AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 2001
REGISTRATION NO. 333-62176
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 3841 51-0317849
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
311-C ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
(609) 275-0500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------
JOHN B. HENNEMAN, III
CHIEF ADMINISTRATIVE OFFICER AND SECRETARY
311-C ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
(609) 275-0500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
PETER M. LABONSKI, ESQ.
LATHAM & WATKINS
885 THIRD AVENUE, SUITE 1000
NEW YORK, NY 10022
(212) 906-1200
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This amendment reflects the fact that none of the securities being
registered on this form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933 and contains a revised
facing sheet, prospectus, Part II (Information Not Required In Prospectus),
Exhibit Index and Signature pages.
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this form is a Post-Effective Amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM MAXIMUM
AGGREGATE AGGREGATE AMOUNT OF
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(3) FEE
- --------------------------------- ---------------- ----------- --------------
Common Stock,
$0.01 par value ... 4,312,500 $22.80 $98,325,000 $24,581.30(4)
- --------------------------------------------------------------------------------
(1) Includes 312,500 shares to be sold by one of our security holders and
562,500 shares that the underwriters have the option to purchase solely to
cover overallotments, if any.
(2) Based on July 5, 2001 closing price of $22.80 per share of common stock and
subject to change until the date of the offering.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933, as amended (the "Securities Act").
(4) $18,750 of the Registration fee was paid on February 14, 2001.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
================================================================================
SUBJECT TO COMPLETION. DATED JULY 9, 2001.
------------------------------------------
PROSPECTUS
[INTEGRA LOGO]
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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
COMMON STOCK
------------
We are selling 3,500,000 shares of common stock and the selling
stockholders are selling 250,000 shares of common stock to the public. You
should read this prospectus carefully before you invest.
Our common stock is listed on the Nasdaq National Market under the symbol
"IART." On July 5, 2001, the reported last sale price of the common stock was
$22.80 per share.
Theunderwriters have an option to purchase a maximum of 562,500 from us and
selling shareholders to cover over-allotments of shares.
INVESTING IN OUR SECURITIES INVOLVES CERTAIN SIGNIFICANT RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------
The underwriters expect to deliver these shares at the lead underwriter's
office in New York, New York.
------------
THE DATE OF THIS PROSPECTUS IS , 2001.
The information contained in this preliminary prospectus is not complete
and may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. The
preliminary prospectus is not an offer to sell nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
prospectus and, if given or made, the information or representations must not be
relied upon as having been authorized. This prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities described in this prospectus or an offer to sell or the
solicitation of an offer to buy those securities in any circumstance in which
the offer or solicitation is unlawful. The delivery of this prospectus shall
not, under any circumstances, create any implication that there has been no
change in the affairs of Integra since the date of this prospectus or that the
information contained or incorporated by reference in this prospectus is correct
as of any time subsequent to the date of that information.
TABLE OF CONTENTS
PAGE
About This Prospectus........................................................ 1
Prospectus Summary........................................................... 2
Integra...................................................................... 2
Summary Consolidated Historical Financial Data............................... 3
Risk Factors................................................................. 5
Special Note Regarding Forward-Looking Statements............................14
Use Of Proceeds..............................................................15
Price Range Of Common Stock And Dividends....................................15
Capitalization...............................................................16
Selected Consolidated Financial Data.........................................17
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations..................................................19
Business.....................................................................31
Management...................................................................44
Principal Stockholders.......................................................46
Certain Transactions.........................................................47
Description Of Capital Stock.................................................49
Selling Security Holders.....................................................51
Tax Considerations...........................................................52
Underwriting.................................................................56
Legal Matters................................................................58
Experts......................................................................58
Where To Find Additional Information.........................................58
i
ABOUT THIS PROSPECTUS
This document is called a prospectus and is part of a registration
statement that we filed with the Securities and Exchange Commission.
This prospectus provides you with a general description of the common stock
we and our selling security holders are offering. You should read this
prospectus together with the additional information described under the heading
"Where You Can Find More Information."
The registration statement containing this prospectus, including the
exhibits to the registration statement, provides additional information about us
and the securities offered under this prospectus. The registration statement,
including the exhibits, can be read at the SEC website or at the SEC offices
mentioned under the heading "Where You Can Find More Information."
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer or soliciting a purchase of
these securities in any jurisdiction in which the offer or solicitation is not
authorized or in which the person making the offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make the offer or
solicitation. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
The prospectus incorporates business and financial information about us
that is not included or delivered with this document. You may request and obtain
this information free of charge by writing or telephoning us at the following
address: 311-C Enterprise Drive, Plainsboro, New Jersey 08536, Attention:
Director of Finance, telephone (609) 275-0500.
1
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION ABOUT INTEGRA AND THE COMMON STOCK
OFFERED BY THIS PROSPECTUS. IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE MATTERS SET
FORTH IN "RISK FACTORS."
INTEGRA
We develop, manufacture and market medical devices, implants and
biomaterials. Our operations consist of:
o Integra NeuroSciences, which is a leading provider of implants,
devices, and monitors used in neurosurgery, neurotrauma, and related
critical care; and
o Integra LifeSciences, which develops and manufactures a variety of
medical products and devices, including products based on our
proprietary tissue regeneration technology which are used to treat
soft tissue and orthopedic conditions.
Integra NeuroSciences sells primarily through a direct sales organization and
Integra LifeSciences sells primarily through strategic alliances and
distributors.
Integra was founded in 1989 and over the next decade built a product
portfolio based on absorbable collagen, and a product development platform based
on technologies directed toward tissue regeneration. During 1999 and 2000, we
expanded into the neurosurgical market, an attractive niche, through
acquisitions and introductions of new products. Our 2000 revenues increased to
$71.6 million as compared to $42.9 million in 1999, and our revenues for the
first three months of 2001 were $21.7 million compared to $14.5 million for the
first three months of 2000.
Our goal is to become a leader in the development, manufacture and
marketing of medical devices, implants and biomaterials in the markets in which
we compete. Our products are principally used in the diagnosis and treatment of
neurosurgical, soft-tissue and orthopedic conditions and we intend to expand our
presence in those markets. Key elements of our strategy include the following:
o Expand our presence in neurosurgery and closely related surgical
specialties;
o Continue to develop new and innovative medical products; and
o Continue to form strategic alliances for Integra LifeSciences products
and technologies.
Integra was formed as a Delaware corporation in June 1989. Our executive
offices are located at 311-C Enterprise Drive, Plainsboro, New Jersey 08536. Our
telephone number is (609) 275-0500. Our World Wide Web site address is
http://www.integra-LS.com. The information on our web site is not part of this
prospectus.
2
SUMMARY CONSOLIDATED HISTORICAL
FINANCIAL DATA
(UNAUDITED)
------------------
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31
------------------ ------------------------------
2001 2000 2000 1999 1998
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data (1):
Product sales .......................... 20,284 $ 13,332 $ 64,987 $ 40,047 $ 14,182
Other revenue .......................... 1,400 1,199 6,662 2,829 3,379
Total revenue ........................ 21,684 14,531 71,649 42,876 17,561
Cost of product sales .................. 8,594 6,687 29,511 22,678 7,580
Research and development ............... 2,073 1,890 7,524 8,893 8,424
Selling and marketing .................. 4,751 2,949 15,371 9,487 5,901
General and administrative (2) ......... 3,204 3,747 28,483 13,324 9,787
Amortization ........................... 680 480 2,481 874 49
Total costs and expenses ............. 19,302 15,753 83,370 55,256 31,741
Operating income (loss) ................ 2,382 (1,222) (11,721) (12,380) (14,180)
Interest income (expense), net ......... (78) 11 (473) 294 1,250
Gain on disposition of product line .... -- 115 1,146 4,161 --
Other income (expense) net ............. (62) 123 201 141 588
Income (loss) before income taxes ...... 2,242 (973) (10,847) (7,784) (12,342)
Income tax expense (benefit) (3) ....... 246 62 108 (1,818) --
Income (loss) before cumulative
effect of accounting change .......... 1,996 (1,035) (10,955) (5,966) (12,342)
Cumulative effect of change in
accounting for nonrefundable fees
received under research, license
and distribution arrangements (4) .... -- (470) (470) -- --
Net income (loss) ...................... $ 1,996 $ (1,505) $(11,425) $ (5,966) $(12,342)
Diluted net income (loss) per share .... $ 0.07 $ (0.35) $ (0.97) $ (0.40) $ (0.77)
Weighted average common shares
outstanding .......................... 21,849 17,224 17,553 16,802 16,139
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
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(IN THOUSANDS)
Balance Sheet Data (1):
Cash, cash equivalents and short-term investments ..... $ 19,374 $ 15,138
Working capital ....................................... 27,992 25,177
Total assets .......................................... 91,079 86,514
Long-term debt ........................................ 3,121 4,758
Accumulated deficit ................................... (103,733) (105,729)
Total stockholders' equity ............................ 56,874 53,781
3
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(1) As the result of our acquisitions of Rystan Company, Inc. in September 1998
and the NeuroCare Group of companies in March 1999, the acquisition of
Clinical Neuro Systems and product lines from NMT Medical, Inc. in 2000,
the consolidated financial results and balance sheet data for certain of
the periods presented above may not be directly comparable.
(2) General and administrative expense in 2000 included a $13.5 million
stock-based compensation charge in connection with the extension of the
employment of the Company's President and Chief Executive Officer.
(3) The 1999 income tax benefit includes a non-cash benefit of $1.8 million
resulting from the reduction of the deferred tax liability recorded in the
NeuroCare Group of companies acquisition to the extent that consolidated
deferred tax assets were generated subsequent to the acquisition. The 2000
income tax expense and 1999 income tax benefit include $0.5 million and
$0.6 million, respectively, of benefits associated with the sale of New
Jersey state net operating losses.
(4) As the result of the adoption of SEC Staff Accounting Bulletin No. 101
Revenue Recognition, we recorded a $470,000 cumulative effect of an
accounting change to defer a portion of a nonrefundable, up-front fee
received and recorded in other revenue in 1998. The cumulative effect of
this accounting change was measured as of January 1, 2000. As a result of
this accounting change, other revenue in 2000 includes $112,000 of
amortization of the amount deferred as of January 1, 2000.
4
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT DECISION. THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND
YOU COULD LOSE ALL OR A PART OF YOUR INVESTMENT.
WE MAY CONTINUE TO INCUR OPERATING LOSSES.
To date, we have experienced significant operating losses in funding the
research, development, manufacturing and marketing of our products and may
continue to incur operating losses. As of March 31, 2001, we had an accumulated
deficit of $103.7 million. Our ability to maintain profitability depends in part
upon our ability, either independently or in collaboration with others, to
successfully manufacture and market our products and services. We cannot assure
you that we can sustain profitability on an ongoing basis.
WE MAY BE UNABLE TO RAISE ADDITIONAL FINANCING NECESSARY TO CONDUCT OUR
BUSINESS, MAKE PAYMENTS WHEN DUE OR REFINANCE OUR DEBT.
As of March 31, 2001, we had cash, cash equivalents and short-term
investments of approximately $19.4 million and short and long-term debt of
approximately $12.3 million. In the absence of a material acquisition or a
material adverse change in our business, financial condition or results of
operations, we have the ability to fund our operations from our existing capital
resources and cash generated from the foreseeable future. However, we may need
to raise additional funds in the future in order to implement our business plan,
to refinance our debt, to conduct research and development, to fund marketing
programs or to acquire complementary businesses, technologies or services. Any
required additional financing may be unavailable on terms favorable to us, or at
all. If we raise additional funds by issuing equity securities, you may
experience significant dilution of your ownership interest and these securities
may have rights senior to those of the holders of our preferred or common stock.
If we cannot obtain additional financing when required on acceptable terms, we
may be unable to fund our expansion, develop or enhance our products and
services, take advantage of business opportunities or respond to competitive
pressures.
WHILE OUR CURRENT CAPITAL REQUIREMENTS DO NOT INCLUDE A SIGNIFICANT INCREASE IN
OUR DEBT LEVELS, WERE CIRCUMSTANCES TO ARISE THAT REQUIRE US TO INCUR MORE DEBT,
THE PROVISIONS OF OUR CURRENT DEBT INSTRUMENTS WOULD LIMIT US FROM INCURRING THE
INDEBTEDNESS.
Historically, the cash we generate from our operating activities, new
equity investments and borrowings has been sufficient to meet our requirements
for debt service, working capital, capital expenditures, and investments in and
advance to our affiliates. Although in the past we have been able to obtain new
debt, we cannot guarantee that we will be able to continue to do so in the
future or that the cost to us or the other terms which would affect us would be
as favorable to us as our current loans and credit agreements. Although we
believe that our business will continue to generate cash, should we need to
borrow additional funds, the covenants in the credit agreements for our current
debt limit our ability to borrow more money.
THE INTEGRA PARENT COMPANY DEPENDS ON ITS SUBSIDIARIES AND OTHER COMPANIES IN
WHICH IT HAS INVESTMENTS TO FUND ITS CASH NEEDS.
The Integra parent company directly owns no significant assets other than
stock, equity and other interests in our subsidiaries and in some other
companies. This creates risks regarding our ability to provide cash to the
Integra parent company to conduct future activities or to repay any interest and
principal which it might owe on future borrowings at the Integra parent level,
our ability to pay cash dividends to our preferred and common stockholders in
the future, and the ability of our subsidiaries and other companies to respond
to changing business and economic conditions and to get new loans.
OUR OPERATING RESULTS MAY FLUCTUATE.
Our operating results may fluctuate from time to time, which could affect
the value of your shares. Our operating results have fluctuated in the past and
can be expected to fluctuate from time to time in the future. Some of the
factors that may cause these fluctuations include:
5
o the impact of acquisitions;
o the timing of significant customer orders;
o market acceptance of our existing products, as well as products in
development;
o the timing of regulatory approvals;
o the timing of payments received and the recognition of the payments as
revenue under collaborative arrangements and strategic alliances;
o our ability to manufacture our products efficiently; and
o the timing of our research and development expenditures.
THE INDUSTRY AND MARKET SEGMENTS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE, AND
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES.
In general, the medical technology industry is characterized by intense
competition. We compete with established pharmaceutical and medical technology
companies. Competition also comes from early stage companies that have
alternative technological solutions for our primary clinical targets, as well as
universities, research institutions and other non-profit entities. Many of our
competitors have access to greater financial, technical, research and
development, marketing, manufacturing, sales, distribution services and other
resources than we do. Further, our competitors may be more effective at
implementing their technologies to develop commercial products.
Our competitive position will depend on our ability to achieve market
acceptance for our products, implement production and marketing plans, secure
regulatory approval for products under development, obtain patent protection and
secure adequate capital resources. We may need to develop new applications for
our products to remain competitive. Technological advances by one or more of our
current or future competitors could render our present or future products
obsolete or uneconomical. Our future success will depend upon our ability to
compete effectively against current technology as well as to respond effectively
to technological advances. We can not assure you that competitive pressures will
not adversely affect our profitability.
The largest competitors of Integra NeuroSciences in the neurosurgery
markets are the PS Medical division of Medtronic, Inc., the Codman division of
Johnson & Johnson, the Valleylab and Radionics divisions of Tyco International
Ltd., and NMT Neurosciences, a division of NMT Medical, Inc. In addition,
various of the Integra NeuroSciences product lines compete with smaller
specialized companies or larger companies that do not otherwise focus on
neurosurgery. The products of Integra LifeSciences face diverse and broad
competition, depending on the market addressed by the product. In addition,
certain companies are known to be competing particularly in the area of skin
substitution or regeneration, including Organogenesis and Advanced Tissue
Sciences. Finally, in certain cases competition consists primarily of current
medical practice, rather than any particular product (such as autograft tissue
as a substitute for INTEGRA(R)-Dermal Regeneration Template).
OUR CURRENT STRATEGY INVOLVES GROWTH THROUGH ACQUISITIONS, WHICH REQUIRES US TO
INCUR SUBSTANTIAL COSTS AND POTENTIAL LIABILITIES FOR WHICH WE MAY NEVER REALIZE
THE ANTICIPATED BENEFITS.
In addition to internal growth, our current strategy involves growth
through acquisitions. Since the beginning of 2000, we have acquired four
different businesses. On January 17, 2000, we purchased the business, including
certain assets and liabilities, of Clinical Neuro Systems, Inc. for $6.8
million. CNS designs, manufactures and sells neurosurgical external ventricular
drainage systems, including catheters and drainage bags, as well as cranial
access kits. The purchase price of the CNS business consisted of $4.0 million in
cash and a 5% $2.8 million promissory note issued to the seller. The promissory
note, of which approximately $1.4 million remains outstanding, is collateralized
by inventory, property and equipment of the CNS business and by a collateral
assignment of a $2.8 million promissory note from one of our subsidiaries.
On April 6, 2000, we purchased the Selector(R) Ultrasonic Aspirator,
Ruggles(TM) hand-held neurosurgical instruments and Spembly Medical cryosurgery
product lines, including certain assets and liabilities, from NMT Medical, Inc.
for $11.6 million in cash.
On April 4, 2001, we acquired all of the outstanding stock of GMSmbH, the
German manufacturer of the LICOX(R) Brain Tissue Oxygen Monitoring System, for
$2.9 million, of which $2.3 million was paid at closing.
6
On April 27, 2001, we acquired Satelec Medical, a subsidiary of the
Satelec-Pierre Rolland group, for $3.6 million in cash. Satelec Medical, based
in France, manufactures and markets the Dissectron(R) ultrasonic surgical
aspirator console and a line of related handpieces.
We cannot assure you that we will be able to continue to implement our
growth strategy, or that this strategy will ultimately be successful. A
significant portion of our growth in revenues has resulted from, and is expected
to continue to result from, the acquisition of businesses complementary to our
own. We engage in evaluations of potential acquisitions and are in various
stages of discussion regarding possible acquisitions, certain of which, if
consummated, could be significant to us. Any potential acquisitions may result
in significant transaction expenses, increased interest and amortization
expense, increased depreciation expense and increased operating expense, any of
which could have a material adverse effect on our operating results. As we grow
by acquisitions, we must be able to integrate and manage the new businesses to
realize economies of scale and control costs. In addition, acquisitions involve
other risks, including diversion of management resources otherwise available for
ongoing development of our business and risks associated with entering new
markets with which our marketing and sales force has limited experience or where
experienced distribution alliances are not available. Our future profitability
will depend in part upon our ability to further develop our resources to adapt
to the particulars of those new products or business areas and to identify and
enter into satisfactory distribution networks. We may not be able to identify
suitable acquisition candidates in the future, obtain acceptable financing or
consummate any future acquisitions. If we cannot integrate acquired operations,
manage the cost of providing our products or price our products appropriately,
our profitability would suffer. In addition, as a result of our acquisitions of
other healthcare businesses, we may be subject to the risk of unanticipated
business uncertainties or legal liabilities relating to those acquired
businesses for which the sellers of the acquired businesses may not indemnify
us. Future acquisitions may also result in potentially dilutive issuances of
equity securities.
TO MARKET OUR PRODUCTS UNDER DEVELOPMENT WE WILL FIRST NEED TO OBTAIN REGULATORY
APPROVAL. FURTHER, IF WE FAIL TO COMPLY WITH THE EXTENSIVE GOVERNMENTAL
REGULATIONS THAT AFFECT OUR BUSINESS, WE COULD BE SUBJECT TO PENALTIES AND COULD
BE PRECLUDED FROM MARKETING OUR PRODUCTS.
Our research and development activities and the manufacturing, labeling,
distribution and marketing of our existing and future products are subject to
regulation by numerous governmental agencies in the United States and in other
countries. The FDA and comparable agencies in other countries impose mandatory
procedures and standards for the conduct of clinical trials and the production
and marketing of products for diagnostic and human therapeutic use.
Our products under development are subject to FDA approval prior to
marketing for commercial use. The process of obtaining necessary FDA approvals
can take years and is expensive and full of uncertainties. Our inability to
obtain required regulatory approval on a timely or acceptable basis could harm
our business. Further, approval may place substantial restrictions on the
indications for which the product may be marketed or to whom it may be marketed.
To gain approval for the use of a product for clinical indications other than
those for which the product was initially evaluated or for significant changes
to the product, further studies, including clinical trials and FDA approvals,
are required. In addition, for products with an approved pre-market approval
application, the FDA requires postapproval reporting and may require
postapproval surveillance programs to monitor the product's safety and
effectiveness. Results of post approval programs may limit or expand the further
marketing of the product.
We believe that the most significant risk of our recent applications to FDA
relates to the regulatory classification of certain of our new products, or
proposed new uses for existing products. In the filing of each application, we
make a legal judgment about the appropriate form and content of the application.
If the FDA disagrees with our judgment in any particular case and, for example,
requires us to file a pre-market approval application rather than allowing us to
market for approved uses while we seek broader approvals or requires extensive
additional clinical data, the time and expense required to obtain the affected
approval might be significantly increased. For example, we have filed, and
expect to file, a series of post-approval supplements for the INTEGRA(R) Dermal
Regeneration Template seeking approval to promote the product for new uses. It
is possible that FDA will require additional clinical information to support
these applications, or that the FDA will reject our applications entirely.
7
Approved products are subject to continuing FDA requirements relating to
quality control and quality assurance, maintenance of records and documentation
and labeling and promotion of medical devices.
The FDA and foreign regulatory authorities require that our products be
manufactured according to rigorous standards. These regulatory requirements may
significantly increase our production or purchasing costs and may even prevent
us from making or obtaining our products in amounts sufficient to meet market
demand. If we, or a third party manufacturer, change our approved manufacturing
process, the FDA may require a new approval before that process could be used.
Failure to develop our manufacturing capability may mean that even if we develop
promising new products, we may not be able to produce them profitably, as a
result of delays and additional capital investment costs. Manufacturing
facilities, both international and domestic, are also subject to inspections by
or under the authority of the FDA. In addition, failure to comply with
applicable regulatory requirements could subject us to enforcement action,
including product seizures, recalls, withdrawal of clearances or approvals,
restrictions on or injunctions against marketing our product or products based
on our technology, and civil and criminal penalties. We have voluntarily
recalled various products in the last four years, but none of our recalls have
related to important products or resulted in significant expense. There have
been no involuntary recalls of our products. See "Business--Government
Regulation."
CERTAIN OF OUR PRODUCTS CONTAIN MATERIALS DERIVED FROM ANIMAL SOURCES, AND MAY
AS A RESULT BECOME SUBJECT TO ADDITIONAL REGULATION.
Certain of our products, including the DuraGen(R) Dural Graft Matrix and
the INTEGRA(R) Dermal Regeneration Template, contain material derived from
animal tissue. Products, including food as well as pharmaceuticals and medical
devices, that contain materials derived from animal sources are increasingly
subject to scrutiny in the press and by regulatory authorities, who are
concerned about the potential for the transmission of disease from animals to
humans via those materials. This public scrutiny has been particularly acute in
Western Europe with respect to products derived from cattle, because of concern
that materials infected with the agent that causes bovine spongiform
encephalopathy, otherwise known as "BSE" or "mad cow disease," may, if ingested
or implanted, cause a variant of the human Creutzfeldt-Jakob Disease, an
ultimately fatal disease with no known cure.
We take great care to provide that our products are safe, and free of
agents that can cause disease. In particular, the collagen used in the
manufacture of our products is derived only from the Achilles tendon of cattle
from the United States, where no cases of BSE have been reported. Scientists and
regulatory authorities classify Achilles tendon as having a negligible risk of
containing the agent that causes BSE (an improperly folded protein known as a
prion) compared with other parts of the body. Additionally, we use processes in
the manufacturing of our products that are believed to inactivate prions.
Nevertheless, products that contain materials derived from animals,
including our products, may become subject to additional regulation, or even be
banned in certain countries, because of concern over the potential for prion
transmission. Accordingly, new regulation, or a ban of our products, could have
a significant adverse effect on our current business or our ability to increase
our business.
LACK OF MARKET ACCEPTANCE FOR OUR PRODUCTS OR MARKET PREFERENCE FOR TECHNOLOGIES
WHICH COMPETE WITH OUR PRODUCTS WOULD REDUCE OUR REVENUES AND PROFITABILITY.
We cannot be certain that our current products, or any other products that
we develop or market, will achieve or maintain market acceptance. Certain of the
medical indications that can be treated by our devices can also be treated by
other medical devices. The medical community widely accepts many alternative
treatments, and certain of these other treatments have a long history of use.
For example, suturing in graft tissue is a well-established means for closing
the duramatter, and it may interfere with the widespread acceptance in the
market for INTEGRA(R) Dermal Regeneration Template.
We cannot be certain that our devices and procedures will be able to
replace those established treatments or that either physicians or the medical
community in general will accept and utilize our devices or any other medical
products that we may develop. For example, we cannot be certain that the
NeuraGen(TM) Nerve Guide, when launched commercially, will be accepted by the
medical community over conventional microsurgical techniques for connecting
severed peripheral nerves.
8
In addition, our future success depends, in part, on our ability to develop
additional products. Even if we determine that a product candidate has medical
benefits, the cost of commercializing that product candidate may be too high to
justify development. In addition, competitors may develop products that are more
effective, cost less, or are ready for commercial introduction before our
products. If we are unable to develop additional, commercially viable products,
it could adversely affect our future prospects.
Market acceptance of our products depends on many factors, including our
ability to convince prospective collaborators and customers that our technology
is an attractive alternative to other technologies, manufacture products in
sufficient quantities and at an acceptable cost and place and service, directly,
or through our strategic alliances, sufficient quantities of our products. In
addition, limited funding available for product and technology acquisitions by
our customers, as well as internal obstacles to customer approvals of purchases
of our products could harm our technology. The industry is subject to rapid and
continuous change arising from, among other things, consolidation and
technological improvements. One or more of these factors may vary unpredictably,
which could materially adversely affect our competitive position. We may not be
able to adjust our contemplated plan of development to meet changing market
demands.
OUR BUSINESS DEPENDS SIGNIFICANTLY ON KEY RELATIONSHIPS WITH THIRD PARTIES WHICH
WE MAY NOT BE ABLE TO ESTABLISH AND MAINTAIN.
Our revenue stream and our business strategy depend in part on our entering
into and maintaining collaborative or alliance agreements with third parties
concerning product marketing as well as research and development programs. Our
most important strategic alliances are our agreement with Ethicon, Inc., a
division of Johnson & Johnson, relating to INTEGRA Dermal Regeneration Template,
and our agreement with the Genetics Institute division of American Home Products
for the development of collagen matrices to be used in conjunction with Genetics
Institute's recombinant bone protein, a protein that stimulates the growth of
bone in humans. Termination of either of these alliances would have an adverse
effect on our revenues and would substantially reduce our expectations for the
growth of our Integra LifeSciences division.
Our ability to enter into agreements with collaborators depends in part on
convincing them that our technology can help achieve and accelerate their goals
and strategies. This may require substantial time, effort and expense on our
part with no guarantee that a strategic relationship will result. We may not be
able to establish or maintain these relationships on commercially acceptable
terms. Our future agreements may not ultimately be successful. Even if we enter
into collaborative or alliance agreements, our collaborators could terminate
these agreements or they could expire before meaningful developmental milestones
are reached. The termination or expiration of any of these relationships could
have a material adverse effect on our business.
Much of the revenue that we may receive under these collaborations will
depend upon our collaborators' ability to successfully introduce, market and
sell new products derived from our products. Our success depends in part upon
the performance by these collaborators of their responsibilities under these
agreements.
Some collaborators may not perform their obligations as we expect. Some of
the companies we currently have alliances with or are targeting as potential
alliances offer products competitive with our products or may develop
competitive production technologies or competitive products outside of their
collaborations with us that could have a material adverse effect on our
competitive position. In addition, our role in the collaborations is mostly
limited to the production aspects.
As a result, we may also be dependent on collaborators for other aspects of
the development, preclinical and clinical testing, regulatory approval, sales,
marketing and distribution of our products. If our current or future
collaborators do not effectively market our products or develop additional
products based on our technology, it could significantly reduce our sales and
other revenues.
Finally, we have received and may continue to receive payments from
collaborators that may not be immediately recognized as revenue and therefore
may not contribute to reported profits until further conditions are satisfied.
9
OUR INTELLECTUAL PROPERTY RIGHTS MAY NOT PROVIDE MEANINGFUL COMMERCIAL
PROTECTION FOR OUR PRODUCTS, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY OR VERY SIMILAR TECHNOLOGY AND COULD REDUCE OUR ABILITY TO COMPETE IN
THE MARKET.
Our ability to compete effectively will depend, in part, on our ability to
maintain the proprietary nature of our technologies and manufacturing processes,
which includes the ability to obtain, protect and enforce patents on our
technology and to protect our trade secrets. We own or have licensed patents
that cover significant aspects of the DuraGen(R), NeuraGen(TM) INTEGRA(R) Dermal
Regeneration Template(TM), Camino, Ventrix, LICOX, Selector, BioPatch, VitaCuff,
and Spembly cryosurgical product lines. However, you should not rely on our
patents to provide us with any significant competitive advantage. Others may
challenge our patents and, as a result, our patents could be narrowed,
invalidated or rendered unenforceable. Competitors may develop products similar
to ours which our patents do not cover. In addition, our current and future
patent applications may not result in the issuance of patents in the United
States or foreign countries. Further, there is a substantial backlog of patent
applications at the U.S. Patent and Trademark Office, and the approval or
rejection of patent applications may take several years.
OUR COMPETITIVE POSITION IS DEPENDENT IN PART UPON UNPATENTED TRADE SECRETS,
WHICH WE MAY NOT BE ABLE TO PROTECT.
Our competitive position is also dependent upon unpatented trade secrets.
Trade secrets are difficult to protect. We cannot assure you that others will
not independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, that those trade
secrets will not be disclosed, or that we can effectively protect our rights to
unpatented trade secrets.
In an effort to protect our trade secrets, we have a policy of requiring
our employees, consultants and advisors to execute proprietary information and
invention assignment agreements upon commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of their
relationship with us must be kept confidential, except in specified
circumstances. We cannot assure you, however, that these agreements will provide
meaningful protection for our trade secrets or other proprietary information in
the event of the unauthorized use or disclosure of confidential information.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING OR
MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.
We may be sued for infringing the intellectual property rights of others.
In addition, we may find it necessary, if threatened, to initiate a lawsuit
seeking a declaration from a court that we do not infringe the proprietary
rights of others or that these rights are invalid or unenforceable. If we do not
prevail in any litigation, in addition to any damages we might have to pay, we
would be required to stop the infringing activity or obtain a license. Any
required license may not be available to us on acceptable terms, or at all. In
addition, some licenses may be nonexclusive, and, therefore, our competitors may
have access to the same technology licensed to us. If we fail to obtain a
required license or are unable to design around a patent, we may be unable to
sell some of our products, which could have a material adverse effect on our
revenues and profitability.
WE MAY BE INVOLVED IN LAWSUITS TO PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH MAY BE EXPENSIVE.
In order to protect or enforce our intellectual property rights, we may
have to initiate legal proceedings against third parties, such as infringement
suits or interference proceedings. Intellectual property litigation is costly,
and, even if we prevail, the cost of that litigation could affect our
profitability. In addition, litigation is time consuming and could divert
management attention and resources away from our business. We may also provoke
these third parties to assert claims against us.
In July 1996, we filed a patent infringement lawsuit in the United States
District Court for the Southern District of California against Merck KGaA, a
German corporation, Scripps Research Institute, a California nonprofit
corporation, and David A. Cheresh, Ph.D., a research scientist with Scripps,
seeking damages and injunctive relief. The complaint charged, among other
things, that the defendant Merck KGaA willfully and deliberately induced, and
continues to willfully and deliberately induce, defendants Scripps Research
Institute and Dr. David A. Cheresh to infringe certain of our patents.
10
This case went to trial in February 2000, and on March 17, 2000, a jury returned
a unanimous verdict for us finding that Merck KGaA had infringed and induced the
infringement of our patents, and awarded $15,000,000 in damages. Various
post-trial motions are pending. The litigation has cost in excess of $6,000,000
to date. Lower levels of expenditures are expected on an ongoing basis until its
conclusion. See "Business Legal Proceedings."
WE ARE EXPOSED TO A VARIETY OF RISKS RELATING TO OUR INTERNATIONAL SALES AND
OPERATIONS, INCLUDING FLUCTUATIONS IN EXCHANGE RATES AND DELAYS IN COLLECTION OF
ACCOUNTS RECEIVABLE.
We generate significant sales outside the United States, a substantial
portion of which are U.S. dollar denominated transactions conducted with
customers who generate revenue in currencies other than the U.S. dollar. As a
result, currency fluctuations between the U.S. dollar and the currencies in
which those customers do business may have an impact on the demand for our
products in foreign countries where the U.S. dollar has increased compared to
the local currency. We cannot predict the effects of exchange rate fluctuations
upon our future operating results because of the number of currencies involved,
the variability of currency exposure and the potential volatility of currency
exchange rates.
Because we have operating subsidiaries based in Europe and we generate
certain revenues and incur certain operating expenses in British Pounds and the
Euro, we will experience currency exchange risk with respect to those foreign
currency denominated revenues or expenses. Although product sales in these
currencies amounted to less than 5% of our total product sales for the year
ended December 31, 2000, we expect that the amount of sales denominated in the
British Pound and Euro will increase as a percentage of total sales because of
recent acquisitions of European companies and our decision to sell directly,
rather than through distributors, in major European countries.
Relationships with customers and effective terms of sale frequently vary by
country, often with longer-term receivables than are typical in the United
States.
CHANGES IN THE HEALTH CARE INDUSTRY MAY REQUIRE US TO DECREASE THE SELLING PRICE
FOR OUR PRODUCTS OR COULD RESULT IN A REDUCTION IN THE SIZE OF THE MARKET FOR
OUR PRODUCTS, AND LIMIT THE MEANS BY WHICH WE MAY DISCOUNT OUR PRODUCTS, EACH OF
WHICH COULD HAVE A NEGATIVE IMPACT ON OUR FINANCIAL PERFORMANCE.
Trends toward managed care, health care cost containment, and other changes
in government and private sector initiatives in the United States and other
countries in which we do business are placing increased emphasis on the delivery
of more cost-effective medical therapies that could adversely affect the sale
and/or the prices of our products. For example:
o major third-party payors of hospital services, including Medicare,
Medicaid and private health care insurers, have substantially revised
their payment methodologies, which has resulted in stricter standards
for reimbursement of hospital charges for certain medical procedures;
o Medicare, Medicaid and private health care insurer cutbacks could
create downward price pressure;
o numerous legislative proposals have been considered that would result
in major reforms in the U.S. health care system that could have an
adverse effect on our business;
o there has been a consolidation among health care facilities and
purchasers of medical devices in the United States who prefer to limit
the number of suppliers from whom they purchase medical products, and
these entities may decide to stop purchasing our products or demand
discounts on our prices;
o there is economic pressure to contain health care costs in
international markets;
o there are proposed and existing laws and regulations in domestic and
international markets regulating pricing and profitability of
companies in the health care industry; and
11
o there have been initiatives by third party payors to challenge the
prices charged for medical products which could affect our ability to
sell products on a competitive basis.
Both the pressure to reduce prices for our products in response to these
trends and the decrease in the size of the market as a result of these trends
could adversely affect our levels of revenues and profitability of sales.
In addition, there are laws and regulations that regulate the means by
which companies in the health care industry may compete by discounting the
prices of their products. Although we exercise care in structuring our customer
discount arrangements to comply with those laws and regulations, we cannot
assure you that:
o government officials charged with responsibility for enforcing those
laws will not assert that these customer discount arrangements are in
violation of those laws or regulations, or
o government regulators or courts will interpret those laws or
regulations in a manner consistent with our interpretation.
OUR DEPENDENCE ON SUPPLIERS FOR MATERIALS COULD IMPAIR OUR ABILITY TO
MANUFACTURE OUR PRODUCTS.
Outside vendors, some of whom are sole-source suppliers, provide key
components and raw materials used in the manufacture of our products. Although
we believe that alternative sources for these components and raw materials are
available, any supply interruption in a limited or sole source component or raw
material could harm our ability to manufacture our products until a new source
of supply is identified and qualified. In addition, an uncorrected defect or
supplier's variation in a component or raw material, either unknown to us or
incompatible with our manufacturing process, could harm our ability to
manufacture products. We may not be able to find a sufficient alternative
supplier in a reasonable time period, or on commercially reasonable terms, if at
all, and our ability to produce and supply our products could be impaired. We
believe that these factors are most likely to affect our Camino and Ventrix
lines of intra-cranial pressure monitors and catheters, which are assembled
using many different electronic parts from numerous suppliers. While it is our
policy to maintain sufficient inventory of components that our production will
not be significantly disrupted even if a particular component or material is not
available for a period of time, we remain at risk that we will not be able to
qualify new components or materials quickly enough to prevent a disruption if
one or more of our suppliers cease production of important components or
materials. While we rely on a single supplier for cattle tendon (which is our
source of collagen for many Life Sciences products), we believe it is readily
available in adequate quantities from other suppliers.
IF ANY OF OUR MANUFACTURING FACILITIES WERE DAMAGED AND/OR OUR MANUFACTURING
PROCESSES INTERRUPTED, WE COULD EXPERIENCE LOST REVENUES AND OUR BUSINESS COULD
BE SERIOUSLY HARMED.
We manufacture our products in a limited number of facilities. Damage to
our manufacturing, development or research facilities due to fire, natural
disaster, power loss, communications failure, unauthorized entry or other events
could cause us to cease development and manufacturing of some or all of our
products. In particular, our San Diego, California facility that manufactures
our Camino and Ventrix product line is as susceptible to earthquake damage and
power losses from electrical shortages as are other businesses in the Southern
California area. Our silicone manufacturing plant in Anasco, Puerto Rico is
vulnerable to hurricane damage.
WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE AND OUR INSURANCE MAY NOT
COVER ALL POTENTIAL CLAIMS.
We face an inherent business risk of exposure to product liability and
other claims in the event that our technologies or products are alleged to have
caused harm. We may not be able to obtain insurance for the potential liability
on acceptable terms with adequate coverage, or at reasonable costs. Any
potential product liability claims could exceed the amount of our insurance
coverage or may be excluded from coverage under the terms of the policy. Our
insurance may not be renewed at a cost and level of coverage comparable to that
then in effect.
WE ARE SUBJECT TO OTHER REGULATORY REQUIREMENTS RELATING TO OCCUPATIONAL HEALTH
AND SAFETY AND THE USE OF HAZARDOUS SUBSTANCES WHICH MAY IMPOSE SIGNIFICANT
COMPLIANCE COSTS ON US.
12
We are subject to regulation under federal and state laws regarding
occupational health and safety, laboratory practices, and the use, handling and
disposal of toxic or hazardous substances. Our research, development and
manufacturing processes involve the controlled use of certain hazardous
materials. Although we believe that our safety procedures for handling and
disposing of those materials comply with the standards prescribed by the laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, we
could be held liable for any damages that result and any related liability could
exceed the limits or fall outside the coverage of our insurance and could exceed
our resources. We may not be able to maintain insurance on acceptable terms, or
at all. We may incur significant costs to comply with environmental laws and
regulations in the future. We may also be subject to other present and possible
future local, state, federal and foreign regulations.
THE LOSS OF KEY PERSONNEL COULD HARM OUR BUSINESS.
We believe our success depends on the contributions of a number of our key
personnel, including Stuart M. Essig, our President and Chief Executive Officer.
If we lose the services of key personnel, that loss could materially harm our
business. We maintain "key person" life insurance on Mr. Essig. In addition,
recruiting and retaining qualified personnel will be critical to our success.
There is a shortage in the industry of qualified management and scientific
personnel, and competition for these individuals is intense. We can not assure
you that we will be able to attract additional personnel and retain existing
personnel.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of our common stock following the offering, or the perception that
these sales could occur, could cause the market price of our common stock to
decline and impair our ability to raise additional capital in the future through
the sale of equity securities. Presently, _________ shares, and ______ shares
after giving effect to the offering (assuming the underwriters' over-allotment
option is exercised), of the common stock held by our current stockholders are
"restricted securities" within the meaning of Rule 144 under the Securities Act
of 1933. Of these shares, after giving effect to the offering (assuming the
underwriters' over-allotment option is not exercised), shares will not be
eligible for resale under Rule 144 until _________. Holders of _______ of these
shares have customary registration rights to require us to register the resale
of their shares. These shares may be resold only in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
therefrom. All holders of these restricted securities have entered into
registration rights agreements with us, pursuant to which we have agreed that we
will register under the Securities Act, shares of common stock held by such
stockholders upon their demand to register shares with a minimum aggregate
value. The registration rights agreements also provide such stockholders with
"piggy-back" registration rights. Furthermore, we have registered 8,505,000
shares of common stock reserved for issuance to our employees, directors and
consultants under our stock award and employee benefit plans. Of this amount, as
of June 30, 2001, approximately 6,553,000 shares were held in reserve for future
issuance.
OUR STOCK PRICE MAY CONTINUE TO BE HIGHLY VOLATILE AND YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID FOR THEM.
The stock market in general, and the stock prices of medical device
companies, biotechnology companies and other technology-based companies in
particular, have experienced significant volatility that often has been
unrelated to the operating performance of and beyond the control of any specific
public companies. The market price of our common stock has fluctuated widely in
the past and is likely to continue to fluctuate in the future. The high and low
market prices of our common stock from June 30, 1999 through June 30, 2001 were
$22.450 per share on June 30, 2001 and $5.375 per share on December 28, 1999,
respectively, and the high and low market prices of our common stock during the
fiscal quarter ended June 30, 2001 were $22.450 per share on June 29, 2001, and
$11.40 per share on April 16, 2001, respectively. See "Price Range of Common
Stock and Dividends." Factors that may have a significant impact on the market
price of our common stock include:
o actual financial results differing from guidance provided by
management;
o actual financial results differing from that expected by securities
analysts;
o future announcements concerning us or our competitors, including the
announcement of acquisitions;
o changes in the prospects of our business partners or suppliers;
o developments regarding our patents or other proprietary rights or
those of our competitors;
o quality deficiencies in our products;
o competitive developments, including technological innovations by us or
our competitors;
o government regulation, including the FDA's review of our products and
developments;
o changes in recommendations of securities analysts and rumors that may
be circulated about us or our competitors;
o public perception of risks associated with our operations;
o conditions or trends in the medical device and biotechnology
industries;
o additions or departures of key personnel; and
o sales of our common stock.
Any of these factors could immediately, significantly and adversely affect the
trading price of our common stock.
WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We intend to retain future earnings to fund our growth.
Accordingly, you will not receive a return on your
13
investment in our common stock through the payment of dividends in the
foreseeable future and may not realize a return on your investment even if you
sell your shares. As a result, you may not be able to resell your shares at or
above the price you paid for them.
OUR MAJOR STOCKHOLDERS COULD MAKE DECISIONS ADVERSE TO YOUR INTERESTS.
Our directors and executive officers and affiliates of certain directors
own or control, and after the completion of an offering of our common stock may
still own or control, a majority of our outstanding voting securities and would
be generally able to elect all directors, to determine the outcome of corporate
actions requiring stockholder approval and otherwise to control the business.
This control could preclude any unsolicited acquisition of Integra and
consequently adversely affect the market price of the common stock. Furthermore,
we are subject to Section 203 of the Delaware General Corporation Law, which
could have the effect of delaying or preventing a change of control.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS FROM ANY
OFFERING AND, THEREFORE, INVESTORS WILL BE RELYING ON THE JUDGMENT OF OUR
MANAGEMENT TO INVEST THOSE FUNDS EFFECTIVELY.
We intend to use the net proceeds of any offering for general corporate
purposes, which could include, among other things, expanding our sales and
marketing resources, including expanding our business in Europe and Asia,
developing new technologies and products, and for working capital and other
general corporate purposes. The amounts and timing of these expenditures will
vary significantly depending upon a number of factors, including the amount of
cash generated or consumed by our operations, the progress of our research and
development activities and the market response to the introduction of any new
products and services. In addition, we may use a portion of the net proceeds
from this offering to acquire or invest in businesses, products, services or
technologies complementary to our current business, through mergers,
acquisitions, joint ventures or otherwise. Our management will retain broad
discretion with respect to the expenditure of proceeds. Investors will be
relying on the judgment of our management regarding the application of the
proceeds of this offering.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus, including statements under
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions about Integra, including, among other things:
o general economic and business conditions, both nationally and in our
international markets;
o our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
o anticipated trends in our business;
o existing and future regulations affecting our business;
o our ability to obtain additional debt and equity financing to fund
capital expenditures and working capital requirements if required;
o our ability to complete acquisitions; and
o other risk factors described in the section entitled "Risk Factors" in
this prospectus.
You can identify these forward-looking statements by forward-looking words
such as "believe," "may," "could," "will," "estimate," "continue," "anticipate,"
"intend," "seek," "plan," "expect," "should," "would" and similar expressions in
this prospectus.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.
14
USE OF PROCEEDS
We expect to use the net proceeds received by us from the sale of common
stock under this prospectus for general corporate purposes, which could include,
among other things, acquisition of product lines or companies, repayment of
indebtedness, expanding our sales and marketing resources, including expanding
our international business, developing new technologies and products and for
working capital and other general corporate purposes. Pending application of the
net proceeds, we may invest the net proceeds in short term, interest bearing
investments. We will not receive any proceeds from the sale of common stock by
any stockholder.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock trades on the Nasdaq National Market under the symbol
"IART". The following table presents the high and low sales prices for our
common stock for each quarter for the periods indicated. All outstanding common
share and per share amounts have been retroactively adjusted to reflect a
one-for-two reverse stock split of our common stock on May 18, 1998.
HIGH LOW
--------- -------
1999
First Quarter ................................... $ 5.188 $ 3.00
Second Quarter .................................. $ 7.00 $ 3.875
Third Quarter ................................... $ 10.375 $ 5.625
Fourth Quarter .................................. $ 6.4688 $ 5.375
2000
First Quarter ................................... $ 19.875 $ 5.875
Second Quarter .................................. $ 12.625 $ 6.688
Third Quarter ................................... $ 15.000 $ 9.438
Fourth Quarter .................................. $ 16.125 $ 9.688
2001
First Quarter ................................... $ 18.3125 $ 9.875
Second Quarter .................................. $ 22.450 $11.40
The closing price for the common stock on July 5, 2001 was $22.80. We had
825 stockholders of record as of July 5, 2001.
We do not currently pay any cash dividends on our common stock and do not
anticipate paying any of these dividends in the foreseeable future. Any future
payment of dividends to our stockholders will depend on decisions that our board
of directors will make and will depend on then existing conditions, including
our financial condition, contractual restrictions, capital requirements and
business prospects.
DILUTION
The tangible net book value of our common stock as of June 30, 2001 was
approximately $______ or $_______ per share of common stock. Tangible net book
value per share represents the amount of our convertible preferred stock, common
stock and other stockholders' equity, less intangible assets, divided by shares
of our common stock outstanding. Purchasers of common stock in this offering
will have an immediate dilution of tangible net book value.
Tangible net book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of common stock in the
offering and the pro forma tangible net book value per share of the common stock
immediately after completion of the offering. After giving effect to the
issuance and sale of 4,312,500 shares of common stock in the offering (assuming
the underwriters' overallotment option is exercised) at a public offering price
of $______ per share, and after deduction of underwriting discounts and
commissions and estimated offering expenses, the pro forma tangible net book
value of Integra as of June 30, 2001 was approximately $_______, or $______ per
share of common stock. This represents an immediate increase in tangible net
book value of $______ per share to existing stockholders and an immediate
dilution of tangible net book value of $______ per share to purchasers of common
stock in the offering, as illustrated in the following table:
Public offering price per share of common stock......................... $
Net tangible book value per share of common stock before the offering... $
Increase per share of common stock attributable to the offering......... $
Pro forma net tangible book value per share of common stock after
the offering.......................................................... $
Net tangible book value dilution per share.............................. $
CAPITALIZATION
The following table sets forth: (a) the actual capitalization of Integra as
of March 31, 2001 and (b) the pro forma capitalization of Integra as of March
31, 2001 after giving effect to the conversion of the Series B Preferred Stock
into common stock as of June 26, 2001:
15
AS OF MARCH 31, 2001
(THOUSANDS, EXCEPT
PER SHARE DATA)
ACTUAL PRO-FORMA
--------- ---------
Cash, cash equivalents and short-term investments ...... $ 19,374 $ 19,374
Short-term debt ........................................ 9,150 9,150
Long-term debt ......................................... 3,121 3,121
Stockholders' equity:
Preferred stock; $0.01 par value; 15,000 authorized
shares; 100 Series B Convertible shares issued
and outstanding at March 31, 2001(0 Series B
Convertible shares outstanding in the Pro-forma
column), $12,000 including a 10% annual cumulative
dividend liquidation preference; 54 Series C
Convertible shares issued and outstanding at
March 31, 2001, $5,940 including a 10% annual
cumulative dividend liquidation preference ........... 2 1
Common stock; $0.01 par value; 60,000 authorized
shares; 17,658 (20,276 in the Pro-forma column)
issued and outstanding at March 31, 2001 ............. 177 203
Additional paid-in capital ............................. 161,564 161,539
Treasury stock, at cost; 20 shares at March 31, 2001 ... (180) (180)
Other .................................................. (58) (58)
Accumulated other comprehensive loss ................... (898) (898)
Accumulated deficit .................................... (103,733) (103,733)
Total stockholders' equity ............................. 56,874 56,874
Total capitalization ................................... $ 69,145 $ 69,145
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data as of and for each of the five years ended
December 31 has been derived from consolidated financial statements that have
been audited by PricewaterhouseCoopers LLP, independent accountants. The
selected financial data as of and for each of the three-month periods ended
March 31, 2001 and 2000 has been derived from our unaudited financial
statements. In our opinion, the unaudited financial information includes all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation of that information. The information set forth
below is not necessarily indicative of the results of future operations and
should be read in conjunction with our consolidated financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this prospectus.
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data (1):
Product sales .................................. $ 20,284 $ 13,332 $ 64,987 $ 40,047 $ 14,182 $ 14,103 $ 11,300
Other revenue .................................. 1,400 1,199 6,662 2,829 3,379 745 1,938
Total revenue .................................. 21,684 14,531 71,649 42,876 17,561 14,848 13,238
Cost of product sales .......................... 8,594 6,687 29,511 22,678 7,580 7,184 6,808
Research and development ....................... 2,073 1,890 7,524 8,893 8,424 6,406 6,294
Selling and marketing .......................... 4,751 2,949 15,371 9,487 5,901 5,405 4,263
General and administrative (2) ................. 3,204 3,747 28,483 13,324 9,787 14,764 5,320
Amortization ................................... 680 480 2,481 874 49 -- --
Total costs and expenses ....................... 19,302 15,753 83,370 55,256 31,741 33,759 22,685
Operating income (loss) ........................ 2,382 (1,222) (11,721) (12,380) (14,180) (18,911) (9,447)
Interest income (expense), net ................. (78) 11 (473) 294 1,250 1,771 1,799
Gain on disposition of product lines ........... -- 115 1,146 4,161 -- -- --
Other income (expense), net .................... (62) 123 201 141 588 176 120
Income (loss) before income taxes .............. 2,242 (973) (10,847) (7,784) (12,342) (16,964) (7,528)
Income tax expense (benefit) (3) ............... 246 62 108 (1,818) -- -- --
Income (loss) before cumulative effect
of accounting change ........................ 1,996 (1,035) (10,955) (5,966) (12,342) (16,964) (7,528)
Cumulative effect of change in
accounting for nonrefundable fees
received under research, license
and distribution arrangements (4) ........... -- (470) (470) -- -- -- --
Net income (loss) .............................. $ 1,996 $ (1,505) $(11,425) $ (5,966) $(12,342) $(16,964) $ (7,528)
Diluted net income (loss)
per share ................................... $ 0.07 $ (0.35) $ (0.97) $ (0.40) $ (0.77) $ (1.15) $ (0.54)
Weighted average common shares
outstanding ................................. 21,849 17,224 17,553 16,802 16,139 14,810 14,057
17
(UNAUDITED)
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Balance Sheet Data (1):
Cash, cash equivalents and
short-term investments ...................... $ 19,374 $ 23,572 $ 15,138 $ 23,612 $ 20,187 $ 26,272 $ 34,276
Working capital ................................ 27,992 27,274 25,177 28,014 23,898 29,407 37,936
Total assets ................................... 91,079 73,693 86,514 66,253 34,707 38,356 48,741
Long-term debt ................................. 3,121 8,204 4,758 7,625 -- -- --
Accumulated deficit ............................ (103,733) (95,367) (105,729) (94,304) (88,287) (75,945) (58,981)
Total stockholders' equity ..................... 56,874 43,482 53,781 37,989 31,366 35,755 46,384
- ----------
(1) As the result of our acquisitions of Rystan Company, Inc. in September
1998, the NeuroCare Group of companies in March 1999 and the acquisition of
Clinical Neuro Systems and product lines from NMT Medical, Inc. in 2000,
the consolidated financial results and balance sheet data for certain of
the periods presented above may not be directly comparable.
(2) General and administrative expense in 2000 included a $13.5 million
stock-based compensation charge in connection with the extension of the
employment of the Company's President and Chief Executive Officer. General
and administrative expense in 1997 include the following two non-cash
charges: (a) $1.0 million related to an asset impairment charge; and (b)
$5.9 million related to a stock-based signing bonus for the Company's
President and Chief Executive Officer.
(3) The 1999 income tax benefit includes a non-cash benefit of $1.8 million
resulting from the reduction of the deferred tax liability recorded in the
NeuroCare Group of companies acquisition to the extent that consolidated
deferred tax assets were generated subsequent to the acquisition. The 2000
income tax expense and 1999 income tax benefit include $0.5 million and
$0.6 million, respectively, of benefits associated with the sale of New
Jersey state net operating losses.
(4) As the result of the adoption of SAB 101, we recorded a $470,000 cumulative
effect of an accounting change to defer a portion of a nonrefundable,
up-front fee received and recorded in other revenue in 1998. The cumulative
effect of this accounting change was measured as of January 1, 2000. As a
result of this accounting change, other revenue in 2000 includes $112,000
of amortization of the amount deferred as of January 1, 2000.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED UPON OUR FINANCIAL STATEMENTS AS
OF THE DATES AND FOR THE PERIODS PRESENTED IN THIS SECTION. YOU SHOULD READ THIS
DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND RELATED
NOTES CONTAINED IN THIS PROSPECTUS.
OVERVIEW
We develop, manufacture and market medical devices, implants and
biomaterials. Our operations consist of:
o Integra NeuroSciences, which is a leading provider of implants,
devices, and monitors used in neurosurgery, neurotrauma, and
related critical care; and
o Integra LifeSciences, which develops and manufactures a variety
of medical products and devices, including products based on our
proprietary tissue regeneration technology which are used to
treat soft tissue and orthopedic conditions.
Integra NeuroSciences sells primarily through a direct sales organization and
Integra LifeSciences sells primarily through strategic alliances and
distributors.
In 1999, we initiated a repositioning of our business to focus selectively
on attractive niche markets. Implementation of this strategy included the
purchase of the NeuroCare Group of companies in March 1999 and the execution of
an agreement with Johnson & Johnson Medical, (now merged into Ethicon) that
provides Ethicon with exclusive marketing and distribution rights to INTEGRA(R)
Dermal Regeneration Template worldwide, excluding Japan. As a result of these
transactions, we formed our Integra NeuroSciences segment and reorganized the
remainder of our products into our Integra LifeSciences segment. The agreement
with Ethicon allowed the Integra LifeSciences segment to focus on strategic
collaborative initiatives. The Integra LifeSciences segment now operates as a
provider of innovative products and development activities through strategic
alliances with marketing partners and distributors. As a result of these
activities, our segment financial results for each of the years 2000, 1999 and
1998 and for the first three months of 2001 and 2000, may not be directly
comparable.
To date, we have experienced significant operating losses and may continue
to incur these losses unless product sales and research and collaborative
arrangements generate sufficient revenue to fund continuing operations. As of
March 31, 2001 we had an accumulated deficit of $103.7 million.
RECENT ACQUISITIONS
On March 29, 1999 we acquired certain assets and stock held by
Heyer-Schulte NeuroCare, L.P. and its subsidiaries, Heyer-Schulte NeuroCare,
Inc., Camino NeuroCare, Inc. and Neuro Navigational, LLC (collectively, the
"NeuroCare Group") through our wholly-owned subsidiaries, NeuroCare Holding
Corporation, Integra NeuroCare LLC and Redmond NeuroCare LLC (collectively,
"Integra NeuroCare"). The purchase price for the NeuroCare Group consisted of
$14.2 million in cash and approximately $11 million of assumed indebtedness
under a term loan from Fleet Capital Corporation. The NeuroCare Group's assets
include a manufacturing, packaging and distribution facility in San Diego,
California and a manufacturing facility in Anasco, Puerto Rico, as well as a
corporate headquarters in Pleasant Prairie, Wisconsin, which we closed in the
third quarter of 1999.
On January 17, 2000, we purchased the business, including certain assets
and liabilities, of Clinical Neuro Systems, Inc. for $6.8 million. CNS designs,
manufactures and sells neurosurgical external ventricular drainage systems,
including catheters and drainage bags, as well as cranial access kits. The
purchase price of the CNS business consisted of $4.0 million in cash and a 5%
$2.8 million promissory note issued to the seller. The promissory note, of which
approximately $1.4 million remains outstanding, is collateralized by inventory,
property and equipment of the CNS business and by a collateral assignment of a
$2.8 million promissory note from one of our subsidiaries.
19
On April 6, 2000, we purchased the Selector(R)Ultrasonic Aspirator,
Ruggles(TM) hand-held neurosurgical instruments and Spembly Medical cryosurgery
product lines, including certain assets and liabilities, from NMT Medical, Inc.
for $11.6 million in cash.
On April 4, 2001, we acquired all of the outstanding stock of GMSmbH, the
German manufacturer of the LICOX(R) Brain Tissue Oxygen Monitoring System, for
$2.9 million, of which $2.3 million was paid at closing. Prior to the
acquisition, our Integra NeuroSciences division had exclusive marketing rights
to the LICOX(R) products in the United States and certain other markets.
Revenues of the acquired GMS business were approximately $1.2 million in 2000,
consisting primarily of sales of the LICOX(R) products in Germany and to various
international distributors, including Integra.
On April 27, 2001, we acquired Satelec Medical, a subsidiary of the
Satelec-Pierre Rolland group, for $3.6 million in cash. Satelec Medical, based
in France, manufactures and markets the Dissectron(R) ultrasonic surgical
aspirator console and a broad line of related handpieces. The Dissectron(R)
product is the leading ultrasonic surgical system in France. The Dissectron(R)
product has FDA 510(k) clearance for neurosurgical applications and CE Mark
Certification in the European Union. Revenues of the acquired business were
approximately $1.5 million in 2000.
These acquisitions have been accounted for using the purchase method of
accounting, and the consolidated financial statements include the results of
operations of the acquired businesses since their respective dates of
acquisition.
PRESENTATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our consolidated financial
statements, the notes thereto and the other financial information included
elsewhere in this prospectus and in our 2000 Annual Report on Form 10-K and
March 31, 2001 Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission, which are incorporated by reference herein.
20
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Product Sales and Gross Margins on Product Sales:
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
--------- ----------
Integra NeuroSciences:
Neuro intensive care unit.................... $ 6,532 $ 5,532
Neuro operating room......................... 7,945 3,288
------- -------
Total product sales.......................... 14,477 8,820
Cost of product sales....................... 5,637 4,178
Gross margin on product sales................ 8,840 4,642
Gross margin percentage...................... 61% 53%
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
--------- ----------
Integra LifeSciences:
Private label products....................... 3,216 2,488
Distributed products......................... 2,591 2,024
Total product sales.......................... 5,807 4,512
Cost of product sales........................ 2,957 2,509
Gross margin on product sales................ 2,850 2,003
Gross margin percentage...................... 49% 44%
Total product sales.......................... $20,284 $13,332
Consolidated gross margin percentage......... 58% 50%
In the first quarter of 2001, total revenues increased $7.2 million, or
49%, over the first quarter of 2000 to $21.7 million. Revenue growth was led by
a $7.0 million increase in product sales to $20.3 million, a 52% increase over
the first quarter of 2000. Included in this increase was $2.8 million in sales
of acquired NMT Medical, Inc. product lines. Sales in the Integra NeuroSciences
division increased $5.7 million to $14.5 million in the first quarter of 2001,
and included $2.3 million in sales of acquired NMT Medical, Inc. product lines.
Increased sales of the DuraGen(R) Dural Graft Matrix, our intracranial
monitoring and cranial access products for the neuro intensive care unit and
hydrocephalus management products, contributed to the strong organic growth of
$3.4 million in the Integra NeuroSciences division. Gross margin on Integra
NeuroSciences' product sales increased 8 percentage points to 61% in the first
quarter of 2001 through an improved sales mix of higher margin products,
including the DuraGen(R) product and acquired product lines. The gross margin
reported for the first quarter of 2000 was reduced by 1 percentage point
relating to fair value inventory purchase accounting adjustments recorded in
connection with the CNS acquisition.
Future product sales in the Integra NeuroSciences division are expected to
benefit from organic growth in the division's existing product lines and the
recent launch of the LICOX(R) Brain Tissue Oxygen Monitoring System and the
Ventrix(R) True Tech Tunneling Catheter for intracranial pressure monitoring.
Sales of Integra LifeSciences division products increased $1.3 million to
$5.8 million in the first quarter of 2001 primarily because of organic growth in
our private label products and $0.5 million in sales of acquired NMT Medical,
Inc. product lines. Sales of private label products can vary significantly from
quarter to quarter and are dependent upon the efforts of our strategic marketing
partners. Gross margin on Integra LifeSciences' product sales increased 5
percentage points to 49% in the first quarter of 2001 primarily as a result of a
more favorable sales mix.
Other revenue, which increased $0.2 million to $1.4 million in the first
quarter of 2001, consisted of $0.9 million of research and development funding
from strategic partners and government grants, $0.3 million of royalty income,
and $0.2 million of license and distribution revenues.
21
Research and development expenses were as follows (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
--------- ----------
Integra NeuroSciences.............................. $ 688 $ 503
Integra LifeSciences............................... 1,385 1,387
------- --------
Total........................................... $ 2,073 $ 1,890
======= ========
In the Integra NeuroSciences division, research and development expenses
increased as compared to the first quarter of 2000 as a result of the ongoing
Phase III clinical trials on the peripheral nerve conduit that were initiated in
the second quarter of 2000 and the completion of development activities related
to the Ventrix(R) True Tech Catheter.
The future allocation and timing of research and development expenditures
between segments and programs will vary depending on various factors, including
the timing and outcome of pre-clinical and clinical results, changing
competitive conditions, continued program funding levels, potential funding
opportunities and determinations with respect to the commercial potential of our
technologies.
Selling and marketing expenses were as follows (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
--------- ----------
Integra NeuroSciences.............................. $ 4,238 $ 2,444
Integra LifeSciences............................... 513 505
------- --------
Total........................................... $ 4,751 $ 2,949
======= ========
Integra NeuroSciences selling and marketing expenses increased $1.8 million
as compared to the first quarter of 2000 primarily because of the increase in
the direct sales force in the United States throughout 2000 and into 2001 from
18 to 44 neurospecialists. Additional increases were related to a distribution
facility located in the United Kingdom that was acquired in the NMT Medical,
Inc. acquisition.
Within the Integra LifeSciences division, product sales and marketing
activities are primarily the responsibility of our strategic marketing partners
and distributors.
General and administrative expenses were as follows (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
--------- ----------
Integra NeuroSciences.............................. $ 790 $ 890
Integra LifeSciences............................... 347 302
Corporate.......................................... 2,067 2,555
------- --------
Total........................................... $ 3,204 $ 3,747
======= ========
The $0.5 million decrease in corporate general and administrative expenses
was primarily the result of decreased legal fees associated with the conclusion
of the Merck KGaA patent infringement trial at the end of the first quarter of
2000.
Other income (expense), net for the three months ended March 31, 2000,
included $176,000 of gain on sale of investments.
The provision for income taxes increased $184,000 in the first quarter of
2001 to $246,000, or 11% of pre-tax net income, which is our anticipated
effective rate for the year ended December 31, 2001.
22
Net income for the first quarter of 2001 was $2.0 million, or $0.07 per
share. Net loss for the first quarter of 2000 was $1.5 million, or $0.35 per
share. The net loss per share for the first quarter of 2000 includes the $4.2
million beneficial conversion feature associated with the issuance of
convertible preferred stock and common stock warrants in March 2000, which is
treated as a non-cash dividend in computing per share earnings. The beneficial
conversion feature is based upon the excess of the price of the underlying
common stock as compared to the fixed conversion price of the convertible
preferred stock, after taking into account the value assigned to the warrants.
Included in the first quarter net loss of $1.5 million was a $0.5 million
cumulative effect of an accounting change, $0.1 million of fair value inventory
purchase accounting adjustments, and a $0.1 million gain on the sale of a
product line. Excluding these items and the $4.2 million beneficial conversion
feature associated with the convertible preferred stock, the loss per share for
the first quarter of 2000 would have been $0.08.
INTERNATIONAL PRODUCT SALES AND OPERATIONS
In the first quarter of 2001, sales to customers outside the United States
totaled $4.4 million, or 21% of consolidated product sales, of which
approximately 55% were to Europe. Of this amount, $1.3 million of these sales
were generated in foreign currencies from our subsidiary based in Andover,
England. Our international sales and operations are subject to the risk of
foreign currency fluctuations, both in terms of exchange risk related to
transactions conducted in foreign currencies and the price of our products in
those markets for which sales are denominated in the U.S. dollar.
In the first quarter of 2000, sales to customers outside the United States
totaled $2.7 million, or 20% of consolidated product sales, of which
approximately 39% were to Europe.
We seek to increase our presence in international markets, particularly in
Europe, through acquisitions of businesses with an existing international sales
and marketing infrastructure or the capacity to develop this type of
infrastructure. We acquired operations in Germany and France with the
acquisitions of GMS and Satelec Medical in April 2001.
2000 COMPARED TO 1999
2001 1999
------- -------
Integra NeuroSciences:
- Neuro intensive care unit ................... $23,521 $14,398
- Neuro operating room ........................ 21,324 8,014
Total product sales .............................. 44,845 22,412
Cost of product sales ............................ 19,198 12,893
Gross margin on product sales .................... 25,647 9,519
Gross margin percentage .......................... 57% 42%
Integra LifeSciences:
- Private label products ...................... $11,018 $10,226
- Distributed products ........................ 9,124 7,409
Total product sales .............................. 20,142 17,635
Cost of product sales ............................ 10,313 9,785
------- -------
Gross margin on product sales .................... 9,829 7,850
Gross margin percentage .......................... 49% 45%
Total product sales .............................. $64,987 $40,047
Consolidated gross margin percentage ............. 55% 43%
23
Total product sales increased $24.9 million, or 62%, in 2000, with sales of
product lines acquired in 2000 accounting for $11.2 million, or 28%, of this
increase. Sales growth for the year was led by the Integra NeuroSciences
division, which reported an increase of $22.4 million, or 100%, from the prior
year. Included in this increase was $9.6 million of sales of product lines
acquired in 2000. A $5.5 million increase in sales of the DuraGen(R) product,
which was launched in the third quarter of 1999, and organic growth in products
acquired in the NeuroCare Group of companies acquisition at the end of the first
quarter of 1999 resulted in the remainder of this increase. Adjusted gross
margin on Integra NeuroSciences' product sales increased 7 percentage points to
58% in 2000 through an improved sales mix of higher margin products, including
the DuraGen(R) product and product lines acquired in 2000. The adjusted gross
margin excludes fair value inventory purchase accounting adjustments recorded in
connection with the acquisitions.
Sales in the Integra LifeSciences division increased $2.5 million, or 14%,
in 2000, with sales of a distributed product line acquired in 2000 accounting
for $1.6 million of this increase. The remainder of this increase relates
primarily to higher sales of private label products, with increased sales of
orthopedic biomaterials to our strategic partners for use in their clinical
trials being slightly offset by lower sales of INTEGRA(R) Dermal Regeneration
Template. Sales of INTEGRA(R) Dermal Regeneration Template decreased because of
the lower transfer price to Ethicon beginning in the second half of 1999.
Adjusted gross margin on Integra LifeSciences' product sales increased from 48%
to 49% in 2000. The improvement in gross margins was primarily related to
increased capacity utilization and increased sales of higher margin products in
2000, both of which were offset by the lower gross margins on sales of the
INTEGRA(R) Dermal Regeneration Template through Ethicon and sales of a lower
margin distributed product line acquired in 2000.
Other revenue, which increased $3.9 million to $6.7 million in 2000,
consisted of $2.8 million of research and development funding from strategic
partners and government grants, $2.3 million of license, distribution, and other
event-related revenues from strategic partners and other third parties, and $1.6
million of royalty income.
Research and development expenses were as follows (in thousands):
2001 1999
------- -------
Integra NeuroSciences ............................ $ 2,469 $ 2,080
Integra LifeSciences ............................. 5,055 6,813
------- -------
Total ......................................... $ 7,524 $ 8,893
Research and development expense in the Integra NeuroSciences segment
increased in 2000 primarily because there was a full year of research and
development activities from the acquired NeuroCare Group of companies business
in 2000. Significant ongoing research and development programs of our Integra
NeuroSciences segment include the development of the next generation of
intra-cranial monitors and catheters and shunting products and the continuation
of clinical trials involving the NeuraGen(TM) Nerve Guide, a bioabsorbable
collagen conduit designed to support guided regeneration of severed nerve
tissues.
Research and development activities within the Integra LifeSciences segment
decreased in 2000 primarily because of the elimination of several non-core
research programs throughout 1999, reductions in headcount in our New
Jersey-based research group, and reduced spending in the articular cartilage
program. Offsetting these decreases were additional research activities related
to the INTEGRA(R) Dermal Regeneration Template program that Ethicon and
government grants funded. The agreement with Ethicon, provides us with research
funding of $2.0 million per year through the year 2004. Significant ongoing
research and development programs in the Integra LifeSciences segment include
clinical and development activities related to INTEGRA(R) Dermal Regeneration
Template, additional applications for our orthopedic technologies, and other
activities involving our tissue regeneration technologies.
The future allocation and timing of research and development expenditures
between segments and programs will vary depending on various factors, including
the timing and outcome of pre-clinical and clinical results, changing
competitive conditions, continued program funding levels, potential funding
opportunities and determinations with respect to the commercial potential of our
technologies.
24
Selling and marketing expenses were as follow (in thousands):
2001 1999
------- -------
Integra NeuroSciences ............................ $12,868 $ 6,244
Integra LifeSciences ............................. 2,503 3,243
------- -------
Total ......................................... $15,371 $ 9,487
Integra NeuroSciences selling and marketing expense increased significantly
because of a large increase in the direct sales force to over 50 personnel
throughout 2000, increased sales from acquired products and organic growth in
existing products, and increased tradeshow participation. Through acquisitions
and recruiting of experienced personnel, the Integra NeuroSciences division has
developed a leading sales and marketing infrastructure to market its products to
neurosurgeons and critical care units, which comprise a focused group of
hospital-based practitioners. A further increase in Integra NeuroSciences
selling and marketing expense is expected in 2001, as continuing costs
associated with the larger direct sales force and the national distribution
center opened in the second quarter of 2000 impact the full year 2001 results.
The decrease in Integra LifeSciences selling and marketing expenses is
primarily the result of the transition of INTEGRA(R) Dermal Regeneration
Template selling and marketing activities to Ethicon in June 1999, offset by
costs associated with the opening of our new national distribution center in New
Jersey.
General and administrative expenses were as follows (in thousands):
2001 1999
------- -------
Integra NeuroSciences ............................ $ 4,981 $ 4,726
Integra LifeSciences ............................. 3,799 2,433
Corporate ........................................ 19,703 6,165
------- -------
Total ......................................... $28,483 $13,324
Integra NeuroSciences general and administrative expenses increased in 2000
primarily because of acquisitions and an allowance recorded against a
distributor's accounts receivable balance. Offsetting these increases were $1.0
million of severance costs incurred in 1999 in connection with the closure of
the corporate headquarters of NeuroCare Group of companies in July 1999. General
and administrative expense in the Integra LifeSciences segment increased in 2000
primarily due to additional headcount and acquisitions. The increase in
corporate general and administrative expenses in 2000 was almost entirely
related to a $13.5 million stock-based compensation charge recorded in
connection with the extension of the employment agreement of Integra's President
and Chief Executive Officer. A decrease in legal fees associated with the
conclusion of the jury trial in the patent infringement lawsuit against Merck
KGaA in the first quarter of 2000 was offset by increased corporate headcount.
Net interest expense consisted of interest expense of $1.3 million and
interest income of $0.8 million in 2000. In 1999, net interest income consisted
of $1.0 million of interest income and $0.7 million of interest expense.
Interest expense increased in 2000 consistent with higher average bank loans
outstanding during 2000 and interest associated with the note issued to the
seller of the CNS business. Interest income decreased in 2000 consistent with
lower average cash and marketable securities balances during 2000.
We recorded a $1.1 million pre-tax gain on the disposition of two product
lines in 2000 and a $4.1 million pre-tax gain on the disposition of a product
line in 1999.
Other income (expense), net in 2000 included $176,000 of gain on sale of
investments.
The income tax provision of $0.1 million recorded in 2000 consists of $0.6
million of income tax expense, which was offset by a $0.5 million benefit from
the sale of New Jersey state net operating losses under a state sponsored
program. The income tax benefit of $1.8 million recorded in 1999 consists of a
$1.8 million non-cash benefit resulting from the reduction of the deferred tax
liability recorded in the NeuroCare Group of companies
25
acquisition to the extent that consolidated deferred tax assets were generated
subsequent to the acquisition. A tax benefit of $0.6 million associated with the
sale of New Jersey state net operating losses was offset by $0.6 million of
income tax expense.
The reported net loss for the year ended December 31, 2000 was $11.4
million, or $0.97 per share. The reported net loss per share includes $1.5
million of preferred stock dividends and a $4.2 million beneficial conversion
feature associated with the issuance of convertible preferred stock and warrants
in March 2000, which is treated as a non-cash dividend in computing per share
earnings. The beneficial conversion dividend is based upon the excess of the
price of the underlying common stock as compared to the fixed conversion price
of the convertible preferred stock, after taking into account the value assigned
to the common stock warrants. Included in the reported net loss of $11.4 million
was a $1.1 million gain on the sale of product lines, the $13.5 million
stock-based compensation charge, a $0.5 million cumulative effect of an
accounting change and $0.4 million of fair value inventory purchase accounting
adjustments. Excluding these items, we would have reported net income of $1.8
million. Excluding these items and the $4.2 million beneficial conversion
feature recorded on the convertible preferred stock, we would have reported net
income of $0.02 per share for the year ended December 31, 2000.
The reported net loss for the year ended December 31, 1999 was $6.0
million, or $0.40 per share. The reported net loss per share includes $0.8
million of preferred stock dividends. Included in the reported net loss of $6.0
million was a $3.7 million gain (net of tax) on the sale of a product line and a
$1.8 million tax benefit related to the NeuroCare Group of companies
acquisition, $2.5 million of fair value inventory purchase accounting
adjustments and $1.0 million of severance costs associated with the NeuroCare
Group of companies acquisition. Excluding these items, we would have reported a
net loss of $8.0 million, or $0.52 per share.
Excluding the above items, adjusted Earnings before Interest, Taxes,
Depreciation and Amortization would have been $7.8 million in 2000, as compared
to a negative $5.6 million in 1999. EBITDA is calculated by adding back
interest, taxes, depreciation and amortization to net income or loss.
1999 COMPARED TO 1998
1999 1998
------- -------
Integra NeuroSciences:
Neuro intensive care unit ........................... $14,398 $ --
Neuro operating room ................................ 8,014 --
Total product sales .................................... 22,412 --
Cost of product sales .................................. 12,893 --
Gross margin on product sales .......................... 9,519 --
Gross margin percentage ................................ 42% --
Integra LifeSciences:
Private label products .............................. $10,226 $11,295
Distributed products ................................ 7,409 2,887
Total product sales .................................... 17,635 14,182
Cost of product sales .................................. 9,785 7,580
Gross margin on product sales .......................... 7,850 6,602
Gross margin percentage ................................ 45% 47%
Total product sales .................................... $40,047 $14,182
Consolidated gross margin percentage ................... 43% 47%
Total product sales increased $25.9 million, or 182%, in 1999, with sales
of product lines acquired in 1999 accounting for $24.5 million, or 172%, of this
increase. Sales growth for the year was led by the Integra
26
NeuroSciences division, which reported $21.9 million of sales from product lines
acquired in the NeuroCare Group of companies acquisition and $0.5 million of
sales of the DuraGen(R) product, which was launched in the third quarter of
1999. Excluding fair value inventory purchase accounting adjustments recorded in
connection with the NeuroCare Group of companies acquisition, gross margins on
Integra NeuroSciences product sales would have been 51% in 1999.
Sales in the Integra LifeSciences division increased $3.5 million, or 24%,
in 1999. An increase of $3.9 million from sales of distributed product lines
acquired in 1998 and 1999 was offset by a decrease of $2.1 million of sales of
INTEGRA(R) Dermal Regeneration Template through Ethicon in 1999. The remainder
of the increase in 1999 relates to organic sales growth in existing product
lines. Excluding fair value inventory purchase accounting adjustments, which
reduced reported 1998 gross margins by 2 percentage points, adjusted gross
margins on Integra LifeSciences product sales decreased 1 percentage point to
48% in 1999. The decline in adjusted gross margins in 1999 was related to the
lower gross margins on sales of the INTEGRA(R) Dermal Regeneration Template
through Ethicon.
Other revenue, which decreased $0.6 million to $2.8 million in 1999,
consisted of $1.3 million of research and development funding from strategic
partners and government grants, $0.9 million of license, distribution and other
event-related revenues from strategic partners and other third parties, and $0.6
million of royalty income. In 1998, other revenue consisted of $1.5 million of
license, distribution and other event-related revenues from strategic partners
and other third parties, $1.6 million of research and development funding from
strategic partners and government grants, and $0.3 million of royalty income.
Research and development expenses were as follows (in thousands):
1999 1998
------- -------
Integra NeuroSciences .................................. $ 2,080 $ 945
Integra LifeSciences ................................... 6,813 7,479
------- -------
Total ............................................... $ 8,893 $ 8,424
Research and development expense in the Integra NeuroSciences segment
increased in 1999 primarily because of the NeuroCare Group of companies
acquisition. Integra NeuroSciences research and development activities in 1998
consisted of programs involving the DuraGen(R) product and the NeuraGen(TM)
Nerve Guide. Research and development activities within the Integra LifeSciences
segment decreased in 1999 primarily because of the elimination of several
non-core research programs throughout 1999.
Selling and marketing expenses were as follows (in thousands):
1999 1998
------- -------
Integra NeuroSciences .................................. $ 6,244 $ 628
Integra LifeSciences ................................... 3,243 5,273
------- -------
Total ............................................... $ 9,487 $ 5,901
Integra NeuroSciences selling and marketing expense increased in 1999
primarily because of the NeuroCare Group of companies acquisition. Additional
increases resulted from expenses related to the domestic and international
launch of the DuraGen(R) product in the third quarter of 1999. The decrease in
Integra LifeSciences selling and marketing expenses is primarily the result of
the transition of INTEGRA(R) Dermal Regeneration Template selling and marketing
activities to Ethicon, offset by a slight increase in sales and marketing costs
related to acquired product lines.
General and administrative expenses were as follows (in thousands):
27
1999 1998
------- -------
Integra NeuroSciences .................................. $ 4,726 $ 437
Integra LifeSciences ................................... 2,433 2,111
Corporate .............................................. 6,165 7,239
------- -------
Total ............................................... $13,324 $ 9,787
Integra NeuroSciences general and administrative expense increased in 1999
primarily because of the NeuroCare Group of companies acquisition. Included in
this amount is $1.0 million of severance costs associated with the closure of
the corporate headquarters of NeuroCare Group of companies in July 1999. General
and administrative expense in the Integra LifeSciences segment increased in 1999
primarily due to additional headcount. The decrease in corporate general and
administrative expenses in 1999 resulted primarily from decreased legal fees and
costs associated with maintenance of our intellectual property and the effects
of a $0.2 million asset impairment charge recorded in 1998, offset by increases
related to additional headcount.
Net interest income consisted of interest income of $1.0 million and
interest expense of $0.7 million in 1999. Interest income decreased in 1999
consistent with lower average cash and marketable securities balances during
1999.
Other income decreased in 1999 primarily because of a $0.6 million
favorable litigation settlement recorded in 1998.
INTERNATIONAL PRODUCT SALES AND OPERATIONS
In 2000, sales to customers outside the United States totaled $13.6
million, or 21% of consolidated product sales, of which approximately 50% were
to Europe. Of this amount, $3.2 million of these sales were generated in foreign
currencies from our subsidiary based in Andover, England, which was acquired in
April 2000. Our international sales and operations are subject to the risk of
foreign currency fluctuations, both in terms of exchange risk related to
transactions conducted in foreign currencies and the price of our products in
those markets for which sales are denominated in the U.S. dollar.
In 1999 and 1998, respectively, sales outside the United States totaled
$9.1 million and $2.3 million, respectively. All of these product sales were
generated from operations based in the United States and were denominated in
U.S. dollars.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, we had cash, cash equivalents and short-term investments
of approximately $19.4 million and $12.3 million in short and long-term debt.
To date, we have experienced significant cumulative operating losses.
Historically, we have funded our operations primarily through private and public
offerings of equity securities, product revenues, research and collaboration
funding, borrowings under a revolving credit line and cash acquired in
connection with business acquisitions and dispositions. Recently, however, we
have substantially reduced our cash burn rate and, in the first quarter of 2001,
generated positive operating cash flows of $4.5 million. Operating cash flows in
the first quarter of 2001 included a $2.2 million use of cash due to inventory
growth and a $1.9 million source of cash from a prepayment relating to the
second quarter of 2001 from our strategic alliance with Ethicon.
Our principal uses of funds during the first quarter of 2001 were $2.2
million of debt repayments and $0.4 million in purchases of property and
equipment. Principal sources of funds were $4.5 million of positive operating
cash flow, $0.8 million of proceeds from short-term borrowings, and $1.4 million
from the issuance of common stock.
Excluding the $13.5 million stock-based compensation charge, we would have
reported operating income of $1.8 million for the year ended December 31, 2000.
However, we did not generate positive operating cash flows in 2000 because of a
significant increase in working capital.
28
Our principal uses of funds during 2000 were $4.1 million for the
acquisition of CNS, $12.1 million for the acquisition of certain product lines
from NMT Medical, Inc., $3.3 million in purchases of property and equipment,
$2.3 million of term loan repayments, and $5.0 million used in operations.
Operating cash flow was negative in 2000 primarily because of increased
inventory to support the growth in the business, increased accounts receivable
balances generated from higher product sales, and an increase in demonstration
equipment and sample product provided to the significantly larger Integra
NeuroSciences sales force. In 1999, cash flow from operations was positive
primarily because of a $5.7 million increase in deferred revenues, most of which
was provided by cash received under the agreement with Ethicon.
In 2000, we raised $5.4 million from the sale of Series C Preferred Stock
and warrants to affiliates of Soros Private Equity Partners LLC, $5.0 million
from a private placement of common stock, $3.2 million from the issuance of
common stock through employee benefit plans, $3.1 million of proceeds from
short-term borrowings, and $1.6 million from the sale of product lines.
We maintain a term loan and revolving credit facility from Fleet Capital
Corporation, which is collateralized by all of the assets and ownership
interests of various of our subsidiaries including Integra NeuroCare LLC, and
NeuroCare Holding Corporation (the parent company of Integra NeuroCare LLC) has
guaranteed Integra NeuroCare LLC's obligations. Integra NeuroCare LLC is subject
to various financial and non-financial covenants under the revolving credit
facility with Fleet Capital Corporation, including significant restrictions on
its ability to transfer funds to us or our other subsidiaries and restrictions
on its ability to borrow more money. The financial covenants specify minimum
levels of interest and fixed charge coverage and net worth, and also specify
maximum levels of capital expenditures and total indebtedness to operating cash
flow, among others. While we anticipate that Integra NeuroCare LLC will be able
to satisfy the requirements of these financial covenants, we cannot insure that
Integra NeuroCare LLC will generate sufficient earnings before interest, taxes,
depreciation and amortization to meet the requirements of those covenants. The
term loan is subject to mandatory prepayment amounts if certain levels of cash
flow are achieved. In April 2001, Integra NeuroCare LLC prepaid approximately
$2.0 million in principal as a result of those provisions in addition to the
scheduled quarterly principal payment.
In January 2000, we issued a 5% $2.8 million promissory note to the seller
of the CNS business. The promissory note, which is payable in two principal
payments of $1.4 million each, plus accrued interest, is collateralized by
inventory, property and equipment of the CNS business and by a collateral
assignment of a $2.8 million promissory note from one of our subsidiaries. The
first principal payment, including accrued interest, was paid on January 16,
2001. The final payment is due in January 2002.
In the short-term, we believe that we have sufficient resources to fund our
operations. In the absence of a material acquisition or a material adverse
change in our business, we have the ability to fund our operations from our
existing capital resources and cash generated from the business for the
foreseeable future. However, in the longer-term, we cannot insure that we will
be able to generate sufficient revenues to sustain positive operating cash flows
or profitability or to find acceptable alternatives to finance future
acquisitions.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risks arising from an increase in interest rates
payable on the variable rate revolving credit facility with Fleet Capital
Corporation. For example, based on the remaining term loan and revolving credit
facility outstanding at March 31, 2001, an annual interest rate increase of 100
basis points would increase interest expense by approximately $110,000.
OTHER MATTERS
REDEMPTION OF SERIES B CONVERTIBLE PREFERRED STOCK
On May 4, 2001, we notified the holders of the 100,000 shares of Series B
Preferred of our intention to redeem these shares on June 29, 2001 for $12.3
million. The holders of the Series B Preferred had the right to convert their
shares into common stock prior to this redemption. As of June 26, 2001, all of
the holders of the Series B Preferred exercised this right to convert their
100,000 shares of Series B Preferred into 2,617,800 shares of common stock.
29
NET OPERATING LOSSES
At December 31, 2000, we had net operating loss carryforwards of
approximately $41.6 million and $18.2 million for federal and state income tax
purposes, respectively, to offset future taxable income, if any. The federal and
state net operating loss carryforwards expire through 2020 and 2007,
respectively.
At December 31, 2000, several of our subsidiaries had unused net operating
loss carryforwards and tax credit carryforwards arising from periods prior to
our ownership. Excluding our Telios Pharmaceuticals, Inc. subsidiary,
approximately $9 million of these net operating loss carryforwards for federal
income tax purposes expire between 2001 and 2005. Our Telios subsidiary has
approximately $84 million of net operating losses, which expire between 2002 and
2010. The amount of Telios' net operating loss that is available and our ability
to utilize this loss is dependent on the determined value of Telios at the date
of acquisition. We have a valuation allowance of $45 million recorded against
all deferred tax assets, including the net operating losses, due to the
uncertainty of realization. The Internal Revenue Code of 1986, as amended,
Section 382 and other provisions of the Internal Revenue Code and its applicable
regulations severely limits the timing and manner in which we may utilize these
acquired net operating losses in any year.
As of December 31, 2000, we had provided a $44.8 million valuation
allowance against our consolidated deferred tax asset due to the uncertainty of
its realization. Because we have generated taxable income during recent
quarters, management is continuing to reassess the potential realizability of
this asset through the generation of future taxable income. The recognition of
the deferred tax asset could affect our income tax provision in the near term.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999 (as amended in March 2000 and June 2000) the staff of the
Securities and Exchange Commission issued Staff Accounting Bulletin 101, Revenue
Recognition. As the result of the adoption of the Accounting Bulletin, we
recorded a $470,000 cumulative effect of an accounting change to defer a portion
of a non-refundable, up-front fee received and recorded in other revenue in
1998. The cumulative effect of this accounting change was measured and recorded
as of January 1, 2000.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities." Statement
No. 133, as amended by Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," requires companies to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
these instruments at fair value. Our adoption of Statement No. 133 as of January
1, 2001 did not have a material effect on our results of operations or financial
position during the first quarter of 2001.
30
BUSINESS
OVERVIEW
Integra develops, manufactures and markets medical devices, implants and
biomaterials. Our operations consist of:
o Integra NeuroSciences, which is a leading provider of implants,
devices, and monitors used in neurosurgery, neurotrauma, and
related critical care; and
o Integra LifeSciences, which develops and manufactures a variety
of medical products and devices, including products based on our
proprietary tissue regeneration technology which are used to
treat soft tissue and orthopedic conditions.
Integra NeuroSciences sells primarily through a direct sales organization, and
Integra LifeSciences sells primarily through strategic alliances and
distributors.
Integra was founded in 1989 and over the next decade built a product
portfolio based on absorbable collagen and a product development platform based
on technologies directed toward tissue regeneration. During 1999 and 2000, we
expanded into the neurosurgical market, an attractive niche, through
acquisitions and introductions of new products. Our 2000 revenues increased to
$71.6 million, compared to $42.9 million in 1999 and $17.6 million in 1998.
Revenues for the first quarter of 2001 increased $7.2 million, or 49%, over the
first quarter of 2000 to $21.7 million.
In 2000, we sold over 1,000 different products to over 2,000 hospitals and
other customers in more than 80 countries. We generate revenues from product
sales, strategic alliances and royalties and invested $7.5 million in research
and development relating to new products, including those using our
biomaterials, peptide chemistry and collagen engineering technologies.
Integra NeuroSciences accounted for 64% of total revenues in 2000 and 68%
of total revenues during the first three months of 2001. We market these
products to neurosurgeons and critical care units, which comprise a focused
group of hospital-based practitioners. As a result, we believe we are able to
access this market through a cost-effective sales and marketing infrastructure.
For the majority of the products we manufacture under Integra LifeSciences,
we partner with market leaders which we believe allows us to achieve our growth
objectives cost effectively while enabling us to focus our management efforts on
developing new products. These non-neurosurgical products address large, diverse
markets, and we believe that they can be more cost effectively promoted through
leveraging marketing partners than through developing a sales infrastructure
ourselves. Our strategic alliances include Ethicon; Sulzer Dental, a division of
Sulzer Medica Ltd.; the Genetics Institute division of American Home Products
Corporation; and Medtronic Sofamor Danek.
STRATEGY
Our goal is to become a leader in the development, manufacture and
marketing of medical devices, implants and biomaterials in the markets in which
we compete. Our products are principally used in the diagnosis and treatment of
neurosurgical, soft-tissue and orthopedic conditions and we intend to expand our
presence in those markets. Key elements of our strategy include the following:
EXPAND OUR NEUROSURGERY MARKET PRESENCE. Through acquisitions and internal
growth, we have rapidly grown Integra NeuroSciences into a leading provider of
products for the neurosurgery market. We believe there exists additional growth
potential in this market through:
o increasing market share of existing product lines;
o expanding our product portfolio through acquisitions; and
31
o continuing development and promotion of innovative products, such as
the DuraGen(R)Dural Graft Matrix.
CONTINUE TO DEVELOP NEW AND INNOVATIVE MEDICAL PRODUCTS. As evidenced by
our development of INTEGRA(R) Dermal Regeneration Template, Biomend(R),
Biomend(R) Extend and DuraGen(R), we have a leading proprietary absorbable
implant franchise. INTEGRA(R) Dermal Regeneration Template is a proprietary
absorbable matrix used to enable the human body to regenerate functional dermal
tissue. In 1999, we introduced our DuraGen(R) Dural Graft matrix to close brain
and spine membranes. We are currently developing a variety of innovative
neurosurgical and other medical products as well as seeking expanded
applications for our existing products.
CONTINUE TO FORM STRATEGIC ALLIANCES FOR INTEGRA LIFESCIENCES PRODUCTS. We
have collaborated with leading companies to develop and market the majority of
our non-neurosurgical product lines. These products address large and diverse
markets which we believe can be more cost effectively accessed through marketing
partners than through developing our own sales infrastructure. We have partnered
with Ethicon to market our INTEGRA(R) Dermal Regeneration Template and intend to
pursue additional strategic alliances selectively.
ADDITIONAL STRATEGIC ACQUISITIONS. Since March 1999 we have completed five
acquisitions in the neurosurgical market. We intend to seek additional
acquisitions in this market and in other niche medical technology markets
characterized by high margins, fragmented competition and focused target
customers.
PRODUCTS
We manufacture and market a broad range of medical products for the
diagnosis and treatment of spinal and cranial disorders, soft tissue repair and
orthopedic conditions. We are also actively engaged in a variety of research and
development programs relating to new products or product enhancements utilizing
our tissue regeneration technology. Our principal products and product lines are
summarized in the following table.
INTEGRA NEUROSCIENCES
PRODUCT LINES APPLICATION STATUS
------------- ----------- ------
NEURO INTENSIVE CARE UNIT
Camino(R) and Ventrix(R) fiber Access, drainage and continuous Marketed
optic-based intracranial monitoring of intracranial
monitoring systems, LICOX(R) pressure, oxygen and temperature
oxygen monitoring systems, following injury or neurosurgical
Clinical Neuro Systems(TM), procedures
Camino(R) and Heyer-Schulte(R)
drainage systems & cranial access
kits
NEURO OPERATING ROOM
Heyer-Schulte(R) neurosurgical Specifically designed for the Marketed
shunts management of hydrocephalus, a
chronic condition involving excess
cerebrospinal fluid in the brain
DuraGen(R) Dural Graft Matrix Graft to close brain and spine Marketed
(absorbable collagen-based) membrane
Selector(R) Integra Ultrasonic Use ultrasound to ablate cancer Marketed
Aspirator/ Dissectron(R) tumors
Ultrasonic Surgical Aspirator
Integra Coblation(R)(1) Uses bipolar electrosurgery to Marketed
Neurosurgical System ablate cancer tumors for
neurosurgical applications
Redmond(TM)-Ruggles(TM) Specialized surgical instruments Marketed
neurosurgical and spinal for use in brain or spinal surgery
instruments
Neuro Navigational(R) flexible For minimally invasive surgical Marketed
endoscopes for Neurosurgery access to the brain
NeuraGen(TM) Nerve Guide Repair of peripheral nerves Cleared
by FDA,
market
launch
planned
- --------
(1) Coblation is a registered trademark of Arthrocare Corporation.
32
INTEGRA LIFESCIENCES
MARKETING/
PRODUCT LINES APPLICATION STATUS DEVELOPMENT PARTNER
------------- ----------- ------ -------------------
PRIVATE LABEL PRODUCTS
INTEGRA(R)Dermal Regeneration Template Regenerate dermis and repair Marketed Ethicon, Inc., a division
skin defects of Johnson & Johnson, and
Century Medical, Inc. Japan
Dental Surgery Products
BioMend(R) and Biomend(R) Extend Used in guided tissue Marketed Sulzer Dental, a division
Absorbable Collagen Membrane regeneration in periodontal of Sulzer Medica Ltd.
surgery
CollaCote(R), CollaTape(R) and absorbable Used to control bleeding in Marketed Sulzer Dental CollaPlug(R)
wound dressings dental surgery
Infection Control Products
VitaCuff(R) Provides protection against Marketed Arrow International, Inc.,
infection arising from Bard Access Systems, Inc.,
long-term catheters Tyco International
BioPatch(R)(1) Anti-microbial wound dressing Marketed Ethicon, Inc.
Orthopedics
Absorbable Collagen Sponge for use Fracture management/enabling Development Genetics Institute division
with bone morphogenetic protein spinal fusion of American Home
(rhBMP-2) Products, Medtronic
Sofamor Danek
Tyrosine polycarbonates for fixation Fixation or alignment of Development Bionx Implants, Inc.
devices such as absorbable screws, fractures
plates, pins, wedges and nails
Articular cartilage repair Regeneration of joint cartilage Development None
DISTRIBUTED PRODUCTS
Helitene(R) and Helistat(R) absorbable Control of bleeding Marketed Various distributors
collagen hemostatic agents
Sundt(TM) and other hemodynamic Shunts Carotid endarterectomy shunts Marketed Various distributors
for shunting blood during
surgical procedures involving
blood vessels
Spembly Medical Cryosurgery products Allow surgeon to use low Marketed Various distributors
temperature to more easily
extract diseased tissue
- ----------
(1) Biopatch is a registered trademark of Johnson & Johnson.
33
INTEGRA NEUROSCIENCES
IN GENERAL
We manufacture and market a multi-line offering of innovative neurosurgical
devices used for brain and spine injuries. We intend to be the neurosurgeon's
and neuro-intensive care unit's "one-stop shop" for these products. For the
intensive care unit, we sell the Camino(R), Ventrix(R) and LICOX(R) lines of
intracranial pressure, temperature and oxygen-monitoring systems and external
drainage systems manufactured under the Camino(R), Heyer-Schulte(R) and Clinical
Neuro Systems(TM) brand names. For the operating room, we sell a wide range of
products, including Heyer-Schulte hydrocephalus management shunting products,
the DuraGen(R) Dural Graft Matrix, the Selector(R) Integra Ultrasonic Aspirator
and Dissectron(R) Ultrasonic Surgical Aspirator, Integra Coblation(R)
Neurosurgical Systems, Redmond(TM)-Ruggles(TM) neurosurgical instruments and
Neuro Navigational(R) endoscopes.
We sell our neurosurgical products in the United States through a direct
sales force organized into five regions, each with a manager. We employ 44
direct sales personnel called neurospecialists covering 44 territories. We also
employ seven clinical development specialists who directly educate and train
both the neurospecialists and our customers in the use of our products, and a
scientific director with a Ph.D in neurosciences. The sales organization has
more than doubled in size since the acquisition of the first neurosciences
business in early 1999. We believe this expansion allows for smaller, more
focused territories, greater participation in trade shows and more extensive
marketing efforts. We also sell directly in the United Kingdom and plan to sell
through a direct sales force in Germany and France. In the rest of the world, we
sell our products through approximately 80 specialized neurosurgical
distributors and dealers.
INDUSTRY
The neurosurgical device market consists of medical products, implants and
instruments used for the diagnosis, treatment and monitoring of chronic diseases
and acute injuries involving the brain and spinal chord. These products are
primarily used in the operating room and intensive care unit by neurosurgeons
and nurses. According to industry sources, the size of the market for our
products is approximately $400 million and is expected to grow at annual rate of
6-8%.
Integra NeuroSciences addresses the market need created by trauma cases,
cancer, hydrocephalus and other conditions of the brain and spine through its
established market positions in intracranial monitoring, neurosurgical shunting,
dural repair, tumor ablation and specialty neurosurgical instrumentation.
Intracranial monitors are used by neurosurgeons in diagnosing and treating
cases of severe head trauma and other diseases. Integra NeuroSciences currently
has more than 3,000 intracranial monitors installed worldwide. There are
approximately 400,000 cases of head trauma each year in the United State, of
which the portion that requires monitoring and intervention represents a market
of approximately $40 million.
Hydrocephalus is an incurable condition resulting from an imbalance between
the amount of cerebrospinal fluid produced by the body and the rate at which
cerebrospinal fluid is absorbed by the brain. This condition causes the
ventricles of the brain to enlarge and the pressure inside the head to increase.
Hydrocephalus often is present at birth, but may also result from head trauma,
spina bifida, intraventricular hemorrhage, intracranial tumors and cysts. The
most common method of treatment of hydrocephalus is the insertion of a shunt
into the ventricular system of the brain to divert the flow of cerebrospinal
fluid out of the brain. A pressure valve then maintains the cerebrospinal fluid
at normal levels within the ventricles.
According to the Hydrocephalus Association, hydrocephalus affects
approximately one in 500 children born in the United States. Approximately 80%
of total cerebrospinal fluid shunt sales address birth-related hydrocephalus
with the remaining 20% addressing surgical procedures involving excess
cerebrospinal fluid due to head trauma.
Based on industry sources, we believe that the total United States market
for hydrocephalus management, including monitoring, shunting and drainage, is
approximately $70 million. Of that amount, it is estimated that a little more
than half consists of sales of monitoring products, and the balance consists of
sales of shunts and drains for the management of hydrocephalus.
Our Selector(R) Integra Ultrasonic Aspirator, Dissectron(R) Ultrasonic
Surgical Aspirator and Integra Coblation(R) products address the market for the
surgical destruction and removal of malignant and non-malignant tumors and
34
other tissue. More than 110,000 metastatic brain tumors are diagnosed annually
in the United States. According to the American Cancer Society, brain tumors are
the second fastest growing cause of cancer death among people over 65 and are
among the most common types of cancer found in children.
Our DuraGen(R) Dural Graft Matrix product line addresses the market for
dural substitutes, including cranial and spinal procedures.
Integra NeuroSciences' Redmond(TM)-Ruggles(TM) line of neurosurgery and
spinal instrumentation products, including hand-held spinal and neurosurgery
instruments such as retractors, kerrisons, dissectors and curettes, addresses
the market for neurosurgical instruments.
Integra NeuroSciences' line of minimally invasive neuroendoscopy products
addresses a market growing, in part, because of the introduction of new
procedures called third ventriculostomies which are increasingly substituted for
shunt placement for patients who meet the criteria.
PRODUCTS
NEURO INTENSIVE CARE UNIT
THE MONITORING OF BRAIN PARAMETERS. Integra NeuroSciences sells the
Camino(R) and Ventrix(R) lines of intracranial pressure and temperature
monitoring systems, and the LICOX(R) Brain Tissue Oxygen Monitoring System. The
Camino(R) and Ventrix(R) systems measure the intracranial pressure and
temperature in the brain and ventricles, and the LICOX(R) system allows for
continuous qualitative regional monitoring of dissolved oxygen in cerebral
tissues. Core technologies in the brain parameter monitoring product line
include the design and manufacture of the disposable catheters used in the
monitoring systems, pressure transducer technology, optical detection/fiber
optic transmission technology, sensor characterization and calibration
technology and monitor design and manufacture.
EXTERNAL DRAINAGE SYSTEM PRODUCT LINE. Integra NeuroSciences' ventricular
and lumbar external drainage systems are manufactured under the Camino(R),
Heyer-Shulte(R) and Clinical Neuro Systems(TM) brand names. We manufacture the
drainage systems in both Anasco, Puerto Rico (for sale under the Camino(R) and
Heyer-Schulte(R) brand names) and in Exton, Pennsylvania (for sale under the
Clinical Neuro Systems(TM) brand name).
NEURO OPERATING ROOM
SHUNTS FOR HYDROCEPHALUS MANAGEMENT. Our line of shunting products for
hydrocephalus management includes the Novus(R), LPV(R) and Pudenz(TM) shunts,
ventricular, peritoneal and cardiac catheters, physician-specified hydrocephalus
management shunt kits, Ommaya(R) cerebrospinal fluid reservoirs and Spetzler(R)
lumbar and syringo-peritoneal shunts. Shunts are medical devices implanted in
the patient to drain excess cerebrospinal fluid from the ventricles of the brain
into the peritoneal cavity or externally.
DURAGEN(R) PRODUCT LINE. The DuraGen(R) Dural Graft Matrix is an absorbable
collagen matrix indicated for the repair of the dura mater. The dura mater is
the thick membrane that contains the cerebrospinal fluid within the brain and
the spine. The dura mater must be penetrated during brain surgery and is often
damaged during spinal surgery. In either case, surgeons often close or repair
the dura mater with a graft. The graft may consist of other tissue taken from
elsewhere in the patient's body, or it may be one of the dural substitute
products currently on the market which are made of synthetic materials,
processed human cadaver, or bovine pericardium. We believe that the other
methods for repairing the dura mater suffer from shortcomings addressed by the
DuraGen(R) Dural Graft Matrix.
Our DuraGen(R) product has been shown in clinical trials to be an effective
means for closing the dura mater without the need for suturing, which allows the
neurosurgeon to conclude the operation more efficiently. In addition, because
the DuraGen(R) product is ultimately absorbed by the body and replaced with new
natural tissue, the patient avoids some of the risks associated with a permanent
implant inside the cranium.
35
SELECTOR(R) INTEGRA ULTRASONIC ASPIRATOR. The Selector(R) Integra
Ultrasonic Aspirator uses very high frequency sound waves to pulverize cancer
tumors, and allows the surgeon to remove the damaged tumor tissue by aspiration.
Unlike other surgical techniques, ultrasonic surgery selectively dissects and
fragments soft tissue leaving fibrous tissues such as nerves and blood vessels
intact. Ultrasonic aspiration facilitates the removal of unwanted tissue
adjacent or attached to vital structures.
DISSECTRON(R) ULTRASONIC SURGICAL ASPIRATOR. The Dissectron(R) Ultrasonic
Surgical Aspirator system, acquired in April 2001, applies ultrasonic energy to
precisely fragment and emulsify soft tissue, which is subsequently aspirated,
while preserving major blood vessels, nerves and elastic fibers. The system has
been used internationally in a variety of surgical applications, including
neurosurgery.
INTEGRA COBLATION(R). Integra NeuroSciences is the exclusive sales and
distribution partner for ArthroCare Corporation's Coblation(R) based surgical
system for neurosurgery in North American and certain other international
markets. ArthroCare's Coblation(R) products allow surgeons to operate with a
high level of control, limiting damage to surrounding tissue and thereby
potentially reducing pain and speeding recovery for the patient. Coblation(R)
products, including the neurosurgery system that we distribute, operate at lower
temperatures than traditional electrosurgical or laser surgery tools and enable
surgeons to remove, shrink or sculpt soft tissue and to seal bleeding vessels.
ArthroCare's soft-tissue surgery systems consist of a controller unit and an
assortment of disposable devices that are specialized for specific types of
surgery. We are working with ArthroCare to develop handpieces and other
accessories particularly for the neurosurgical application.
REDMOND(TM)-RUGGLES(TM) PRODUCT LINE. We provide neurosurgeons and spine
surgeons with a full line of specialty hand-held spinal and neurosurgical
instruments sold under the Redmond(TM) and Ruggles(TM) brand names. These
products include retractors, kerrisons, dissectors and curettes. Major product
segments include spinal instruments, microsurgical neuro instruments, and
products customized by Integra NeuroSciences and sold through other companies
and distributors. Specialty surgical steel fabricators in Germany manufacture
most of these products to Integra's specifications.
NEURO NAVIGATIONAL(R) ENDOSCOPE PRODUCT LINE. We manufacture and sell
disposable and minimally invasive neuroendoscopy products under the Neuro
Navigational(R) brand name. These fiber optic instruments are used to facilitate
minimally invasive neurosurgery.
NEURAGEN(TM) NERVE GUIDE. We manufacture the NeuraGen(TM) Nerve Guide, an
absorbable implant for the repair of severed peripheral nerves in the
extremities. Peripheral nerves may become severed through traumatic accidents or
surgical injuries, often resulting in the permanent loss of motor and sensory
function. Although severed peripheral nerves regenerate spontaneously, they do
not establish functional connections unless the nerve stumps are surgically
reconnected. The NeuraGen(TM) product is an absorbable collagen tube designed to
provide a protective environment for the regenerating nerve and to provide a
conduit through which regenerating nerves can bridge the injury. The
NeuraGen(TM) Nerve Guide offers a rapid method for rejoining severed peripheral
nerves, in contrast to conventional microsurgical techniques.
In June 2001, we received Section 510(k) clearance from the FDA to market the
NeuraGen(TM) product and we plan to launch the product in the United States in
the fourth quarter of 2001.
INTEGRA LIFESCIENCES
IN GENERAL
The INTEGRA(R) LifeSciences Division develops and manufactures tissue
regeneration products and surgical products that are primarily sold outside of
neurosurgery and neurotrauma. Many of the current products of Integra
LifeSciences are built on our expertise in absorbable collagen products. Integra
LifeSciences's research and development programs are generally constructed
around strategic alliances with leading medical device companies.
36
PRODUCTS
PRIVATE LABEL PRODUCTS
INTEGRA(R) DERMAL REGENERATION TEMPLATE. INTEGRA(R) Dermal Regeneration
Template is designed to enable the human body to regenerate functional dermal
tissue. Human skin consists of the epidermis and the dermis. The epidermis is
the thin, outer layer that serves as a protective seal for the body, and the
dermis is the thicker layer underneath that provides structural strength and
flexibility and supports the viability of the epidermis through a vascular
network. The body normally responds to severe damage to the dermis by producing
scar tissue in the wound area. This scar tissue is accompanied by contraction
that pulls the edges of the wound closer which, while closing the wound, often
permanently reduces flexibility. In severe cases, this contraction leads to a
reduction in the range of motion for the patient, who subsequently requires
extensive physical rehabilitation or reconstructive surgery. Physicians treating
severe wounds, such as full-thickness burns, seek to minimize scarring and
contraction.
INTEGRA(R) Dermal Regeneration Template was designed to minimize scar
formation and wound contracture in full thickness skin defects. INTEGRA(R)
Dermal Regeneration Template consists of two layers, a thin
collagen-glycosaminoglycan sponge and a silicone membrane. The product is
applied with the sponge layer in contact with the excised wound. The sponge
material serves as a template for the growth of new functional dermal tissue.
The outer membrane layer acts as a temporary substitute for the epidermis to
control water vapor transmission, prevent re-injury and minimize bacterial
contamination.
INTEGRA(R) Dermal Regeneration Template was approved by the FDA under a
premarket approval application for the post-excisional treatment of
life-threatening full-thickness or deep partial-thickness thermal injury where
sufficient autograft is not available at the time of excision or not desirable
due to the physiological condition of the patient.
We estimate that the worldwide market for use of skin replacement products
(such as INTEGRA(R) Dermal Regeneration Template) in the treatment of severe
burns is approximately $75 million. However, the potential market for the use of
INTEGRA(R) Regeneration Template for reconstructive surgery and the treatment of
chronic wounds is much larger, which we estimate to be in excess of $1 billion.
In June 1999, Integra LifeSciences entered into a strategic alliance with
Ethicon to distribute INTEGRA(R) Dermal Regeneration Template throughout the
world, except in Japan. As part of that strategic alliance, Ethicon has agreed
to pay for clinical trials to support applications to the FDA for these broader
indications. We cannot be certain that these clinical trials will be completed,
or that INTEGRA(R) Dermal Regeneration Template will receive the approvals
necessary to permit Ethicon to promote it for those indications.
BIOMEND(R) ABSORBABLE COLLAGEN MEMBRANE. Our BioMend(R) Absorbable Collagen
Membrane is used for guided tissue regeneration in periodontal surgery. The
BioMend(R) membrane is inserted between the gum and the tooth after surgical
treatment of periodontal disease, preventing the gum tissue from interfering
with the regeneration of the periodontal ligament that holds the tooth in place.
The BioMend(R) product is intended to be absorbed after approximately four to
seven weeks, avoiding the requirement for additional surgical procedures to
remove a non-absorbable membrane. BioMend(R) Extend has the same indication for
use as BioMend(R), except that it absorbs in approximately 16 weeks. The
BioMend(R) and BioMend(R) Extend Absorbable Collagen Membrane is sold through
the Sulzer Dental division of Sulzer Medica.
COLLAGEN MATRICES FOR USE WITH BONE GROWTH FACTORS. We supply the Genetics
Institute division of American Home Products with absorbable collagen sponges
for use in developing bone regeneration implants. Since 1994, we have supplied
absorbable collagen sponges for use with Genetics Institute's recombinant human
bone morphogenic protein-2 (rhBMP-2). Recombinant human BMP-2 is a manufactured
version of human protein naturally present in very small quantities in the body.
Genetics Institute is developing recombinant human bone morphogenic protein-2
for clinical evaluation in several areas of bone repair and augmentation and, in
February 2001, filed a pre-market approval application with the FDA seeking
approval for the use of its recombinant human bone morphogenic protein-2 in
conjunction with our Absorbable Collagen Sponge for use in treatment of acute
long-bone fractures requiring open surgical management. Spine applications are
being developed through a related collaboration with Medtronic Sofamor Danek in
North America.
CARTILAGE REPAIR PROGRAM. Damaged articular cartilage, which connects the
skeletal joints, is associated with the onset of progressive pain, degeneration
and, ultimately, long-term osteoarthritis. Normal articular cartilage does
37
not effectively heal. The conventional procedure for treating traumatic damage
to cartilage involves smoothing damaged portions of the tissue and removing
free-floating material from the joint using arthroscopic surgery with the
objective of reducing pain and restoring mobility. However, this therapy does
not stop joint surface degeneration, often requires two or more surgeries and
results in the formation of fibrocartilage, which is rough and non-weight
bearing over prolonged periods. Moreover, the long-term result of this procedure
often is permanent reduction of joint mobility and an increased risk of
developing osteoarthritis.
We are developing our proprietary technology base toward an approach that
will support regeneration of the patient's own articular cartilage. This
technology will allow the patient's body to regenerate a smooth, weight-bearing
surface. Our objective in developing this cartilage-specific technology is to
produce a product that provides the proper matrix system to allow the natural
regeneration of the patient's cartilage, with full restoration of function and
diminished risk of osteoarthritis.
TYROSINE POLYCARBONATES FOR ORTHOPEDIC IMPLANTS. We are continuing to
develop additional biomaterial technologies that enhance the rate and quality of
healing and tissue regeneration with synthetic biodegradable scaffolds that
support cell attachment and growth. We are developing a new class of absorbable
polycarbonates created through the polymerization of tyrosine, a naturally
occurring amino acid. A well-defined and commercially scaleable manufacturing
process prepares these materials. Device fabrication by traditional techniques
such as compression molding and extrusion is readily achieved. We believe that
this new biomaterial will be useful in promoting full bone healing when
implanted in damaged sites. This material is currently being developed for
orthopedic and tissue engineering applications where strength and bone
compatibility are critical issues for success of healing. We have entered into
agreements to supply the material to Bionx Implants, Inc. for specified
orthopedic implants. No medical device containing the material has yet been
approved for sale.
OTHER SURGICAL PRODUCTS. Other current products of Integra LifeSciences
include the VitaCuff(R)catheter access infection control device (sold to Bard
Access Systems, Inc., Arrow International, Inc. and Tyco International Ltd.),
the BioPatch(R)anti-microbial wound dressing (sold to Ethicon), and a wide range
of absorbable collagen products for hemostasis (sold to Sulzer Dental for use in
periodontal surgery and other distributors under the Helistat(R)and
Helitene(R)Absorbable Collagen Hemostatic Agent names).
Our Sundt(TM) and other carotid endarterectomy shunts are used to divert
blood to vital organs (such as the brain) during carotid artery surgical
procedures.
Finally, our Spembly Medical cryosurgery products allow surgeons to use low
temperatures to more easily extract diseased tissue.
STRATEGIC ALLIANCES
We use distribution alliances to market the majority of our Integra
LifeSciences products. We have also entered into collaborative agreements
relating to research and development programs involving our technology. These
arrangements are described below.
ETHICON. In June 1999, we entered into a strategic alliance with Ethicon to
distribute INTEGRA(R) Dermal Regeneration Template throughout the world, except
in Japan. Ethicon is responsible for marketing and selling the product, has
agreed to make significant minimum product purchases, and will provide $2
million annual funding for research, development and certain clinical trials for
the first five years of the alliance and thereafter based on a percentage of net
sales. In addition, Ethicon is obligated to make contingent payments to Integra
LifeSciences in the event of certain clinical developments and to assist in the
expansion of our manufacturing capacity as Ethicon achieves certain sales
targets. The aggregate amount of available contingent payments, if all
conditions for each payment are satisfied, is $38 million. Of that amount, $25
million depends upon the achievement of specified sales targets and $13 million
depends upon the achievement of certain clinical and regulatory events, such as
regulatory submissions and approvals for new intended uses for INTEGRA(R) Dermal
Regeneration Template. To date, we have received $750,000 in clinical and
regulatory payments, and no payments for the expansion of manufacturing
capacity. Based upon current clinical and regulatory plans and our estimates of
future sales growth, we do not expect to receive more than $2 million of such
contingent payments from Ethicon before 2004. Under the agreement, we are
obligated to manufacture the product and are responsible for continued research
and development. The initial term of the agreement is ten years, and Ethicon may
at its option extend the agreement for an additional ten years. Ethicon may
terminate the agreement with notice prior to the end of the initial term by
giving notice one year in advance of termination. Depending upon the reasons for
any termination, Ethicon may be obligated to make significant payments to us.
38
CENTURY MEDICAL, INC. In 1997 and 1998, we signed exclusive importation and
sales agreements for INTEGRA(R) Dermal Regeneration Template DuraGen(R) Dural
Graft Matrix and the NeuraGen(TM) Nerve Guide in Japan with Century Medical
Inc., a subsidiary of ITOCHU Corporation. Under these agreements, Century
Medical, Inc. is conducting clinical trials at its own expense to obtain
Japanese regulatory approvals for the sale of INTEGRA(R) Dermal Regeneration
Template and the DuraGen(R) Dural Graft Matrix in Japan. The agreements with
Century Medical terminate seven years after we and Century Medical obtain
approval from Japanese regulators to sell the applicable product in Japan. We do
not receive any royalties under the agreement, but we did receive an initial
non-refundable payment of $1 million from Century Medical in 1998.
OTHER ORTHOPEDICS. In addition to the cartilage program, Integra
LifeSciences has several other programs oriented toward the orthopedic market.
These programs include an alliance with Genetics Institute for the development
of collagen matrices to be used in conjunction with Genetics Institute's
recombinant human bone morphogenetic protein-2. If approved, the protein is
expected to be used in conjunction with our matrices to regenerate bone.
Genetics Institute is developing products based on the protein for applications
in orthopedics, oral and maxillofacial surgery. Spine applications are being
developed through a related collaboration with Medtronic Sofamor Danek, which
has acquired the right to sell rhBMP-2 and our matrices in North America for
spinal applications from Genetics Institute. Our agreement with Genetics
Institute requires us to supply collagen matrices at specified prices. In
addition, we will receive a royalty equal to a percentage of Genetics
Institute's sales of surgical kits combining rhBMP-2 and our collagen matrices.
The agreement terminates in 2004, but may be extended for successive five year
terms at the option of Genetics Institute. The agreement does not provide for
milestones or other contingent payments, but Genetics Institute pays us to
assist with regulatory affairs and research.
In September 1998, we announced a strategic alliance with Bionx Implants,
Inc. for developing fixation devices using Integra's polymer technology. Under
the agreement with Bionx, Bionx has responsibility for clinical trials and any
necessary regulatory filings. Products covered under the agreement with Bionx
include an absorbable line of screws, plates, pins, wedges and nails used for
the fixation and/or alignment of fractures or osteotomies in all areas of the
musculoskeletal system except in the spine and cranium. The initial term of our
agreement with Bionx extends until 2013, but it may be terminated earlier by
either company under various circumstances. We do not expect to receive
contingent payments under the agreement, but if absorbable devices are
commercialized we will sell raw polymer to Bionx at a specified price, plus a
percentage of Bionx net sales of products made from the polymer.
SULZER DENTAL. Sulzer Medica Ltd.'s dental division, Sulzer Dental, has
marketed and sold BioMend(R) since 1995, BioMend(R) Extend since 1999 and
CollaCote(R), CollaPlug(R) and CollaTape(R) since 1992. under a distribution
agreement. Under the agreement, Sulzer Dental purchases products for the dental
market from us at specified prices and in minimum quantities. The initial term
of our agreement with Sulzer Dental ends at the end of 2004, and the agreement
may be extended at the option of Sulzer Dental for an additional five years.
RESEARCH STRATEGY
We have either acquired or secured the proprietary rights to several
important technological and scientific platforms, including collagen matrix
technology, peptide technology, biomaterials technology, and expertise in fiber
optics. These technologies provide support for our critical applications in
neurosciences and tissue regeneration, and additional opportunities for
generating near-term and long-term revenues from medical applications. We have
been able to identify and bring together critical platform technology components
from which we work to develop solutions for both tissue regeneration and
neurosciences. These efforts have led to the successful development of new
products, such as the DuraGen(R) product.
We spent approximately $2.1 million for the three months ended March 31,
2001 and $7.5 million, $8.9 million, and $8.4 million during fiscal years 2000,
1999, and 1998, respectively, on research and development activities. Research
and development activities funded by government grants and contract development
revenues amounted to $0.9 million for the three months ended March 31, 2001, and
$2.8 million, $1.6 million and $1.8 million during fiscal years 2000, 1999, and
1998, respectively.
GOVERNMENT REGULATION
As a manufacturer of medical devices, we are subject to extensive
regulation by the FDA and, in some jurisdictions, by state and foreign
governmental authorities. These regulations govern the introduction of new
medical devices, the observance of certain standards with respect to the design,
manufacture, testing, labeling and promotion of the devices, the maintenance of
certain records, the ability to track devices, the reporting of potential
product defects, the export of devices and other matters. We believe that we are
in substantial compliance with these governmental regulations.
From time to time, we have recalled certain of our products. Since the
beginning of 1998, we have voluntarily recalled products, and we have never
involuntarily recalled a product. We have recalled defective components or
devices supplied by other vendors, kits assembled by us that included incorrect
combinations of products and defective devices manufactured by us. None of these
recalls resulted in significant direct expense to us or significant disruption
of customer or supplier relationships. However, a future voluntary or
involuntary recall of one of our major products, particularly if it involved a
potential or actual risk to patients, would have an adverse financial impact on
us, as a result both of direct expenses and disrupted customer relationships.
39
Our medical devices introduced in the United States market are required by
the FDA, as a condition of marketing, to secure a Premarket Notification
clearance pursuant to Section 510(k) of the Federal Food, Drug and Cosmetic Act,
an approved Premarket Approval application or a supplemental pre-market approval
application. Alternatively, we may seek United States market clearance through a
Product Development Protocol approved by the FDA. Establishing and completing a
Product Development Protocol, or obtaining a pre-market approval application or
supplemental pre-market approval application, can take up to several years and
can involve preclinical studies and clinical testing. In order to perform
clinical testing in the United States on an unapproved product, we are also
required to obtain an Investigational Device Exemption from the FDA. In addition
to requiring clearance for new products, FDA rules may require a filing and FDA
approval, usually through a pre-market approval application supplement or a
510(k) Premarket Notification clearance, prior to marketing products that are
modifications of existing products or new indications for existing products.
While the FDA Modernization Act of 1997, when fully implemented, is expected to
inject more predictability into the product review process, streamline
post-market surveillance, and promote the global harmonization of regulatory
procedures, the process of obtaining the clearances can be onerous and costly.
We cannot assure that all the necessary approvals, including approval for
product improvements and new products, will be granted on a timely basis, if at
all. Delays in receipt of, or failure to receive, the approvals could have a
material adverse effect on our business. Moreover, after clearance is given, if
the product is shown to be hazardous or defective, the FDA and foreign
regulatory agencies have the power to withdraw the clearance or require us to
change the device, its manufacturing process or its labeling, to supply
additional proof of its safety and effectiveness or to recall, repair, replace
or refund the cost of the medical device. In addition, federal, state and
foreign regulations regarding the manufacture and sale of medical devices are
subject to future changes. We cannot predict what impact, if any, these changes
might have on its business. However, the changes could have a material impact on
our business.
We have received or acquired 128 premarket notification clearances, four
approved pre-market approval applications and 42 supplemental premarket approval
applications. We have one premarket notification application pending, but expect
to file new applications during the next year to cover new products and
variations on existing products. We have several supplemental premarket approval
applications pending, in each case for a modification to the labeling of an
existing product. The most significant of these supplemental applications
propose changes in the approved uses for the INTEGRA(R) Dermal Regeneration
Template.
We are also required to register with the FDA as a device manufacturer. As
such, we are subject to periodic inspection by the FDA for compliance with the
FDA's quality systems. These regulations require that we manufacture our
products and maintain our documents in a prescribed manner with respect to
design, manufacturing, testing and control activities. Further, we are required
to comply with various FDA requirements for labeling and promotion. The Medical
Device Reporting regulations require that we provide information to the FDA
whenever there is evidence to reasonably suggest that one of our devices may
have caused or contributed to a death or serious injury or, if a malfunction
were to recur, could cause or contribute to a death or serious injury. In
addition, the FDA prohibits us from promoting a medical device before marketing
clearance has been received or promoting an approved device for unapproved
indications. If the FDA believes that a company is not in compliance with
applicable regulations, it can institute proceedings to detain or seize
products, issue a warning letter, issue a recall order, impose operating
restrictions, enjoin future violations and assess civil penalties against us,
its officers or its employees and can recommend criminal prosecution to the
Department of Justice. These actions could have a material impact on our
business. Other regulatory agencies may have similar powers.
Medical device laws are also in effect in many of the countries outside the
United States in which we do business. These laws range from comprehensive
device approval and quality system requirements for some or all of the our
medical device products to simpler requests for product data or certifications.
The number and scope of these requirements are increasing. In June 1998, the
European Union Medical Device Directive became effective, and all medical
devices must meet the Medical Device Directive standards and receive CE mark
certification. CE Mark certification involves a comprehensive Quality System
program, and submission of data on a product to the Notified Body in Europe. The
Medical Device Directive, the ISO 9000 series of standards, and EN46001 are
recognized international quality standards that are designed to ensure we
develop and manufacture quality medical devices. Each of our facilities is
audited on an annual basis by a recognized Notified Body to verify our
compliance with
40
these standards. In 2000, each of our facilities was audited and we have
maintained our certification to these standards.
In addition, we are required to notify the FDA if we export medical devices
manufactured in the United States that have not been approved by the FDA for
distribution in the United States. We are also required to maintain certain
records relating to exports and make the records available to the FDA for
inspection, if required. We do not currently export medical devices manufactured
in the United States that have not been approved by the FDA, although we have in
the past.
OTHER UNITED STATES REGULATORY REQUIREMENTS
In addition to the regulatory framework for product approvals, we are and
may be subject to regulation under federal and state laws, including
requirements regarding occupational health and safety; laboratory practices; and
the use, handling and disposal of toxic or hazardous substances. We may also be
subject to other present and possible future local, state, federal and foreign
regulations.
Our research, development and manufacturing processes involve the
controlled use of certain hazardous materials. We are subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of these materials and certain waste products. Although we believe
that our safety procedures for handling and disposing of these materials comply
with the standards prescribed by the controlling laws and regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of this type of an accident, we could be held liable
for any damages that result and any liability could exceed our resources.
Although we believe that we are in compliance in all material respects with
applicable environmental laws and regulations, we cannot guarantee that we will
not incur significant costs to comply with environmental laws and regulations in
the future, nor that our operations, business or assets will not be materially
adversely affected by current or future environmental laws or regulations.
PATENTS AND INTELLECTUAL PROPERTY
We pursue a policy of seeking patent protection of our technology, products
and product improvements both in the United States and in selected foreign
countries. When determined appropriate, we have enforced and plan to continue to
enforce and defend our patent rights. In general, however, we do not rely on our
patent estate to provide us with any significant competitive advantages. We rely
upon trade secrets and continuing technological innovations to develop and
maintain our competitive position. In an effort to protect our trade secrets, we
have a policy of requiring our employees, consultants and advisors to execute
proprietary information and invention assignment agreements upon commencement of
employment or consulting relationships with us. These agreements provide that
all confidential information developed or made known to the individual during
the course of their relationship with us must be kept confidential, except in
specified circumstances.
BioMend(R), Camino(R), Clinical Neuro Systems(TM), CollaCote(R),
CollaPlug(R), CollaStat(TM), CollaTape(R), Dissectron(R), DuraGen(R),
Helistat(R), Extend(TM), Helitene(R), Heyer-Schulte(R), INTEGRA(R) Dermal
Regeneration Template, LICOX(R), NeuraGen(TM), Neuro Navigational(R), Novus(R),
LPV(R), Ommaya(R), Pudenz(TM), Redmond(TM), Ruggles(TM), Selector(R),
Spetzler(R), Sundt(TM), Ventrix(R), VitaCuff(R) are some of the trademarks of
Integra and its Subsidiaries. All other brand names, trademarks and service
marks appearing in this prospectus are the property of their respective holders.
COMPETITION
The largest competitors of Integra NeuroSciences in the neurosurgery
markets are the PS Medical division of Medtronic, Inc., the Codman division of
Johnson & Johnson, the Valleylab and Radionics divisions of Tyco International
Ltd., and NMT Neurosciences, a division of NMT Medical, Inc. In addition,
various of the Integra NeuroSciences product lines compete with smaller
specialized companies or larger companies that do not otherwise focus on
neurosurgery. The products of Integra LifeSciences face diverse and broad
competition, depending on the market addressed by the product. In addition,
certain companies are known to be competing particularly in the area of skin
substitution or regeneration, including Organogenesis and Advanced Tissue
Sciences. Finally, in certain
41
cases competition consists primarily of current medical practice, rather than
any particular product (such as autograft tissue as a substitute for
INTEGRA(R)-Dermal Regeneration Template). Depending on the product line, we
compete on the basis of our products' features, strength of our sales
organization or marketing partner, sophistication of our technology, and cost
effectiveness of our solution to the customer's medical requirements.
FACILITIES
Our principal executive offices are located in Plainsboro, New Jersey.
Principal manufacturing and research facilities are located in Plainsboro, New
Jersey, San Diego, California, Anasco, Puerto Rico, Andover, England and
Mielkendorf, Germany, and we have a national distribution center in Cranbury,
New Jersey. In addition, we lease several smaller facilities to support
additional administrative, assembly, and storage operations. Our total office
manufacturing and research space approximates 180,000 square feet with lease
payments of approximately $125,000 per month. Our Integra LifeSciences products
are manufactured in Plainsboro, Anasco and Andover and distributed through the
national distribution center and the Andover facility. Our Integra NeuroSciences
products are manufactured in the Plainsboro, San Diego, Andover, Mielkendorf,
and Anasco facilities and are distributed through the national distribution
center and the Andover facility. All of our facilities are leased.
All of our manufacturing and distribution facilities are registered with
the FDA. Our facilities are subject to FDA inspection to assure compliance with
quality requirements requirements. We believe that our manufacturing facilities
are in substantial compliance with quality requirements, suitable for their
intended purposes and have capacities adequate for current and projected needs
for existing products. Some capacity of the plants is being converted, with any
needed modification, to meet the current and projected requirements of existing
and future products.
EMPLOYEES
At July 9, 2001, we had approximately 550 permanent employees engaged in
production and production support (including warehouse, engineering, and
facilities personnel), quality assurance/quality control, research and
development, regulatory and clinical affairs, sales/marketing and administration
and finance. None of our current employees are subject to a collective
bargaining agreement.
LEGAL PROCEEDINGS
In July 1996, we filed a patent infringement lawsuit in the United States
District Court for the Southern District of California against Merck KGaA, a
German corporation, Scripps Research Institute, a California nonprofit
corporation, and David A. Cheresh, Ph.D., a research scientist with Scripps,
seeking damages and injunctive relief. The complaint charged, among other
things, that the defendant Merck KGaA willfully and deliberately induced, and
continues to willfully and deliberately induce, defendants Scripps Research
Institute and Dr. David A. Cheresh to infringe certain of our patents. These
patents are part of a group of patents granted to The Burnham Institute and
licensed by us that are based on the interaction between a family of cell
surface proteins called integrins and the arginine-glycine-aspartic acid peptide
sequence found in many extracellular matrix proteins. The defendants filed a
countersuit asking for an award of defendants' reasonable attorney fees. This
case went to trial in February 2000, and on March 17, 2000, a jury returned a
unanimous verdict for us finding that Merck KGaA had infringed and induced the
infringement of our patents, and awarded $15,000,000 in damages. On September
29, 2000, the United States District Court for the Southern District of
California entered judgment in our favor and against Merck KGaA in the case. In
entering the judgment, the court also granted us pre-judgment interest of
approximately $1,350,000, bringing the total amount to approximately
$16,350,000, plus post-judgment interest. Various post-trial motions are
pending, including a request by Merck KGaA for a judgment as a matter of law
notwithstanding the verdict, which could have the effect of reducing the
judgment or reversing the verdict of the jury. In addition, if we win these
post-trial motions, we expect Merck KGaA to appeal various decisions of the
Court. No amounts for this favorable verdict have been reflected in our
financial statements.
We are also subject to other claims and lawsuits in the ordinary course of
our business, including claims by employees and with respect to our products. In
the opinion of management, the other claims are either adequately covered by
insurance or otherwise indemnified, and are not expected, individually or in the
aggregate, to result in a material adverse effect on our financial condition.
Our financial statements do not reflect any material amounts related to possible
unfavorable outcomes of the matters above or others. However, it is possible
that these
42
contingencies could materially affect our results of operations, financial
position and cash flows in a particular period.
43
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to our executive
officers and directors as of the date of this prospectus.
NAME AGE POSITION
- ------------------------------- --- ----------------------------------------
Stuart M. Essig, Ph.D 39 President, Chief Executive Officer
and Director
George W. McKinney, III, Ph.D 57 Executive Vice President, Chief
Operating Officer, Director
John B. Henneman, III 39 Senior Vice President, Chief
Administrative Officer and Secretary
Judith E. O'Grady 50 Senior Vice President, Regulatory,
Quality Assurance and Clinical Affairs
Michael D. Pierschbacher, Ph.D 49 Senior Vice President Research and
Development, Director of the Corporate
Research Center
David B. Holtz 34 Senior Vice President, Finance
and Treasurer
Richard E. Caruso, Ph.D 57 Director and Chairman of the Board
of Directors
James M. Sullivan 57 Director
Keith Bradley, Ph.D 56 Director
Neal Moszkowski 35 Director
STUART M. ESSIG, PH.D. has served as President and Chief Executive Officer
and a director of Integra since December 1997. Before joining Integra, Mr. Essig
supervised the medical technology practice at Goldman, Sachs & Co. as a managing
director. Mr. Essig had ten years of broad health care experience at Goldman
Sachs serving as a senior merger and acquisitions advisor to a broad range of
domestic and international medical technology, pharmaceutical and biotechnology
clients. Mr. Essig received an A.B. degree from the Woodrow Wilson School of
Public and International Affairs at Princeton University and an MBA and a Ph.D.
degree in Financial Economics from the University of Chicago, Graduate School of
Business. Mr. Essig also serves on the Board of Directors of Vital Signs
Incorporated and St. Jude Medical Corporation.
GEORGE W. MCKINNEY, III, PH.D. has served Integra as Executive Vice
President and Chief Operating Officer since May 1997 and as a member of the
Board of Directors since December 1992. Between 1997 and 1999 Dr. McKinney also
served as Vice Chairman. Between 1990 and 1997, Dr. McKinney was Managing
Director of Beacon Venture Management Corporation, a venture capital firm.
Between 1992 and 1997, Dr. McKinney also served as President and Chief Executive
Officer of Gel Sciences, Inc. and GelMed, Inc., a privately held specialty
materials firm with development programs in both the industrial and medical
products fields. Before 1990, Dr. McKinney held other positions in the venture
capital industry, was President and Chief Executive Officer of American
Superconductor, Inc., and served in various manufacturing, engineering and
financial positions at Corning, Inc. Dr. McKinney holds a B.S. in Management
from MIT and a Ph.D. in Strategic Planning from Stanford University School of
Business. Dr. McKinney announced that he will step down as Executive Vice
President and Chief Operating Officer when his employment agreement expires on
December 31, 2001. Dr. McKinney plans to be available as a consultant to us
through June 30, 2002.
JOHN B. HENNEMAN, III is Integra's Senior Vice President, Chief
Administrative Officer and Secretary, and is responsible for the law department,
business development, human resources and investor relations. Mr. Henneman was
our General Counsel from September 1998 until September 2000. Prior to joining
Integra in August 1998, Mr. Henneman served Neuromedical Systems, Inc., a public
company developer and manufacturer of in vitro diagnostic equipment, in various
capacities for more than four years. From 1994 until June 1997, Mr. Henneman was
Vice President of Corporate Development, General Counsel and Secretary. From
June 1997 through November 1997, he served in the additional capacity of interim
Co-Chief Executive Officer and from December 1997 to August 1998 Mr. Henneman
was Executive Vice President, US Operations, and Chief Legal Officer. In March
1999, Neuromedical Systems, Inc. filed a petition under Chapter 11 of the
federal bankruptcy laws. Mr. Henneman practiced law in the Corporate Department
of Latham & Watkins (Chicago, Illinois) from 1986 to 1994. Mr.
44
Henneman received his A.B. (Politics) from Princeton University in 1983, and his
J.D. from the University of Michigan Law School in 1986.
JUDITH E. O'GRADY, Senior Vice President of Regulatory Affairs, Quality
Assurance and Clinical Research, has served Integra since 1985. Ms. O'Grady has
worked in the areas of medical devices and collagen technology for over 20
years. Prior to joining Integra, Ms. O'Grady worked for Colla-Tec, Inc., a
Marion Merrell Dow Company. During her career she has held positions with
Surgikos, a Johnson & Johnson company, and was on the faculty of Boston
University College of Nursing and Medical School. Ms. O'Grady led the team that
obtained the FDA approval for INTEGRA(R)Dermal Regeneration Template, the first
regenerative product approved by the FDA, and has led teams responsible for more
than 100 510(K) clearances. She received her BS degree from Marquette University
and MSN in Nursing from Boston University.
MICHAEL D. PIERSCHBACHER, PH.D. joined Integra in October 1995 as Senior
Vice President, Research and Development. In May 1998 he was named Senior Vice
President and Director of the Corporate Research Center. From June 1987 to
September 1995, Dr. Pierschbacher served as Senior Vice President and Scientific
Director of Telios Pharmaceuticals, Inc., which was acquired by us in connection
with the reorganization of Telios under Chapter 11 of the federal bankruptcy
code. He was a co-founder of Telios in May 1987 and is the co-discoverer and
developer of Telios' matrix peptide technology. Before joining Telios as a
full-time employee in October 1988, he was a staff scientist at the Burnham
Institute for five years and remained on staff there in an adjunct capacity
until the end of 1997. He received his post-doctoral training at Scripps
Clinical and Research Foundation and at the Burnham Institute. Dr. Pierschbacher
received his Ph.D. in Biochemistry from the University of Missouri.
DAVID B. HOLTZ joined Integra as Controller in 1993 and has served as Vice
President, Finance and Treasurer since March 1997 and was promoted to Senior
Vice President, Finance and Treasurer in February 2001. His responsibilities
include managing all accounting and information systems functions. Before
joining Integra, Mr. Holtz was an associate with Coopers & Lybrand, L.L.P. in
Philadelphia and Cono Leasing Corporation, a private leasing company. He
received a BS degree in Business Administration from Susquehanna University in
1989 and has been certified as a public accountant.
RICHARD E. CARUSO, PH.D. has served as Integra's Chairman since March 1992.
Prior to December 1997, Dr. Caruso served as Integra's Chief Executive Officer
since March 1992 and as President since September 1995. From 1969 to 1992, Dr.
Caruso was a principal of LFC Financial Corporation, a project finance company,
where he was also a director and Executive Vice President. He has 25 years
experience in finance and entrepreneurial ventures. Dr. Caruso is on the Board
of Susquehanna University, The Baum School of Art and The Uncommon Individual
Foundation (Founder). He received a B.S. degree from Susquehanna University, and
M.S.B.A. degree from Bucknell University and a Ph.D degree from the London
School of Economics, University of London (United Kingdom).
JAMES M. SULLIVAN has been a director since 1992. Since 1986, he has held
several positions with Marriott International, Inc. (and its predecessor,
Marriott Corp.), including Vice President of Mergers and Acquisitions, and his
current position of Executive Vice President of Development for the Lodging
Group of Marriott. From 1983 to 1986, Mr. Sullivan was Chairman, President and
Chief Executive Officer of Tenly Enterprises, Inc., a privately held company
operating 105 restaurants. Prior to 1983, he held senior management positions
with Marriott Corp., Harrah's Entertainment, Inc., Holiday Inns, Inc., Kentucky
Fried Chicken Corp. and Heublein, Inc. He also was employed as a senior auditor
with Arthur Andersen & Co. and currently serves as a director of Global Vacation
Group, Inc. Mr. Sullivan received a B.S. degree in Accounting from Boston
College and an M.B.A. degree from the University of Connecticut.
KEITH BRADLEY, PH.D. has been a director since 1992. He is the Professor of
Management at The City University Business School, London, England, and a
Director of Ockham Holdings plc, a London Stock Exchange corporation. Dr.
Bradley was the founder and formerly Executive Director of the London School of
Business Performance Group, an interdisciplinary research institute which
specializes in organizational performance. He has extensive experience as a
consultant to a variety of business, government and international organizations
and has published widely on management and industrial policy. Dr. Bradley has
served as Visiting Professor at Harvard Business School, the UCLA Graduate
School of Management and the Wharton School of the University of Pennsylvania.
Dr.
45
Bradley received a Diploma in Education from Culham College and a Ph.D. degree
in Economics from the University of Essex.
NEAL MOSZKOWSKI has been a director since March 29, 1999 and is the
designee of the holders of our Series B and Series C Preferred Stock. Mr.
Moszkowski has been a partner of Soros Private Equity Partners LLC since August
1998 and is currently an employee of Soros Private Funds Management LLC. Prior
thereto, Mr. Moszkowski was an Executive Director of Goldman Sachs International
and a Vice President of Goldman, Sachs & Co. in its Principal Investment Area,
which he joined in August 1993. He received a B.A. degree from Amherst College
and an M.B.A. degree from Stanford University. Mr. Moszkowski also serves as a
director of Bluefly, Inc. and MedicaLogic/Medscape, Inc.
----------------------------
Our executive officers serve at the discretion of the Board of Directors.
The only family relationship between any of our executive officers and directors
is that Mr. Holtz is the nephew of Dr. Caruso.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock and Preferred Stock as of May 18, 2001, as adjusted to
give pro forma effect to the conversion of the Series B Preferred into common
stock on June 28, 2001 by: (a) each person or entity known to Integra to own
beneficially five percent or more of the outstanding shares of Common Stock or
Preferred Stock, based upon our records or Commission records; (b) each of our
directors; (c) each of the Named Officers; and (d) all executive officers and
directors of Integra as a group. Each share of Series B Preferred Stock was
convertible at the discretion of the holder into 26.178 shares of Common Stock,
and each share of Series C Preferred Stock is currently convertible at the
discretion of the holder into 11.111 shares of Common Stock in each case subject
to certain adjustments. Except as otherwise indicated, each person has sole
voting power and sole investment power with respect to all shares beneficially
owned by that person. On May 4, 2001, we notified the holders of the Series B
Preferred of its intention to redeem these shares on June 29, 2001 for $12.3
million. The holders of the Series B Preferred had the right to convert their
shares into common stock prior to this redemption. As of June 28, 2001, all of
the holders of the Series B Preferred exercised this right to convert their
100,000 shares of Series B Preferred into 2,617,800 shares of common stock.
SERIES C
COMMON STOCK PREFERRED
----------------------- ----------------
NAME OF BENEFICIAL OWNER SHARES(1) PERCENT SHARES PERCENT
- ----------------------------------- ------------- ------- ------ -------
Richard E. Caruso, Ph.D. 7,219,418(2) 40.1%
Trust Partnership 7,179,205(3) 39.9%
Frances C. Holtz 7,179,205(4) 39.9%
Quantum Industrial Partners LDC 2,955,000(5) 14.2% 48,699 90.2%
The Dow Chemical Company 1,575,280(6) 8.8%
State of Wisconsin Investment Board 1,338,979(7) 7.4%
Elan Corporation, plc 1,100,000(8) 6.1%
SFM Domestic Investments LLC 802,800(9) 4.3% 5,301 9.8%
Stuart M. Essig, Ph.D. 535,221(10) 2.9%
John B. Henneman, III 119,741(11) *
George W. McKinney, III, Ph.D. 100,367(12) *
Judith O'Grady 59,453(13) *
Michael D. Pierschbacher, Ph.D. 57,884(14) *
James M. Sullivan 29,041(15) *
Neal Moszkowski 20,000(16) *
Keith Bradley, Ph.D. 500(17) *
All directors and executive
officers as a group (10 persons) 8,175,489(18) 43.3%
- ----------
* Less than one percent (1%).
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual to acquire them within 60 days upon the exercise of an
option or other convertible security are treated as outstanding for
purposes of determining beneficial ownership and the percentage
beneficially owned by the individual.
46
(2) Includes the 7,179,205 shares held by Trust Partnership, a Pennsylvania
general partnership of which Dr. Caruso is a partner and the President
(also see Note 3 below). Also includes 23,338 shares held by Provco Leasing
Corporation of which Dr. Caruso is President. Provco is a wholly-owned
subsidiary of Cono Industries, a corporation whose stockholders are trusts
whose beneficiaries include Dr. Caruso's children. Also includes 16,875
shares issuable upon exercise of the vested portion of options held by Dr.
Caruso. Dr. Caruso's address is 919 Conestoga Road, Building 2, Suite 106
Rosemont, Pennsylvania 19010.
(3) The partners of Trust Partnership are Pagliacci Trust, Rigoletto Trust,
Trust for Jonathan Henry Caruso, Trust for Peter James Caruso (the
beneficiaries of all those trusts being Dr. Caruso's children), Dr. Caruso
and Provco, each of which may be deemed to beneficially own the shares held
by Trust Partnership; however, the partners of Trust Partnership disclaim
beneficial ownership of all the shares except to the extent represented by
their respective equity and profit participation interests in Trust
Partnership. The Trust Partnership's address is c/o Richard E. Caruso,
Ph.D., 919 Conestoga Road, Building 2, Suite 106 Rosemont, Pennsylvania
19010.
(4) Frances C. Holtz is a trustee of the trusts referenced in footnote (3)
trusts, which collectively have a controlling interest in Trust
Partnership. As such, Ms. Holtz may be deemed to beneficially own the
shares held by Trust Partnership; however, Ms. Holtz disclaims beneficial
ownership of all those shares. Ms. Holtz's address is 8111 Marshall Avenue,
Margate, New Jersey 08402.
(5) Includes (i) 1,963,350 shares of common stock issued upon conversion of
75,000 shares of Series B Preferred Stock held by Quantum Industrial
Partners LDC as of June 28, 2001; (ii) 541,100 shares of Common Stock
issuable upon conversion of 48,699 shares of Series C Preferred Stock held
by Quantum Industrial Partners; and (iii) 270,550 shares of Common Stock
issuable upon exercise of warrants held by Quantum Industrial Partners. The
principal address of Quantum Industrial Partners is at Kaya Flamboyan 9,
Willemsted, Curacao, Netherlands Antilles. QIH Management Investor, L.P. is
vested (pursuant to constituent documents of Quantum Industrial Partners)
with investment discretion with respect to the portfolio assets held for
the account of Quantum Industrial Partners. Pursuant to an agreement
between George Soros and Soros Fund Management LLC, Mr. Soros has agreed to
use his best efforts to cause QIH Management, Inc., as the sole general
partner of QIH Management Investor, L.P., to act at the discretion of Soros
Fund Management. Mr. Soros is the Chairman of Soros Fund Management. Each
of QIH Management Investor, L.P., QIH Management, Inc., Soros Fund
Managment and Mr. Soros may be deemed the beneficial owner of the Quantum
Industrial Partners Shares. Each has their principal business office at 888
Seventh Avenue, 33rd Floor, New York, New York 10106.
(6) The address of The Dow Chemical Company is 2030 Dow Center Office E115,
Midland, Michigan 48674.
(7) The address of the State of Wisconsin Investment Board is 121 East Wilson
Street, Madison, Wisconsin 53702.
(8) Consists of 1,100,000 shares held by Carnrick Laboratories, Inc.. Carnrick
is a wholly-owned subsidiary of Athena Neurosciences, Inc., which is a
wholly-owned subsidiary of Elan Corporation, plc, each of which may be
deemed the beneficial owner of the shares owned by Carnrick. The address
for each of the foregoing companies is c/o Elan Corporation, plc, Lincoln
House, Lincoln Place, Eighty Pine Street, Dublin 2, Ireland.
(9) Includes 654,450 shares of Common Stock issued upon conversion of 25,000
shares of Series B Preferred Stock held by SFM Domestic Investments LLC as
of June 28, 2001; (ii) 58,900 shares of Common Stock issuable upon
conversion of 5,301 shares of Series C Preferred Stock held by SFM Domestic
Investments LLC; and (iii) 29,450 shares of Common Stock issuable upon
exercise of warrants held by SFM Domestic Investments LLC. The principal
business office of SFM Domestic Investments LLC is at 888 Seventh Avenue,
33rd Floor, New York, New York 10106. George Soros is a managing member of
SFM Domestic Investments LLC and may be deemed beneficial owner of the SFM
Domestic Investments LLC Shares.
(10) Includes 517,084 shares issuable upon exercise of the vested portion of
options held by Mr. Essig. The Restricted Units held by Mr. Essig do not
give him the right to acquire any shares within 60 days of May 18, 2001.
(11) Includes 106,481 shares issuable upon exercise of the vested portion of
options held by Mr. Henneman.
(12) Includes 88,867 shares issuable upon exercise of the vested portion of
options held by Dr. McKinney.
(13) Includes 43,288 shares issuable upon exercise of the vested portion of
options held by Ms. O'Grady.
(14) Includes 2,554 shares held by revocable trusts of which Dr. Pierschbacher
is co-trustee. Also includes 42,861 shares issuable upon exercise of the
vested portion of options held by Dr. Pierschbacher.
(15) Includes 25,500 shares issuable upon exercise of the vested portion of
options held by Mr. Sullivan.
(16) Consists of 20,000 shares issuable upon exercise of the vested portion of
options held by Mr. Moszkowski.
(17) Includes 500 shares issuable upon exercise of the vested portion of options
held by Dr. Bradley.
(18) See Notes 2 and 10 through 17 above. Also, includes 7,046 shares, as well
as 26,818 shares issuable upon exercise of the vested portion of options,
held by one executive officer of the Company and/or its subsidiaries who is
not listed in the table.
CERTAIN TRANSACTIONS
We lease our manufacturing facility in Plainsboro, New Jersey from
Plainsboro Associates, a New Jersey general partnership. Ocirne, Inc., a
subsidiary of Cono Industries, owns a 50% interest in Plainsboro Associates.
Cono is a corporation whose stockholders are trusts whose beneficiaries include
the children of Dr. Richard E. Caruso, our Chairman and a principal stockholder
of the Company. Dr. Caruso is the President of Cono. We paid $209,848 in rent
for this facility during 2000.
47
During 2000, we signed a five year lease related to certain production
equipment, from Medicus Corporation. The sole stockholder of Medicus is Trust
Partnership, a Pennsylvania general partnership, for which Dr. Caruso is a
partner and the President. Under the terms of the lease, we paid $45,000 to
Medicus Corporation during 2000.
48
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock as stated in our Amended and Restated
Certificate of Incorporation consists of 60,000,000 shares of common stock, $.01
par value per share, and 15,000,000 shares of preferred stock, $.01 par value
per share. The following summary of our common stock and preferred stock is not
complete and may not contain all the information you should consider before
investing in our common stock. This description is subject to and qualified in
its entirety by provisions of our Certificate of Incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
is a part, and by provisions of applicable Delaware law.
COMMON STOCK
As of March 23, 2001, there were 20,874,955 shares of common stock
outstanding and held of record by approximately 825 stockholders, assuming
conversion of all outstanding shares of preferred stock. Holders of common stock
are entitled to one vote for each share held on all matters submitted to a vote
of stockholders and do not have cumulative voting rights. Accordingly, holders
of a majority of the outstanding shares of common stock entitled to vote in any
election of directors may elect all the directors standing for election. Holders
of common stock are entitled to receive ratably the dividends, if any, as may be
declared by our board of directors out of funds legally available therefor. If
we are liquidated, dissolved or wound-up, holders of common stock are entitled
to receive ratably our net assets available for distribution after the payment
of, or adequate provision for, all of our debts and other liabilities, subject
to prior and superior rights of the holders of Preferred Stock. Holders of
common stock have no preemptive, subscription, redemption, sinking fund or
conversion rights. Immediately upon consummation of this offering, all of the
then-outstanding shares of common stock will be validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The board of directors, without further stockholder authorization, is
authorized to issue, from time to time, up to 15,000,000 shares of Preferred
Stock in one or more series, to establish the number of shares to be included in
any of these series and to fix the designations, powers, preferences and rights
of the shares of each of these series and any qualifications, limitations or
restrictions thereof, including dividend rights and preferences over dividends
on the Common Stock, conversion rights, voting rights, redemption rights, the
terms of any sinking fund therefor and rights upon liquidation. The ability of
the board of directors to issue Preferred Stock, while providing flexibility in
connection with financing, acquisitions and other corporate purposes, could have
the effect of discouraging, deferring or preventing a change in control or an
unsolicited acquisition proposal, since the issuance of Preferred Stock could be
used to dilute the share ownership of a person or entity seeking to obtain
control of us. In addition, because the board of directors has the power to
establish the preferences, powers and rights of the shares of any of these
series of Preferred Stock, it may afford the holders of any Preferred Stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of Common Stock, which could adversely affect the rights of holders
of Common Stock.
As of June 29, 2001, we had designated three series of Preferred Stock, but
only one was outstanding.
SERIES A PREFERRED STOCK.
Our board of directors have authorized 2,000,000 shares of Series A
Convertible Preferred Stock, of which 500,000 were issued in connection with a
series of agreements with Century Medical, Inc., a wholly-owned subsidiary of
ITOCHU Corporation, under which Century Medical, Inc. distributes certain of our
products in Japan. Century Medical, Inc. has converted its Series A Preferred
Stock into Common Stock. We do not expect to issue new Series A Preferred Stock.
SERIES B PREFERRED STOCK.
Our board of directors has authorized 120,000 shares of Series B
Convertible Preferred Stock, 100,000 of which were issued in connection with the
acquisition of the NeuroCare Group in March 1999. The purchase price for the
49
acquisition was financed in part through the sale of $10 million of the Series B
Preferred Stock and related warrants to SFM Domestic Investments LLC and Quantum
Industrial Partners LDC, affiliates of Soros Private Equity Partners LLC. The
shares of Series B Preferred Stock were convertible into 2,617,800 shares of our
common stock. The warrants issued at the time of the sale of the Series B
Preferred Stock were exercised in March 2001.
On May 4, 2001, we notified the holders of the Series B Preferred of its
intention to redeem these shares on June 29, 2001 for $12.3 million. The holders
of the Series B Preferred had the right to convert their shares into common
stock prior to this redemption. As of June 26, 2001, all of the holders of the
Series B Preferred exercised this right to convert their 100,000 shares of
Series B Preferred Stock into 2,617,800 shares of common stock. We do not expect
to issue new Series B Preferred Stock.
SERIES C PREFERRED STOCK
Our board of directors have authorized 54,000 shares of Series C
Convertible Preferred Stock, all of which were issued on March 29, 2000 to
investment affiliates of Soros Private Equity Partners LLC, resulting in
proceeds to Integra of $5.4 million. In connection with this investment, we also
issued to affiliates of Soros Private Equity Partners LLC warrants to purchase
300,000 shares of common stock at $9.00 per share. The warrants expire on
December 31, 2001. The shares of Series C Preferred Stock are convertible into
600,000 shares of our common stock.
DESIGNATION/RANKING. The Series C Preferred Stock rank equal to our Series
B Preferred Stock and senior to our common stock and all of our Series A
Preferred Stock with respect to the payment of distributions on liquidation,
dissolution or winding up of Integra or with respect to the payment of
dividends.
DIVIDENDS. Holders of the Series C Preferred Stock are entitled to receive
annual cumulative dividends which shall accrue at the rate of 10% per annum,
payable upon the liquidation, dissolution or winding up Integra.
CONVERSION. Holders of the Series C Preferred Stock are entitled, at their
option at any time, to convert the Series C Preferred Stock so held into the
number of fully paid and nonassessable shares of common stock as obtained by (i)
multiplying the number of shares of Series C Preferred Stock so to be converted
by $100.00 and (ii) dividing the result by the conversion price (which is $9.00
per share, subject to adjustment in accordance with the terms of the certificate
of designation for the Series C Preferred Stock).
VOTING RIGHTS. Holders of the Series C Preferred Stock shall be entitled to
notice of any stockholders meeting. Except as otherwise required by law, each
outstanding share of Series C Preferred Stock is entitled to the number of votes
equal to the number of full shares of common stock into which the share of
Series C Preferred Stock is convertible on the record date for any meeting of
stockholders. Except as otherwise required by law, the Series C Preferred Stock
and the common stock vote together as a single class on each matter submitted to
the stockholders, and not by separate class or series.
OPTIONAL REDEMPTION. If, at any time after March 15, 2002, for a period of
not less than thirty (30) consecutive trading days, the average closing price of
our common stock on the Nasdaq National Market has been equal to or greater than
the Target Market Price (as defined below), then we may redeem from any source
of funds legally available therefor, in whole or in part, any or all whole
number of shares of Series C Preferred Stock at any time outstanding for a cash
amount per share equal to the liquidation preference at the date of redemption.
Notwithstanding the foregoing, at any time and from time to time after March 1,
2004, we may redeem from any source of funds legally available therefor, in
whole or in part, any or all whole number of shares of Series C Preferred Stock
at any time outstanding for an amount per share to be redeemed equal to the
liquidation preference at the date of redemption. The "Target Market Price"
shall mean an amount equal to 2.5 times the conversion price as last adjusted
and then in effect.
REGISTRATION RIGHTS
Under the terms of stockholder and registration rights agreements between
us and certain of our stockholders, Holders of an aggregate of 7,883,081 shares
of our common stock (including shares issuable upon the exercise of
50
certain warrants and stock options, upon conversion of certain preferred
securities, and shares underlying certain "restricted units"), are entitled to
demand that we register those shares under the Securities Act. Additionally, if
we propose to register any of our securities under the Securities Act, either
for our own account or for the account of any other stockholder, the parties to
certain of our stockholder and registration rights agreements are entitled to
notice of the registration and to include their shares of common stock in the
registration. These registration rights are subject to limitations and
conditions, including the right of the underwriters of the offering to limit the
number of shares included in any registration thereunder. In general, we are
required to indemnify the holders of those registrable securities under
described circumstances and to bear the expense of registrations, except for the
selling stockholders' pro rata portion of the underwriting discounts and
commissions.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law prohibits certain
"business combination" transactions between a Delaware corporation and any
"interested stockholder" owning 15% or more of the corporation's outstanding
voting stock for a period of three years after the date on which the stockholder
became an interested stockholder, unless:
o the board of directors approves, prior to the date, either the
proposed business combination or the proposed acquisition of stock
which resulted in the stockholder becoming an interested stockholder;
o upon consummation of the transaction in which the stockholder becomes
an interested stockholder, the interested stockholder owned at least
85% of those shares of the voting stock of the corporation which are
not held by the directors, officers or certain employee stock plans;
or
o on or subsequent to the date on which the stockholder became an
interested stockholder, the business combination with the interested
stockholder is approved by the board of directors and also approved at
a stockholder's meeting by the affirmative vote of the holders of at
least two-thirds of the outstanding shares of the corporation's voting
stock other than shares held by the interested stockholder.
Under Delaware law, a "business combination" includes a merger, asset sale
or other transaction resulting in a financial benefit to the interested
stockholder. Section 203 does not apply, however, to those stockholders who own
15% or more of our voting stock prior to this offering.
SELLING SECURITY HOLDERS
The following table provides certain information with respect to the common
stock held by each selling security holder. The common stock offered by this
prospectus is being offered by the selling security holders named below:
PRINCIPAL AMOUNT OF COMMON STOCK OWNED AND REGISTERED HEREUNDER
AMOUNT OWNED AMOUNT TO BE PERCENTAGE TO
PRIOR TO OWNED AFTER BE OWNED AFTER
NAME OFFERING AMOUNT OFFERED OFFERING OFFERING
- ------------------------------------------ ------------- ----------------- -------------- ----------------
Quantum Industrial Partners LDC........... [-] [-] [-] [-]
SFM Domestic Investments LLC.............. [-] [-] [-] [-]
Total .................................... [-] 312,500 [-] [-]
51
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock in the public market
after this offering could adversely affect the prevailing market price of our
common stock and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
24,741,400 shares of our common stock, assuming no exercise of outstanding
options and warrants. Of these shares, all shares previously sold in registered
offerings, including all of the shares sold in this offering, will be freely
tradable without restriction or further registration under the Securities Act,
unless the shares are purchased by "affiliates" as that term is defined in Rule
144 under the Securities Act. Any shares purchased by an affiliate may not be
resold except pursuant to an effective registration statement or an applicable
exemption from registration, including an exemption under Rule 144 of the
Securities Act. The remaining shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. These restricted securities may be sold in the public
market only if they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act. These rules
are summarized below.
In connection with this offering, persons owning an aggregate of
[----------] shares of our common stock after this offering have agreed with the
underwriters that, subject to exceptions, they will not sell or dispose of any
of their shares for [--] days after the date of this prospectus. The underwriter
may, in its sole discretion and at any time without notice, release all or any
portion of the shares subject to such restrictions. The shares of common stock
outstanding upon closing of this offering will be available for sale in the
public market as follows:
APPROXIMATE DESCRIPTION
NUMBER OF SHARES
[---] After the date of this prospectus, including 4,312,500
freely tradable shares sold in this offering (assuming the
underwriters' over-allotment option is exercised).
[---] After [--] days from the date of this prospectus, the
lock-up period will expire and these shares will be saleable
under Rule 144 (subject, in some cases, to volume
limitations).
In addition, after the offering there will be outstanding options to
purchase 3,941,105 shares of common stock and outstanding warrants to purchase
an aggregate of 310,811 shares of common stock. In addition, we have outstanding
54,000 shares of preferred stock convertible into 600,000 common shares.
LOCK-UP AGREEMENTS
We, our executive officers, directors, and certain of our existing
stockholders and optionholders have agreed not to offer, sell, contract to sell
or otherwise dispose of any shares of our common stock for a period of [--] days
after the date of this prospectus without the prior written consent of
underwriters, except, in the case of the company, for the shares of common stock
to be issued in connection with the offering or pursuant to employee benefit
plans existing on the date of this prospectus or sales or dispositions to our
company, permitted transfers to related parties that agree to be bound by the
foregoing restrictions, and permitted sales of shares acquired in the open
market following the completion of the offering. During this period we may grant
stock-based awards under our stock award and employee benefit plans, which
include the 1992 Stock Option Plan, the 1993 Incentive Stock Option and
Non-Qualified Stock Option Plan, the 1996 Incentive Stock Option and
Non-Qualified Stock Option Plan, the 1998 Stock Option Plan, the 1999 Stock
Option Plan, the 2000 Equity Incentive Plan, and the Integra LifeSciences
Employee Stock Purchase Plan, and we may also issue shares of common stock upon
the exercise of an option or warrant or the conversion of a security outstanding
on the date hereof and in connection with acquisitions.
RULE 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year from the
later of the date those shares of common stock were acquired from us or from an
affiliate of ours would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
o one percent of the number of shares of common stock then outstanding,
which will equal approximately 20,741,400 shares prior to this
offering and 20,741,400 shares immediately after this offering
(assuming exercise of the underwriters' over-allotment option); or
o the average weekly trading volume of the common stock on the National
Association of Securities Dealers' Automated Quotation System during
the four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale of any shares of common stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not one of our affiliates at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years from the later of the date
such shares of common stock were acquired from us or from an affiliate of ours,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted pursuant to the lock-up agreements or otherwise,
those shares may be sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in
effect, each of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock plan or other written agreement is
eligible to resell those shares in reliance on Rule 144, but without compliance
with some of the restrictions, including the holding period, contained in Rule
144.
No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of our common stock prevailing from time to time. We are unable to
estimate the number of our shares that may be sold in the public market pursuant
to Rule 144 or Rule 701 because this will depend on the market price of our
common stock, the personal circumstances of the sellers and other factors.
Nevertheless, sales of significant amounts of our common stock in the public
market could adversely affect the market price of our common stock.
STOCK PLANS
We have filed a registration statement under the Securities Act covering
8,504,745 shares of common stock reserved for issuance under our stock award and
employee benefit plans.
As of June 30, 2001, there were options to purchase 4,779 shares
outstanding under our 1992 Stock Option Plan, options to purchase 390,723 shares
outstanding under the 1993 Incentive Stock Option and Non-Qualified Stock Option
Plan, options to purchase 566,227 shares outstanding under the 1996 Incentive
Stock Option and Non-Qualified Stock Option Plan, options to purchase 718,518
shares outstanding under the 1998 Stock Option Plan, options to purchase
1,760,168 shares outstanding under the 1999 Stock Option Plan, and options to
purchase 500,690 shares outstanding under the 2000 Equity Incentive Plan. All of
these shares will be eligible for sale in the public market from time to time,
subject to vesting provisions, Rule 144 volume limitations applicable to our
affiliates and, in the case of some of the options, the expiration of lock-up
agreements and the investors' agreement.
52
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of the material U.S. federal
income and estate tax consequences of the ownership and disposition of our
common stock by a non-U.S. holder. In general, a non-U.S. holder is:
o an individual who is a nonresident alien of the U.S.;
o a corporation or other entity taxed as a corporation organized
or created under non-U.S. law;
o an estate that is not taxable in the U.S. on its worldwide
income; or
o a trust that is either not subject to primary supervision over
its administration by a U.S. court or not subject to the
control of a U.S. person with respect to substantial trust
decisions.
If a partnership holds common stock, the tax treatment of a partner
will generally depend upon the status of the partner and upon the activities of
the partnership. If you are a partner of a partnership holding common stock, we
suggest that you consult your tax advisor.
If you are an individual, you may, in many cases, be deemed to be a
resident alien, as opposed to a nonresident alien, by virtue of being present in
the United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal income tax as if they were U.S. citizens.
This discussion is based on the Internal Revenue Code of 1986, as
amended (the "CODE") and administrative interpretations of the Code as of the
date of this prospectus, all of which are subject to change, including changes
with retroactive effect.
This discussion does not address all aspects of U.S. federal taxation,
and in particular is limited in the ways that follow:
o the discussion assumes that you hold your common stock as a
capital asset and that you do not have a special tax status;
o the discussion does not consider tax consequences that depend
upon your particular tax situation in addition to your
ownership of the common stock;
o the discussion does not consider special tax provisions that
may be applicable to you if you have relinquished U.S.
citizenship or residence;
o the discussion does not cover state, local or foreign law; and
o we have not requested a ruling from the Internal Revenue
Service ("IRS") on the tax consequences of owning the common
stock. As a result, the IRS could disagree with portions of
this discussion.
53
Each prospective purchaser of common stock is advised to consult a tax
advisor with respect to current and possible future tax consequences of
purchasing, owning and disposing of our common stock as well as any tax
consequences that may arise under the laws of any United States state,
municipality or other taxing jurisdiction.
DISTRIBUTIONS
Distributions paid on the shares of common stock generally will
constitute dividends for U.S. federal income tax purposes to the extent paid
from our current or accumulated earnings and profits, as determined under U.S.
federal income tax principles. To the extent that the amount of any
distributions exceeds our current and accumulated earnings and profits for a
taxable year, the distribution first will be treated as a tax-free return of
your basis in the shares of common stock, causing a reduction in the adjusted
basis of the common stock, and the balance in excess of adjusted basis will be
taxed as capital gain recognized on a disposition of the common stock (as
discussed below).
As discussed under "Common Stock Price Ranges and Dividends," we do not
currently expect to pay dividends. In the event that we do pay dividends,
subject to the discussion below, dividends paid to a non-U.S. holder of common
stock generally will be subject to withholding tax at a 30% rate or a reduced
rate specified by an applicable income tax treaty. A non-U.S. holder generally
must file IRS Form W-8BEN to certify its entitlement to the benefit of a reduced
rate of withholding under an income tax treaty. If common stock is held through
a foreign partnership or a foreign intermediary, the partnership or
intermediary, as well as the partners or beneficial owners, may need to meet
certification requirements.
The withholding tax does not apply to dividends paid to a non-U.S.
holder that provides a Form W-8ECI certifying that the dividends are effectively
connected with the non-U.S. holder's conduct of a trade or business within the
United States. Instead, the effectively connected dividends generally will be
subject to regular U.S. income tax as if the non-U.S. holders were a U.S.
resident. If the non-U.S. holder is eligible for the benefits of a tax treaty
between the U.S. and the holder's country of residence, any effectively
connected income will be subject to U.S. federal income tax only if it is
attributable to a permanent establishment in the U.S. maintained by the holder
and such treaty-based tax position is disclosed to the IRS. A non-U.S.
corporation receiving effectively connected dividends also may be subject to an
additional "branch profits tax" imposed at a rate of 30% (or a lower treaty
rate) on an earnings amount that is net of the regular tax.
You may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund along with the required information with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income
tax on gain realized on a sale or other disposition of common stock unless:
o the gain is effectively connected with the trade or business
of the non-U.S. holder in the United States and, if certain
tax treaties apply, is attributable to a permanent
establishment in the U.S. maintained by such holder;
o in the case of certain non-U.S. holders who are non-resident
alien individuals and hold the common stock as a capital
asset, the individuals are present in the United States for
183 or more days in the taxable year of the disposition and
certain conditions are met; or
54
o we are or have been a U.S. real property holding corporation
at any time within the five-year period preceding the
disposition or during the non-U.S. holder's holding period,
whichever period is shorter.
The tax relating to stock in a U.S. real property holding corporation
does not apply to a non-U.S. holder whose holdings, actual and constructive, at
all times during the applicable period, amount to 5% or less of the common stock
of a U.S. real property holding corporation, provided that the common stock is
regularly traded on an established securities market. Generally, a corporation
is a U.S. real property holding corporation if the fair market value of its U.S.
real property interests, as defined in the code and applicable regulations,
equals or exceeds 50% of the aggregate fair market value of its worldwide real
property interests and its other assets used or held for use in a trade or
business. We may be, or may prior to a non-U.S. holder's disposition of common
stock become, a U.S. real property holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
We must report annually to the IRS the amount of dividends paid, the
name and address of the recipient, and the amount of any tax withheld. A similar
report is sent to the non-U.S. holder. Under tax treaties or other agreements,
the IRS may make its reports available to tax authorities in the recipient's
country of residence. A non-U.S. holder will generally be required to certify
its non-U.S. status in order to avoid backup withholding on dividends.
U.S. information reporting and backup withholding generally will not
apply to a payment of proceeds of a disposition of common stock where the
transaction is effected outside the United States through a non-U.S. office of a
non-U.S. broker. However, information reporting requirements, but not backup
withholding, generally will apply to such a payment if the broker is:
o a U.S. person;
o a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in
the U.S.;
o a controlled foreign corporation as defined in the Code; or
o a foreign partnership with certain U.S. connections.
Information reporting requirements will not apply in the above cases if
the broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met or the holder otherwise establishes an
exemption.
A non-U.S. holder will be required to certify its non-U.S. status, in
order to avoid information reporting and backup withholding on disposition
proceeds, where the transaction is effected by or through a U.S. office of a
broker.
Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. When withholding results in an overpayment of taxes, a refund may be
obtained if the required information is furnished to the IRS.
55
FEDERAL ESTATE TAX
An individual non-U.S. holder who is treated as the owner of, or has
made certain lifetime transfers of, an interest in the common stock will be
required to include the value of the stock in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.
THE FOREGOING DISCUSSION IS ONLY A SUMMARY OF CERTAIN U.S. FEDERAL
INCOME AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION
OF COMMON STOCK BY NON-U.S. HOLDERS. YOU ARE URGED TO CONSULT YOUR OWN TAX
ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF OWNERSHIP AND
DISPOSITION OF COMMON STOCK, INCLUDING THE EFFECT OF ANY STATE, LOCAL, FOREIGN
OR OTHER TAX LAWS, AND ANY APPLICABLE INCOME OR ESTATE TAX TREATIES.
56
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated the date of this prospectus, the underwriters named
below have severally agreed to purchase, and Integra has agreed to sell to them,
severally, the number of shares indicated below:
NUMBER OF
NAME SHARES
- ---- ------
.............................................................
.............................................................
.............................................................
Total.................................................... 3,750,000
The underwriters are offering the shares of common stock
subject to their acceptance of the shares from Integra and subject to prior
sale. The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered by this prospectus are subject to the approval of certain legal matters
by their counsel and to certain other conditions. The underwriters are obligated
to take and pay for all of the shares of common stock offered by this prospectus
if any such shares are taken. However, the underwriters are not required to take
or pay for the shares covered by the underwriters' over-allotment option
described below.
The per share price of any shares sold by the underwriters
shall be the public offering price listed on the cover page of this prospectus,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers described below.
The underwriters initially propose to offer part of the shares
of common stock directly to the public at the public offering price listed on
the cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied.
We and certain selling stockholders have granted the
underwriters an option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate of 562,500 additional shares of
common stock at the public offering price listed on the cover page of this
prospectus, less underwriting discounts and commissions. The underwriters may
exercise this option solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of common stock offered by
this prospectus. To the extent the option is exercised, each underwriter will
become obligated, subject to certain conditions, to purchase about the same
percentage of the additional shares of common stock as the number listed next to
the underwriter's name in the preceding table bears to the total number of
shares of common stock listed next to the names of all underwriters in the
preceding table. If the underwriters' option is exercised in full, the total
price to the public would be $ , the total underwriters' discounts and
commissions would be $ and total proceeds to Integra would be $ .
The common stock is quoted on the Nasdaq National Market under
the symbol "IART."
Each of Integra and its directors, executive officers and
certain other stockholders that in the aggregate hold approximately [_________]
shares of common stock has agreed that, without the prior written consent of the
lead underwriter on behalf of the underwriters, it will not, during the period
ending [__] days after the date of this prospectus:
o offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer
or dispose of directly or indirectly, any shares of common stock
or any securities convertible into or exercisable or exchangeable
for common stock; or
57
o enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of
ownership of our common stock,
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. In addition, those
directors, executive officers and stockholders have agreed that, without the
prior written consent of the lead underwriter on behalf of the underwriters,
they will not, during the period ending 90 days after the date of this
prospectus, make any demand for, or exercise any right with respect to, the
filing of a registration statement with respect to any shares of our common
stock or any securities convertible into or exercisable or exchangeable for our
common stock.
The restrictions described in this paragraph do not apply to:
o the sale of shares to the underwriters;
o the issuance by us of shares of common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding
on the date of this prospectus of which the underwriters have been
advised in writing;
o the registration of and issuance by us of shares of common stock
in connection with acquisitions provided that such shares may not
be sold by the seller until [__] days after the date of this
prospectus;
o transactions by any person other than Integra relating to shares
of common stock or other securities acquired in open market
transactions after the completion of the offering of the shares;
o the grant of options or stock under our equity and incentive plans
as in effect on the date of this prospectus; and
o the transfer of shares by any person other than Integra to a
member of that person's immediate family or any affiliate of that
person if the transferee agrees to be subject to the restrictions
described above.
In order to facilitate the offering of the common stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock. Specifically, the underwriters may
over-allot in connection with the offering, creating a short position in the
common stock for their own account. In addition, to cover over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
In addition, in connection with this offering, certain of the
underwriters (and selling group members) may engage in passive market making
transactions in the common stock on the Nasdaq National Market, prior to the
pricing and completion of the offering. Passive market making consists of
displaying bids on the Nasdaq National Market no higher than the bid prices of
independent market makers and making purchases at prices no higher than these
independent bids and effected in response to order flow. Net purchases by a
passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the common stock during a
specified period and must be discontinued when such limit is reached. Passive
market making may cause the price of the common stock to be higher than the
price that otherwise would exist in the open market in the absence of such
transactions. If passive market making is commenced, it may be discontinued at
any time.
Integra and the underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act of 1933.
58
LEGAL MATTERS
Latham & Watkins in New York, New York will pass upon the validity of the
shares of common stock offered under this prospectus and certain other legal
matters. John B. Henneman, III will pass upon certain other legal matters.
Counsel to the underwriters will pass upon certain legal matters for the
underwriters.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K/A of Integra LifeSciences Holdings Corporation
for the year ended December 31, 2000, have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE TO FIND ADDITIONAL INFORMATION
Integra is subject to the informational requirements of the Securities
Exchange Act of 1934, and files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, proxy statements and other information we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
SEC's regional offices at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the SEC at 1-800-SEC-0300 for further
information on the public reference rooms. You may also access filed documents
at the SEC's Website at www.sec.gov.
We have filed a registration statement on Form S-3 and related exhibits
with the SEC under the Securities Act of 1933. The registration statement
contains additional information about Integra and the securities. You may
inspect the registration statement and exhibits without charge and obtain copies
from the SEC at prescribed rates at the locations above.
59
The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
to those documents. The information incorporated by reference is an important
part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the following documents we have filed, or may file, with the SEC:
o Our 2000 Annual Report on Form 10-K/A filed with the SEC on May 24,
2001;
o Our Quarterly Report for the quarterly period ended March 31, 2001, on
Form 10-Q filed with the SEC on May 15, 2001;
o Our Proxy Statement for the 2001 Annual Meeting of Stockholders filed
with the SEC on April 20, 2001;
o Our Current Reports on Form 8-K filed with the SEC on January 8, 2001
and May 25, 2001; and
o All documents filed by us with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 after the date of this
prospectus and before the termination of this offering.
A statement contained in a document incorporated by reference herein shall
be deemed to be modified or superceded for purposes of this prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which is also incorporated herein modifies or replaces such statement.
Any statements so modified or superceded shall not be deemed, except as so
modified or superceded, to constitute a part of this prospectus.
You may request a free copy of any of the documents incorporated by
reference in this prospectus by writing or telephoning us at the following
address:
Integra LifeSciences Holdings Corporation
311-C Enterprise Drive Plainsboro, NJ 08536
(609) 275-0500
Attn: Director of Finance
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus is accurate as of any date other than the dates
on the front of these documents.
60
[LOGO]
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
PROSPECTUS
, 2001
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION OF INTEGRA
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the SEC registration fee and the NASD filing fee. All of these fees are
being paid by Integra.
Registration fee................................................ $24,581.30(1)
NASD Filing Fee................................................. --
Blue Sky Fees and Expenses...................................... 5,000
Legal fees and expenses......................................... 150,000
Accounting fees and expenses ................................... 50,000
Printing and engraving expenses................................. 110,000
Miscellaneous................................................... 50,000
Total........................................................ $483,750
- ----------
(1) $18,750 of the registration fee was paid on February 14, 2001.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Officers and directors of Integra are covered by certain provisions of the
DGCL, the charter, the bylaws and insurance policies which serve to limit, and,
in certain instances, to indemnify them against, certain liabilities which they
may incur in such capacities. These various provisions are described below.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. In June 1986, Delaware
enacted legislation which authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. This duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all significant information
reasonably available to them. Absent the limitations now authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting negligence or gross negligence in
the exercise of their duty of care. Although the statute does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The charter limits the
liability of directors to Integra or its stockholders (in their capacity as
directors but not in their capacity as officers) to the fullest extent permitted
by such legislation. Specifically, the directors of Integra will not be
personally liable for monetary damages for breach of a director's fiduciary duty
as director, except for liability: (1) for any breach of the director's duty of
loyalty to Integra or its stockholders; (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; (3)
for unlawful payments of dividends or unlawful share repurchases or redemptions
as provided in Section 174 of the DGCL; or (4) for any transaction from which
the director derived an improper personal benefit.
INDEMNIFICATION AND INSURANCE. As a Delaware corporation, Integra has the
power, under specified circumstances generally requiring the director or officer
to act in good faith and in a manner he reasonably believes to be in or not
opposed to Integra's best interests, to indemnify its directors and officers in
connection with actions, suits or proceedings brought against them by a third
party or in the name of Integra, by reason of the fact that they were or are
such directors or officers, against expenses, judgments, fines and amounts paid
in settlement in connection with any such action, suit or proceeding. The bylaws
generally provide for mandatory indemnification of Integra's directors and
officers to the full extent provided by Delaware corporate law. In addition,
Integra has entered into indemnification agreements with its directors and
officers which generally provide for mandatory indemnification under
circumstances for which indemnification would otherwise be discretionary under
Delaware law.
Integra intends to purchase and maintain insurance on behalf of any person
who is or was a director or officer of Integra, or is or was a director or
officer of Integra serving at the request of Integra as a director, officer,
employee
II-1
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan 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 Integra would have the power or obligation to indemnify him
against such liability under the provisions of the bylaws.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1+ Form of Underwriting Agreement.
2.1(1) Asset Purchase Agreement, dated as of January 14, 2000, by and
among Clinical Neuro Systems, Inc., Surgical Sales Corporation
(trading as CONNELL NEUROSURGICAL) and George J. Connell.
2.2(2) Purchase Agreement, dated January 5, 1999, among Integra
LifeSciences Corporation, Rystan Company, Inc., and Healthpoint,
Ltd.**
2.3(3) Asset Purchase Agreement, dated as of March 29, 1999, by and
among Heyer-Schulte Neurocare, L.P., Neuro Navigational, L.L.C.,
Integra Neurocare LLC and Redmond Neurocare LLC**.
2.4(6) Purchase Agreement, dated March 20, 2000, by and among NMT
Medical, Inc., NMT Neurosciences (US), Inc., NMT Neurosciences
Holdings (UK) Ltd., NMT Neurosciences (UK) Ltd., Spembly Medical
Ltd., Spembly Cryosurgery Ltd., Swedemed AB, Integra
NeuroSciences Holdings (UK) Ltd. and Integra Selector
Corporation.
2.5(6) Asset Purchase Agreement, dated March 20, 2000, by and among NMT
Neurosciences (US), Inc., NMT Medical, Inc. and Integra Selector
Corporation.
4.1(4) Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock as filed with the Delaware Secretary
of State on April 14, 1998.
4.2(5) Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock as filed with the Delaware Secretary
of State on March 12, 1999.
4.3(3) Warrant to Purchase 60,000 shares of Common Stock of Integra
LifeSciences Corporation issued to SFM Domestic Investments LLC.
4.4(3) Warrant to Purchase 180,000 shares of Common Stock of Integra
LifeSciences Corporation issued to Quantum Industrial Partners
LDC.
4.5(7) Certificate of Designation, Rights and Preferences of Series C
Convertible Preferred Stock of Integra LifeSciences Holdings
Corporation dated March 21, 2000.
4.6(7) Certificate of Amendment of Certificate of Designation, Rights
and Preferences of Series B Convertible Preferred Stock of
Integra LifeSciences Holdings Corporation dated March 21, 2000.
4.7(7) Warrant to Purchase 270,550 Shares of Common Stock of Integra
LifeSciences Holdings Corporation issued to Quantum Industrial
Partners LDC.
4.8(7) Warrant to Purchase 29,450 Shares of Common Stock of Integra
LifeSciences Holdings Corporation issued to SFM Domestic
Investments LLC.
4.9(8) Stock Option Grant and Agreement dated December 22, 2000 between
Integra LifeSciences Holdings Corporation and Stuart M. Essig.
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4.10(8) Stock Option Grant and Agreement dated December 22, 2000 between
Integra LifeSciences Holdings Corporation and Stuart M. Essig.
4.11(8) Restricted Units Agreement dated December 22, 2000 between
Integra LifeSciences Holdings Corporation and Stuart M. Essig.
4.12(9) Second Amendment to Certificate of Rights, Designations and
Preferences of Series B Convertible Preferred Stock.
4.13(9) First Amendment to Certificate of Rights, Designations and
Preferences of Series C Convertible Preferred Stock.
5.1+ Opinion of counsel regarding legality of securities being
registered hereunder.
12.1* Statement of the Calculation of Ratio of Earnings to Fixed
Charges and Statement of the Calculation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
21.1 Subsidiaries of the Company
23.1+ Opinion of Latham & Watkins
23.2* Consent of PricewaterhouseCoopers LLP, independent accountants
24.1* Power of Attorney (included in signature page)
- ----------
* Previously filed with the original filing of this Registration Statement on
Form S-3 (Registration No. 333-62176) on June 1, 2001.
** Schedules and other attachments to the indicated exhibit were omitted. We
agree to furnish supplementally to the SEC upon request a copy of any
omitted schedules or attachments.
+ To be filed by amendment
(1) Filed as an exhibit to Integra's Current Report on Form 8-K dated January
14, 2000, and incorporated herein by reference.
(2) Filed as an exhibit to Integra's Current Report on Form 8-K dated January
5, 1999, and incorporated herein by reference.
(3) Filed as an exhibit to Integra's Current Report on Form 8-K dated March 29,
1999, and incorporated herein by reference.
(4) Filed as an exhibit to Integra's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, as filed with the SEC on May 15, 1998, and
incorporated by reference herein.
(5) Filed as an exhibit to Integra's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, as filed with the , and incorporated herein
by reference.
(6) Filed as an exhibit to Integra's Current Report on Form 8-K dated March 20,
2000, and incorporated herein by reference.
(7) Filed as an exhibit to Integra's Current Report on Form 8-K dated March 29,
2000, and incorporated herein by reference.
(8) Filed as an exhibit to Integra's Current Report on Form 8-K dated December
22, 2000, and incorporated herein by reference.
(9) Filed as an exhibit to Integra's Current Report on Form 8-K dated May 15,
2001, and incorporated herein by reference.
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ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant under provisions described in Item 14 or otherwise,
the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. If a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of
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the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at such time shall be deemed to be
the initial bona fide offering thereof.
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SIGNATURES
Under the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, and has duly caused this
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plainsboro, State of New
Jersey, on July 9, 2001.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
By: /s/ JOHN B. HENNEMAN, III
------------------------------
John B. Henneman, III
Senior Vice President,
Chief Administrative Officer
Under the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------- ------------------------------ ------------
* President, Chief Executive July 9, 2001
- ------------------------------- Officer and Director
Stuart M. Essig, Ph.D.
* Executive Vice President, July 9, 2001
- ------------------------------- Chief Operating Officer
George W. McKinney, III, Ph.D. and Director
* Senior Vice President, July 9, 2001
- ------------------------------- Finance and Treasurer
David B. Holtz
* Chairman and Director July 9, 2001
- -------------------------------
Richard E. Caruso, Ph.D
* Director July 9, 2001
- -------------------------------
James M. Sullivan
* Director July 9, 2001
- -------------------------------
Keith Bradley, Ph.D.
* Director July 9, 2001
- -------------------------------
Neal Moszkowski
/s/ JOHN B. HENNEMAN, III
-------------------------
*By: John. B. Henneman, III
ATTORNEY-IN-FACT
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