the right of the Company to terminate the employment of any person at
any time with or without cause.
21. TITLES. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Q.S.P. Plan.
22. CONFORMITY TO SECURITIES LAWS. The Plan is intended to conform to
the extent necessary with all provisions of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and Options shall be
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations. To the extent permitted by applicable law, the Q.S.P.
Plan and Options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
* * * * *
I hereby certify that the foregoing Amended and Restated Q.S.P. Plan was
adopted by the Board of Directors of Interpore International, Inc. on this ____
day of March, 1999.
------------------------------------------------
Richard L. Harrison, Secretary
I hereby certify that the foregoing Q.S.P. Plan was duly approved by
affirmative vote of a majority of the outstanding shares of Stock of the Company
at the Annual Meeting of Stockholders of Interpore International, Inc. on May
21, 1999.
Executed on this _____ day of ____________, 1999.
------------------------------------------------
Richard L. Harrison, Secretary
7
<PAGE> 1
EXHIBIT 11.01
INTERPORE INTERNATIONAL, INC.
COMPUTATIONS OF NET INCOME PER SHARE
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
------- -------
<S> <C> <C>
Net income used in the calculation of basic earnings per share $ 1,082 $ 943
Interest on Convertible Subordinated Debentures 67 65
------- -------
Net income used in calculation of diluted earnings per share $ 1,149 $ 1,008
======= =======
Shares used in computing net income per share - basic:
Weighted average common shares outstanding 13,462 13,817
Effect of dilutive securities:
Weighted average convertible preferred stock 32 33
Shares issuable pursuant to stock option plans 288 607
Shares issuable under the Convertible Subordinated 495 782
Debentures
------- -------
Shares used in computing net income per share - diluted 14,277 15,239
======= =======
Net income per share - basic $ .08 $ .07
Net income per share - diluted $ .08 $ .07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated financial statements as of and for the three
month period ended March 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,007,000
<SECURITIES> 0
<RECEIVABLES> 7,812,000
<ALLOWANCES> 534,000
<INVENTORY> 12,090,000
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0
0
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</TABLE>
