SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
COMMISSION FILE NUMBER 0-26224
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0317849
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(609) 275-0500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1)
HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO
FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS.
/X/ - YES / / - NO
AS OF NOVEMBER 11, 2002 THE REGISTRANT HAD OUTSTANDING 27,066,102 SHARES OF
COMMON STOCK, $.01 PAR VALUE.
31
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX
Page
Number
- ----------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002 (Unaudited)
and December 31, 2001 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 2002 and 2001 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2002 and 2001 (Unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 4. Controls & Procedures 27
PART II. OTHER INFORMATION
Item 1. Litigation 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
Exhibits 30
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousands, except per share amounts September 30, December 31,
2002 2001
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 50,142 $ 44,518
Short-term investments .................................. 54,173 22,183
Accounts receivable, net of allowances of
$1,150 and $964 ....................................... 17,724 14,024
Inventories ............................................. 26,571 24,329
Prepaid expenses and other current assets ............... 4,718 2,898
-------- --------
Total current assets ................................ 153,328 107,952
Noncurrent investments ................................... 31,659 64,335
Property, plant, and equipment, net ...................... 16,424 11,662
Deferred income taxes, net ............................... 5,074 10,243
Identifiable intangible assets, net ...................... 17,102 16,898
Goodwill ................................................. 16,846 14,627
Other assets ............................................. 2,140 1,871
-------- --------
Total assets .............................................. $242,573 $ 227,588
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt ......................................... $ -- $ 3,576
Accounts payable, trade ................................. 3,737 2,924
Income taxes payable .................................... 1,751 1,481
Customer advances and deposits .......................... 4,639 4,843
Deferred revenue ........................................ 1,324 772
Accrued expenses and other current liabilities .......... 9,567 5,550
-------- --------
Total current liabilities ........................... 21,018 19,146
Deferred revenue ......................................... 3,437 3,949
Other liabilities ........................................ 512 437
-------- ---------
Total liabilities ......................................... $ 24,967 $ 23,532
Commitments and contingencies
Stockholders' Equity:
Preferred stock; $0.01 par value; 15,000 authorized shares;
0 and 54 Series C Convertible shares issued and outstanding
at September 30, 2002 and December
31, 2001, respectively .................................... -- 1
Common stock; $0.01 par value; 60,000 authorized shares;
27,041 and 26,129 issued and outstanding at September 30,
2002 and December 31, 2001, respectively .............. 270 261
Additional paid-in capital .............................. 285,966 284,021
Treasury stock, at cost; 6 shares at September 30, 2002 and
December 31, 2001, respectively ....................... (51) (51)
Other ................................................... (17) (37)
Accumulated other comprehensive income (loss) ........... 1,135 (539)
Accumulated deficit ..................................... (69,697) (79,600)
--------- ---------
Total stockholders' equity ............................ 217,606 204,056
--------- ---------
Total liabilities and stockholders' equity ............... $ 242,573 $ 227,588
========= =========
The accompanying notes are an integral part of the consolidated financial statements
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
REVENUES
Product sales ................................. $29,166 $22,319 $78,299 $63,988
Other revenue ................................. 1,038 1,431 4,262 4,366
------- ------- ------- -------
Total revenues ....................... 30,204 23,750 82,561 68,354
COSTS AND EXPENSES
Cost of product sales.......................... 12,611 9,153 31,604 26,057
Research and development ...................... 2,160 2,172 6,055 6,082
In-process research and development ........... 2,322 -- 2,322 --
Selling and marketing ......................... 6,720 5,148 18,320 15,168
General and administrative .................... 4,374 2,757 10,714 9,280
Amortization .................................. 425 784 1,139 2,193
------- ------- ------- -------
Total costs and expenses ............. 28,612 20,014 70,154 58,780
Operating income .............................. 1,592 3,736 12,407 9,574
Interest income,net ........................... 822 556 2,808 364
Other income (expense), net ................... (11) 96 21 (117)
------- ------- ------- -------
Income before income taxes .................... 2,403 4,388 15,236 9,821
Income tax expense ............................ 840 365 5,333 1,040
------- ------- ------- -------
Income before extraordinary item .............. 1,563 4,023 9,903 8,781
Extraordinary loss on the early retirement of
debt, net of income tax benefit............. --- (243) --- (243)
------- ------- ------- -------
Net income .................................... $ 1,563 $ 3,780 $ 9,903 $ 8,538
======= ======= ======= =======
Earnings per share:
Basic net income per share before
extraordinary item ....................... $ 0.05 $ 0.15 $ 0.34 $ 0.36
Basic net income per share.................. $ 0.05 $ 0.14 $ 0.34 $ 0.35
Diluted net income per share before
extraordinary item ....................... $ 0.05 $ 0.14 $ 0.32 $ 0.32
Diluted net income per share......... ....... $ 0.05 $ 0.13 $ 0.32 $ 0.31
Weighted average common shares outstanding:
Basic....................................... 29,258 25,585 28,933 21,816
Diluted..................................... 30,654 28,472 30,740 25,996
The accompanying notes are an integral part of the consolidated financial statements
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
September 30,
--------------------
2002 2001
-------- --------
OPERATING ACTIVITIES:
Net income .................................................. $ 9,903 $ 8,538
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................ 3,714 4,559
Loss on sale of product line and investments ............. -- 94
Loss on early retirement of debt ......................... -- 256
Deferred income tax provision ............................ 4,202 --
In process research and development....................... 2,322 --
Amortization of discount and premium on investments ...... 1,471 49
Other, net ............................................... 53 22
Changes in assets and liabilities, net of acquisitions:
Accounts receivable ................................... (1,053) (834)
Inventories ........................................... (175) (6,738)
Prepaid expenses and other current assets ............. (550) (830)
Non-current assets .................................... (42) 934
Accounts payable, accrued expenses and
other liabilities .................................. 807 1,721
Customer advances and deposits ........................ (204) 3,257
Deferred revenue ...................................... 40 (2,001)
-------- --------
Net cash provided by operating activities ................ 20,488 9,027
-------- --------
INVESTING ACTIVITIES:
Proceeds from sale/maturity of investments .................. 20,940 2,000
Purchases of available-for-sale investments ................. (21,227) (63,622)
Cash used in acquisitions, net of cash acquired ............. (11,344) (6,143)
Purchases of property and equipment ......................... (1,646) (1,957)
-------- --------
Net cash used in investing activities .................... (13,277) (69,722)
-------- --------
FINANCING ACTIVITIES:
Net repayments of revolving credit facility ................. -- (3,147)
Repayments of term loan ..................................... -- (7,705)
Repayment of note payable ................................... (3,600) (2,986)
Proceeds from issuance of common stock ...................... -- 114,185
Proceeds from exercised stock options and warrants........... 1,951 5,473
Treasury stock reissued ..................................... -- 95
--------- --------
Net cash (used in) provided by financing activities ...... (1,649) 105,915
--------- --------
Effect of exchange rate changes on cash and cash equivalents ... 62 27
Net increase in cash and cash equivalents ....................... 5,624 45,247
Cash and cash equivalents at beginning of period ................ 44,518 14,086
-------- --------
Cash and cash equivalents at end of period ...................... $ 50,142 $ 59,333
======== ========
Non-cash investing and financing activities:
Business acquisition costs accrued in liabilities .......... 744 --
The accompanying notes are an integral part of the consolidated financial statements
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
General
In the opinion of management, the September 30 unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations and cash flows of the Company. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. These unaudited consolidated financial statements should be read
in conjunction with the Company's consolidated financial statements for the year
ended December 31, 2001 included in the Company's Annual Report on Form 10-K.
Operating results for the three-month and nine-month periods ended September 30,
2002 are not necessarily indicative of the results to be expected for the entire
year.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities, the
disclosure of contingent liabilities, and the reported amounts of revenues and
expenses. Significant estimates affecting amounts reported or disclosed in the
consolidated financial statements include allowances for doubtful accounts
receivable and sales returns, net realizable value of inventories, estimates of
future cash flows associated with long-lived asset valuations and in-process
research and development charges, depreciation and amortization periods for
long-lived assets, valuation allowances recorded against deferred tax assets,
loss contingencies, and estimates of costs to complete performance obligations
associated with research, licensing, and distribution arrangements for which
revenue is accounted for using percentage of completion accounting. These
estimates are based on historical experience and on various other assumptions
that are believed to be reasonable under the current circumstances. Actual
results could differ from these estimates.
The Company has reclassified certain prior year amounts to conform with the
current year's presentation.
Recently Issued Accounting Standards
On July 31, 2002, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (Statement 146). Statement 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Statement 146 nullifies
Emerging Issues Task Force Issue 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)," which required that an entity
recognize a liability for an exit cost at the date it commits to an exit plan.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement
144). Statement 144 supercedes Statement of Financial Accounting Standards No
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Statement 144 applies to all long-lived assets,
including discontinued operations, and consequently amends Accounting Principles
Board Opinion No. 30, "Reporting Results of Operations-- Reporting the Effects
of Disposal of a Segment of a Business."
1. BASIS OF PRESENTATION (continued)
The Company adopted Statement 144 on January 1, 2002. The adoption of Statement
144 has had no impact on the Company's financial statements.
In July 2001, the FASB issued Statements of Financial Accounting Standards No.
141, "Business Combinations" (Statement 141), and No. 142, "Goodwill and
Other Intangible Assets" (Statement 142).
Statement 141 requires that all business combinations initiated after June 30,
2001 be accounted for using the purchase method of accounting and further
clarifies the criteria to recognize intangible assets separately from goodwill.
The Company determined that its assembled workforce intangible asset does not
meet the criteria for recognition as a separate identifiable intangible asset
and thus, effective January 1, 2002, reclassified the net book value of its
assembled workforce intangible asset into goodwill.
Under Statement 142, goodwill and indefinite-lived intangible assets are no
longer amortized, but are reviewed for impairment at the reporting unit level
annually, or more frequently if impairment indicators arise. Separable
intangible assets that are not deemed to have an indefinite life will continue
to be amortized over their useful lives. The Company reassessed the useful lives
of its identifiable intangible assets and determined that they continue to be
appropriate. As required by Statement 142, the Company amortized through
December 31, 2001 all goodwill acquired prior to July 1, 2001. Effective January
1, 2002, the Company ceased all amortization of goodwill. The Company expects
that implementation of Statement 142 will reduce amortization expense by
approximately $1.0 million in 2002.
If the Company had applied the non-amortization provisions of Statement 142 for
all of 2001, net income for the three and nine months ended September 30, 2001
would have been as follows:
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
----------------- -----------------
(in thousands)
Net income, as reported ................... $ 3,780 $ 8,538
Add: Goodwill amortization ................ 229 593
Assembled workforce amortization ..... 37 102
------- -------
Net income, as adjusted ................... $ 4,046 $ 9,233
Net income per share, as adjusted
Basic .................................. $ 0.16 $ 0.39
Diluted ................................ $ 0.14 $ 0.33
The Company completed its initial impairment review for reporting unit goodwill
as of June 30, 2002 and determined that its reporting unit goodwill was not
impaired.
2. ACQUISITIONS
On July 1, 2002, we acquired the assets of Signature Technologies, Inc., a
specialty manufacturer of titanium and stainless steel implants for the
neurosurgical and spinal markets, and certain other intellectual property
assets. We acquired Signature Technologies to gain the capability of developing
and manufacturing metal implants for strategic partners and for direct sale by
us. The purchase price consisted of $2.8 million in cash paid at closing, $0.5
million of deferred consideration and royalties on future sales of products to
be developed. The acquired product lines generated approximately $3.2 million in
sales during the year ended December 31, 2001, primarily from the manufacture
of cranial fixation systems for sale under a single contract manufacturing
agreement that expires in June 2004.
On August 1, 2002, we acquired the neurosciences division of NMT Medical, Inc.
for $5.4 million in cash. Through this acquisition, the Company added a range of
leading differential pressure valves, including the Orbis-Sigma(R), Integra
Hakim(R) and horizontal-vertical lumbar valves, and external ventricular
drainage products to its neurosurgical product line. The acquired product lines
generated sales of approximately $13.9 million during the year ended December
31, 2001. The acquired operations include a facility located in Biot, France
that manufactures, packages and distributes shunting, catheter and drainage
products, and a distribution facility located in Atlanta, Georgia. We completed
the consolidation of the Atlanta operations into our Cranbury, New Jersey
National Distribution Center as of September 30, 2002.
These acquisitions have been accounted for using the purchase method of
accounting, and the results of operations of the acquired businesses have been
included in the consolidated financial statements since their respective dates
of acquisition. The preliminary allocation of the purchase price for these
acquisitions resulted in approximately $0.6 million of acquired intangible
assets, which are being amortized on a straight-line basis over lives ranging
from 2 to 5 years, and approximately $0.4 million of goodwill, none of which is
expected to be deductible for tax purposes. The preliminary allocation of the
Signature Technologies purchase price resulted in an in-process research and
development ("IPR&D") charge of approximately $1.2 million for the value
associated with a project for the development of an enhanced cranial fixation
system using patented technology for improved identification and delivery of
certain components of the system. Prototypes of this enhanced cranial fixation
system have been manufactured and costs to complete development and obtain
regulatory clearance to market the product are not expected to be significant.
The value of the IPR&D was estimated with the assistance of a third party
appraiser using probability weighted cash flow projections with factors for
successful development ranging from 15% to 35% and a 15% discount rate.
The following unaudited proforma financial information assumes that all
acquisitions consumated in 2002 and 2001 had occurred as of the beginning of
each period (in thousands, except per share data):
For the Nine Months
Ended September 30,
2002 2001
------- -------
Total revenue ............................. $92,894 $86,681
Net income before extraordinary item ...... 11,816 8,610
Net income ................................ 11,816 8,367
Net income per share before extraordinary item:
Basic .................................. $ 0.40 $ 0.35
Diluted................................. $ 0.38 $ 0.32
Net income per share:
Basic .................................. $ 0.40 $ 0.34
Diluted................................. $ 0.38 $ 0.31
2. ACQUISITIONS (continued)
The pro forma results do not necessarily represent results that would have
occurred if the acquisitions had taken place on the basis assumed above, nor are
they indicative of the results of future combined operations. The proforma
results for the nine months ended September 30, 2002 exclude the $2.3 million of
IPR&D charges recorded in the actual results for the period.
On August 28, 2002, the Company acquired certain assets, including the
NeuroSensor(TM) monitoring system and rights to certain intellectual property
from Novus Monitoring Limited ("Novus") of the United Kingdom for $3.5 million
in cash paid at closing and an additional $1.5 million payable upon the
achievement of a product development milestone and up to $2.5 million payable
based upon sales of acquired and developed products. The NeuroSensor(TM) system,
which has received 510(k) clearance from the United States Food and Drug
Administration but has not yet been launched pending the results of clinical
trials and other factors, measures both intracranial pressure and cerebral blood
flow using a single combined probe and an electronic monitor for data display.
As part of the consideration paid, Novus has also agreed to, at their own cost,
conduct certain clinical studies on the NeuroSensor(TM) system, continue
development of a next generation, advanced system for use in the neuromonitoring
field, and design and transfer to Integra a validated manufacturing process for
these products. We expect the NeuroSensor(TM) monitoring system and the next
generation neuromonitoring system under development to complement our existing
line of brain parameter monitoring products.
The assets acquired from Novus were accounted for as an asset purchase because
the acquired assets did not constitute a business under FASB Statement No. 141,
"Business Combinations". The allocation of the purchase price resulted in
approximately $1.7 million of acquired intangible assets, consisting primarily
of technology-related intangible assets which are being amortized on a
straight-line basis over lives ranging from 3 to 15 years, prepaid research and
development expense of approximately $0.7 million, and in an IPR&D charge of
approximately $1.1 million. The prepaid research and development expense
represents the estimated fair value of future services to be provided by Novus
under the development agreement. The $1.1 million IPR&D charge represents the
value associated with the project for the development of a next generation
neuromonitoring system. This design and functionality of this next generation
neuromonitoring system is based, in part, on certain technology employed in the
NeuroSensor(TM) system that has been modified specifically for this project and
which has no alternative use in the modified state. Early prototypes of this
next generation neuromonitoring system have been designed and manufactured
based on this modified core technology. Costs to complete development and
obtain regulatory clearance for this project are the responsibility of Novus
and are included in the prepaid asset recorded by the Company in connection
with the development agreement. The value of the IPR&D was estimated with the
assistance of a third party appraiser using probability weighted cash flow
projections with factors for successful development ranging from 15% to 20% and
a 15% discount rate.
3. INVENTORIES
Inventories consisted of the following:
September 30, December 31,
2002 2001
---- ----
(in thousands)
Raw materials.............................. $ 6,390 $ 7,559
Work-in process............................ 4,514 3,493
Finished goods............................. 15,667 13,277
------- -------
$ 26,571 $24,329
======= =======
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of reporting unit goodwill for the nine months
ended September 30, 2002, were as follows:
Integra Integra
NeuroSciences LifeSciences Total
------------- ------------- -------------
(in thousands)
Goodwill, net of accumulated amortization
at December 31, 2001 .................... $ 13,815 $ 812 $ 14,627
Reclassification of assembled workforce
intangible, net of accumulated
amortization ............................ 1,245 30 1,275
Foreign currency translation ............... 500 3 503
Acquisitions ............................... 441 -- 441
-------- -------- --------
Goodwill at September 30, 2002 ............. $ 16,001 $ 845 $ 16,846
======== ======== ========
The components of the Company's identifiable intangible assets were as follows:
September 30, 2002 December 31, 2001
---------------------- ----------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
-------- ------------ -------- ------------
(in thousands)
Technology ................................ $ 13,204 $ (2,133) $ 11,255 $ (1,516)
Customer base ............................. 4,195 (1,034) 3,575 (674)
Trademarks ................................ 1,715 (391) 1,715 (305)
Assembled work force ...................... -- -- 1,581 (306)
Other ..................................... 1,932 (386) 1,824 (251)
-------- ------------ -------- ------------
$ 21,046 $ (3,944) $ 19,950 $ (3,052)
Accumulated amortization .................. (3,944) (3,052)
-------- --------
$ 17,102 $ 16,898
======== ========
Before the effects of the recent acquisition of Padgett Instruments, Inc. (see
Note 11), amortization expense is expected to approximate $1.7 million annually
through 2004.
5. COMMON AND PREFERRED STOCK
On April 16, 2002, the holders of all 54,000 shares of the Company's Series C
Preferred Stock exercised their right to convert those shares into 600,000
shares of common stock.
6. INCOME TAXES
Income tax expense was approximately 35% and 11% of income before income taxes
for the nine months ended September 30, 2002 and 2001, respectively. Income tax
expense for the nine months ended September 30, 2002 included a deferred income
tax provision of $4.2 million, or 28% of income before income taxes. The
effective tax rate of 11% for the nine months ended September 30, 2001 reflects
the utilization of net operating loss carryforwards during the period. In the
quarter ended December 31, 2001, the Company reversed a portion of the valuation
allowance recorded against the deferred tax assets related to these net
operating loss carryforwards.
7. COMPREHENSIVE INCOME
Comprehensive income was as follows:
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net income ......................... $ 1,563 $ 3,780 $ 9,903 $ 8,538
Foreign currency translation
adjustment ...................... 61 696 1,188 (49)
Unrealized gain on investments ..... 409 262 486 274
-------- -------- -------- --------
Comprehensive income ............... $ 2,033 $ 4,738 $ 11,577 $ 8,763
======== ======== ======== ========
8. NET INCOME PER SHARE
Basic and diluted net income per share were as follows:
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2002 2001 2002 2001
------ ------ ------ ------
Basic net income per share:
Income before extraordinary item............ $ 1,563 $ 4,023 $ 9,903 $ 8,781
Dividends on preferred stock ............... -- (135) (159) (891)
------- ------- ------- -------
Income before extraordinary loss applicable
to common stock ...................... $ 1,563 $ 3,888 $ 9,744 $ 7,890
Basic net income per share before
extraordinary loss..................... $ 0.05 $ 0.15 $ 0.34 $ 0.36
Net income .................................... $ 1,563 $ 3,780 $ 9,903 $ 8,538
Dividends on preferred stock .................. -- (135) (159) (891)
------- ------- ------- -------
Net income applicable to common stock ......... $ 1,563 $ 3,645 $ 9,744 $ 7,647
Basic net income per share .................... $ 0.05 $ 0.14 $ 0.34 $ 0.35
======= ======= ======= =======
Weighted average common shares outstanding
for basic earnings per share ............... 29,258 25,585 28,933 21,816
======= ======= ======= =======
8. NET INCOME PER SHARE (continued)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2002 2001 2002 2001
------ ------ ------ ------
Diluted net income (loss) per share:
Income before extraordinary item............ $ 1,563 $ 4,023 $ 9,903 $ 8,781
Dividends on preferred stock ............... -- (135) (159) (405)
------- ------- ------- -------
Income before extraordinary loss applicable
to common stock ...................... $ 1,563 $ 3,888 $ 9,744 $ 8,376
Diluted net income per share before
extraordinary loss.................... $ 0.05 $ 0.14 $ 0.32 $ 0.32
Net income .................................... $ 1,563 $ 3,780 $ 9,903 $ 8,538
Dividends on preferred stock .................. -- (135) (159) (405)
------- ------- ------- -------
Net income applicable to common stock.......... $ 1,563 $ 3,645 $ 9,744 $ 8,133
Diluted net income per share .................. $ 0.05 $ 0.13 $ 0.32 $ 0.31
======= ======= ======= =======
Weighted average common shares outstanding
for basic earnings per share ............... 29,258 25,585 28,933 21,816
Effect of dilutive securities:
Assumed conversion of Series B
Preferred Stock .......................... -- -- -- 1,697
Stock options ............................ 1,388 2,680 1,799 2,276
Stock purchase warrants .................. 8 207 8 207
------- ------- ------- -------
Weighted average common shares outstanding
for diluted earnings per share ............. 30,654 28,472 30,740 25,996
======= ======= ======= =======
Prior to its conversion on April 16, 2002 into 600,000 shares of common stock,
the Series C Preferred Stock was excluded from the computation of diluted net
income per share for the nine month period ended September 30, 2002 because its
inclusion would have been antidilutive. Options outstanding at September 30,
2002 to purchase 712,000 shares of common stock were excluded from the
computation of diluted net income per share for the three and nine month
periods ended September 30, 2002 because their exercise price exceeded the
average market price of the common stock for the applicable period.
9. DIVISION AND GEOGRAPHIC INFORMATION
Integra's business is divided into two divisions: Integra NeuroSciences(TM) and
Integra LifeSciences(TM).
The Integra NeuroSciences division is a leading provider of implants, devices,
and systems used in neurosurgery, neurotrauma, and related critical care and a
distributor of disposables and supplies used in the diagnosis and monitoring of
neurological disorders. The Integra LifeSciences division develops and
manufactures a variety of medical products and devices, including products based
on the Company's proprietary tissue regeneration technology that are used to
treat soft tissue and orthopedic conditions.
Integra NeuroSciences sells primarily through a direct sales force in the United
States and portions of Western Europe and through a network of distributors
elsewhere throughout the world. For the majority of the
9. DIVISION AND GEOGRAPHIC INFORMATION (continued)
products manufactured by the Integra LifeSciences division, the Company has
partnered with market leaders for the development and marketing efforts related
to these products.
The contract manufacturing operations of Signature Technologies are included in
the results of the Integra LifeSciences division. The assets acquired from
Novus Monitoring Ltd., the acquired operations of the neurosciences division of
NMT Medical, Inc., NeuroSupplies, Inc. (acquired in December 2001), and GMSmbH
and Satelec Medical (acquired in April 2001) and the remaining business of
Signature Technologies, including the $1.2 million IPR&D charge related to the
acquisition of Signature Technologies are included in the results of the
Integra NeuroSciences division. These inclusions make the following 2002
financial results for each division not directly comparable to those
for the prior year periods.
Total
Integra Integra Reportable
NeuroSciences LifeSciences Divisions
------------- ------------ ----------
(in thousands)
Three months ended September 30, 2002
----------------------------------
Product sales .................... $ 23,040 $ 6,126 $ 29,166
Total revenue .................... 23,068 7,136 30,204
Operating expenses ............... 21,364 4,527 25,891
Operating income ................. 1,704 2,609 4,313
Depreciation included in division
operating expenses ............ 535 285 820
Three months ended September 30, 2001
----------------------------------
Product sales .................... $ 17,234 $ 5,085 $ 22,319
Total revenue .................... 17,512 6,238 23,750
Operating expenses ............... 13,101 4,707 17,808
Operating income ................. 4,411 1,531 5,942
Depreciation included in division
operating expenses ............ 573 282 855
Nine months ended September 30, 2002
----------------------------------
Product sales .................... $ 62,897 $ 15,402 $ 78,299
Total revenue .................... 62,981 19,580 82,561
Operating expenses ............... 50,788 11,946 62,734
Operating income ................. 12,193 7,634 19,827
Depreciation included in division
operating expenses ............ 1,607 782 2,389
Nine months ended September 30, 2001
------------------------------------
Product sales .................... $ 50,052 $ 13,936 $ 63,988
Total revenue .................... 50,886 17,468 68,354
Operating expenses ............... 37,758 13,567 51,325
Operating income ................. 13,128 3,901 17,029
Depreciation included in division
operating expenses ............ 1,363 801 2,164
9. DIVISION AND GEOGRAPHIC INFORMATION (continued)
A reconciliation of the amounts reported for total reportable divisions to the
consolidated financial statements is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2002 2001 2002 2001
------ ------ ------ ------
(in thousands)
Operating expenses:
Total reportable divisions .............. $25,891 $ 17,808 $62,734 $51,325
Plus: Corporate general and
administrative expenses ........ 2,296 1,422 6,281 5,262
Amortization ...................... 425 784 1,139 2,193
------ ------ ------ ------
Consolidated total operating expenses ... $28,612 $20,014 $70,154 $58,780
Operating income:
Total reportable divisions .............. $ 4,313 $ 5,942 $19,827 $17,029
Less: Corporate general and
administrative expenses ........ 2,296 1,422 6,281 5,262
Amortization ...................... 425 784 1,139 2,193
------ ------ ------ ------
Consolidated operating income ........... $ 1,592 $ 3,736 $12,407 $ 9,574
Product sales consisted of the following:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2002 2001 2002 2001
------ ------ ------ ------
(in thousands)
Integra NeuroSciences:
Neuro intensive care unit ...... $ 8,393 $ 6,957 $22,607 $20,449
Neuro operating room ........... 12,217 9,291 32,919 26,585
Other NeuroSciences products ... 2,430 986 7,371 3,018
------ ------ ------ ------
Total product sales ............ 23,040 17,234 62,897 50,052
Integra LifeSciences:
Tissue repair products ......... $ 2,583 2,497 7,037 6,123
Other medical devices .......... 3,543 2,588 8,365 7,813
------ ------ ------ ------
Total product sales ............ 6,126 5,085 15,402 13,936
Consolidated product sales ........ $29,166 $22,319 $78,299 $63,988
Product sales by major geographic area are summarized below:
United Asia Other
States Europe Pacific Foreign Total
-------- -------- -------- -------- --------
(in thousands)
Three months ended September 30, 2002 $ 23,539 $ 3,959 $ 878 $ 790 $ 29,166
Three months ended September 30, 2001 17,387 2,780 1,149 1,003 22,319
Nine months ended September 30, 2002 $ 62,844 $ 9,809 $ 3,220 $ 2,426 $ 78,299
Nine months ended September 30, 2001 49,722 7,648 3,691 2,927 63,988
10. COMMITMENTS AND CONTINGENCIES
As consideration for certain technology, manufacturing, distribution and selling
rights and licenses, we have agreed to pay royalties on the sales of certain of
our products. Our payments under these agreements were not significant for any
of the periods presented.
In July 1996, we filed a patent infringement lawsuit in the United States
District Court for the Southern District of California (the "Court") 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. 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 ("RGD") peptide sequence
found in many extracellular matrix proteins. The defendants filed a countersuit
asking for an award of defendants' reasonable attorney fees.
In March 2000, a jury returned a unanimous verdict in our favor and awarded to
us $15,000,000 in damages, finding that Merck KGaA had willfully infringed and
induced the infringement of our patents. The Court dismissed Scripps and Dr.
Cheresh from the case.
In October 2000, the Court entered judgment in our favor and against Merck KGaA
in the case. In entering the judgment, the Court also granted to us pre-judgment
interest of approximately $1,350,000, bringing the total award to approximately
$16,350,000, plus post-judgment interest. Merck KGaA filed various post-trial
motions requesting a judgment as a matter of law notwithstanding the verdict or
a new trial, in each case regarding infringement, invalidity and damages. In
September 2001, the Court entered orders in favor of us and against Merck KGaA
on the final post-judgment motions in the case, and denied Merck KGaA's motions
for judgment as a matter of law and for a new trial.
Merck KGaA and we have each appealed various decisions of the Court. The court
of appeals heard arguments in the appeal in November 2002, and we expect the
court to issue its opinion in 2003. We have not recorded any gain in connection
with this matter.
In addition to the Merck KGaA matter, we are subject to various claims, lawsuits
and proceedings in the ordinary course of our business, including claims by
current or former employees and distributors and with respect to our products.
In the opinion of management, such claims are either adequately covered by
insurance or otherwise indemnified, or are not expected, individually or in the
aggregate, to result in a material adverse effect on our financial condition.
However, it is possible that our results of operations, financial position and
cash flows in a particular period could be materially affected by these
contingencies.
In September, 2002, three subsidiaries of the recently acquired
neurosciences division of NMT Medical, Inc. received a tax reassessment
notice from the French tax authorities seeking in excess $1.5 million in
back taxes, interest and penalties. NMT Medical, Inc., the former owner
of these entities, is appealing this reassessment and has agreed to
specifically indemnify Integra against any liability in connection with
these tax claims. In addition, NMT Medical, Inc. has agreed to provide the
French tax authorities with a bank guaranty on behalf of each of these
subsidiaries totaling approximately $1.2 million.
11. SUBSEQUENT EVENT
On October 21, 2002, we acquired Padgett Instruments, Inc., a marketer of
instruments used in reconstructive, plastic and burn surgery, for $9.7 million
in cash. Padgett generated revenues of $4.9 million during the year ended
December 31, 2001. The results of the acquired operations will be included in
our Integra NeuroSciences division. Management has not assessed the allocation
of the purchase price pending receipt of additional information needed to
complete this analysis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes thereto appearing elsewhere in this report and
in our 2001 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to those under the heading
"Risk Factors" contained in our 2001 Annual Report on Form 10-K.
General
Integra is a global, diversified medical device company that develops,
manufactures, and markets medical devices, implants and biomaterials primarily
for use in neurosurgery, orthopedics and soft tissue repair. Our business is
divided into two divisions: Integra NeuroSciences(TM) and Integra
LifeSciences(TM).
Our Integra NeuroSciences division is a leading provider of implants, devices,
and systems used in neurosurgery, neurotrauma, and related critical care and a
distributor of disposables and supplies used in the diagnosis and monitoring of
neurological disorders. Integra NeuroSciences sells primarily through a direct
sales force of more than 90 people in the United States and portions of
Western Europe.
Our Integra LifeSciences division develops and manufactures a variety of medical
products and devices, including products based on our proprietary tissue
regeneration technology that are used to treat soft tissue and orthopedic
conditions. For the majority of the products manufactured by our Integra
LifeSciences division, we have partnered with market leaders for the development
and marketing efforts related to these products. Many of these products address
large, diverse markets, and we believe that they can be promoted more
cost-effectively through leveraging marketing partners than through developing
our own sales infrastructure. We have strategic alliances with Ethicon, a
division of Johnson & Johnson, Wyeth, Medtronic, and Centerpulse.
Acquisitions
Our strategy for growing our business includes the acquisition of complementary
product lines and companies. Our acquisitions of certain assets of Novus
Monitoring Limited in September 2002, the neurosciences division of NMT Medical,
Inc. in August 2002, Signature Technologies, Inc. in July 2002, NeuroSupplies,
Inc. in December 2001, and GMSmbH and Satelec Medical in April 2001 may make our
division financial results for the three and nine month periods ended September
30, 2002 not directly comparable to those of the corresponding prior year
periods. Reported product sales for the nine month periods ended
September 30, 2002 and 2001 included the following amounts in sales of acquired
product lines:
Nine Months Ended
September 30,
------------------
(in thousands) 2002 2001
------ ------
Integra NeuroSciences
Products acquired during 2001(1) ............. $ 5,887 $ 1,010
Products acquired during 2002 ................ 1,801 --
All other product sales ...................... 55,209 49,042
------ ------
Total Integra NeuroSciences product sales .... 62,897 50,052
Integra LifeSciences
Products acquired during 2002 ................ $ 732 $ --
All other product sales ...................... 14,670 13,936
------ ------
Total Integra LifeSciences product sales ..... 15,402 13,936
Consolidated product sales ...................... $78,299 $63,988
(1) Excludes sales of the LICOX(R) product in those territories where Integra
NeuroSciences had exclusive distribution rights to the product prior to our
acquisition of GMSmbH.
We expect that our acquisition of Padgett Instruments, Inc. on October 21, 2002
for $9.7 million in cash will also affect our future divisional results. Padgett
generated revenues of $4.9 million during the year ended December 31, 2001. We
believe that the acquisition of Padgett Instruments will broaden our existing
customer base and give us access to new market segments through which to sell
our other products such as the NeuraGen Nerve Guide(R). The results of the
acquired operations will be included in our Integra NeuroSciences division.
Results of Operations
Third Quarter Ended September 30, 2002 Compared to Third Quarter Ended September
30, 2001
For the third quarter ended September 30, 2002, total revenues increased 27%
over the quarter ended September 30, 2001 to $30.2 million, as product sales
increased by 31% to $29.2 million. Sales of products acquired since the end of
the third quarter of 2001 accounted for $3.8 million of the $6.8 million
increase in product sales over the prior year period. Excluding acquired product
line sales, third quarter product sales grew 14% over the prior year quarter.
Domestic product sales increased $6.2 million in the third quarter of 2002 to
$23.5 million, or 81% of product sales, as compared to 78% of product sales in
the third quarter ended September 30, 2001.
The Integra NeuroSciences division led growth in total revenues and product
sales for the third quarter of 2002, with $23.1 million in total revenues, an
increase of $5.6 million, or 32%, over the prior year quarter. The Integra
LifeSciences division reported a $0.9 million increase in total revenues to $7.1
million, a 14% increase over the third quarter of 2001.
We reported net income for the third quarter of 2002 of $1.6 million, or $0.05
per share, as compared to net income of $3.8 million, or $0.13 per share, for
the prior year quarter. We included the following items in our reported results:
o $2.3 million of in process research and development ("IPR&D") charges incurred
in connection with our acquisitions of Novus Monitoring Ltd. and Signature
Technologies, Inc.,
o $0.6 million of charges related to the termination of distribution agreements,
o $0.2 million of inventory fair value purchase accounting adjustments
relating to our sale during the period of acquired inventory, and
o $0.4 million of employee severance and other acquisition related costs.
We reported consolidated gross margin on product sales in the third quarter of
2002 of 57%. Excluding the effects of $0.2 million of inventory fair value
purchase accounting adjustments and $0.4 million of inventory we wrote off in
connection with the termination of a distribution agreement, our consolidated
gross margin on product sales was 59%, the same as we realized in the prior-year
period. The negative effect of decreased capacity utilization and the inclusion
of sales of lower margin products acquired since the third quarter of 2001 were
largely offset in the third quarter of 2002 by the continued improvement in the
sales mix of our existing products.
Our effective tax rate increased from 8% in the third quarter of 2001 to 35% in
the third quarter of 2002. Our effective rate for the third quarter of 2001
reflected our utilization of net operating loss carryforwards during the period.
In the quarter ended December 31, 2001, we reversed a portion of the valuation
allowance recorded against the deferred tax assets related to these net
operating loss carryforwards, which we expect to result in an ongoing effective
tax rate of 35%. We expect our actual cash tax rate to be in the 6% to 8% range
in 2002. Had our effective tax rate been 35% in 2001, reported earnings would
have been $0.09 per share in the third quarter of 2001.
The following discussion of divisional financial results excludes corporate
general and administrative expenses and amortization of intangible assets, which
are not included in the measurement of divisional operating results.
INTEGRA NEUROSCIENCES DIVISION
Quarter Ended September 30,
2002 2001
-------- --------
(in thousands)
Product sales:
- Neuro intensive care unit .................. $ 8,393 $ 6,957
- Neuro operating room ....................... 12,217 9,291
- Other NeuroSciences products ............... 2,430 986
-------- --------
Total product sales ............................. 23,040 17,234
Other revenue ................................... 28 278
-------- --------
Total revenue ................................... 23,068 17,512
Cost of product sales ........................... 9,464 6,564
Gross margin as a percentage of product sales ... 59% 62%
Research and development expenses ............... 3,598 817
In process research and development charge ...... 2,322 --
Sales and marketing expenses .................... 6,520 4,775
General and administrative expenses ............. 1,782 945
-------- --------
Operating income ................................ $ 1,704 $ 4,411
Product sales in our Integra NeuroSciences division increased $5.8 million in
the third quarter of 2002 to $23.0 million, a 34% increase over the prior year
quarter. This increase included $3.1 million in sales of products acquired since
the end of the third quarter of 2001. Excluding these acquired product line
sales, third quarter product sales grew 16% over the prior year quarter, led by
sales growth in products used in the neuro operating room, including the
DuraGen(R) and NeuraGen(TM) product lines, and in products used in the neuro
intensive care unit, including the LICOX(R) Brain Tissue Oxygen Monitoring
System. The $1.4 million increase in other NeuroSciences products to $2.4
million was primarily attributable to sales of acquired product lines. The $0.3
million decrease in other revenues was the result of decreased royalty revenues
due to the expiration of an agreement.
We expect our recent increase in the domestic sales force to 63 territories, the
continued implementation of our direct sales strategy in Europe and increased
sales of products which have been recently launched or acquired to drive future
revenue growth and improve gross margin in the Integra NeuroSciences division.
The Integra NeuroSciences division reported gross margin on product sales of 59%
in the third quarter of 2002. Excluding the effects of $0.2 million of fair
value purchase accounting adjustments and $0.4 million write-off of inventory,
the gross margin on the Integra NeuroSciences division's product sales would
have been 61% in the third quarter of 2002, down from 62% in the prior year
period. The one percentage point decrease in gross margin is attributable to the
lower gross margins realized on sales of Integra NeuroSupplies products, which
we acquired in the fourth quarter of 2001, and lower capacity utilization, both
of which were partially offset by increased sales of the division's higher
margin products.
We recorded a $2.3 million IPR&D charge in the third quarter of 2002 in
connection with the following acquired projects:
- - a $1.1 million charge related to the development of a next generation
neuromonitoring system acquired from Novus Monitoring Limited
("Novus"); and
- - a $1.2 million charge related to the development of an enhanced
cranial fixation system using patented technology acquired from
Signature Technologies, Inc.
Other research and development expenses increased $0.5 million related to
continuing research and development activities of acquired businesses,
including post-approval clinical trials related to the acquired NeuroSensor(TM)
monitoring system product line, and increases in existing product development
programs. We anticipate that we will record additional research and development
expenses through the beginning of 2004 totaling $0.3 million and $1.6 million,
respectively, for the completion of clinical trials and other post-approval
activities related to the acquired NeuroSensor(TM) monitoring system product
line and the completion of development of the acquired next generation
neuromonitoring system project. Of these amounts, $0.6 million has already been
paid to Novus, who is responsible for a substantial portion of these remaining
development costs and efforts. The remaining $1.3 million of anticipated
research and development costs related to the next generation neuromonitoring
system project, including an additional $1.0 million IPR&D charge, will be paid
to Novus upon their achievement of a product development milestone . The
development program for the acquired cranial fixation system project is
expected to require an additional $0.2 million in additional spending through
2004. The increase in overall research and development spending for the Integra
NeuroSciences division in 2003 from these acquired projects is expected to be
slightly mitigated by reductions in spending on other research and development
programs.
The $1.7 million increase in sales and marketing expense for the Integra
NeuroSciences division to $6.5 million reflected the continued expansion of the
domestic and international Integra NeuroSciences direct sales force. Sales and
marketing expenses remained consistent at approximately 28% of product sales in
the third quarter of both 2002 and 2001. General and administrative expenses of
the Integra NeuroSciences division increased by $0.8 million to $1.8 million in
the third quarter of 2002 and included $0.6 million of ongoing general and
administrative expenses related to acquired operations. Also included in Integra
NeuroSciences' total other operating expenses were $0.4 million of redundant
operating costs associated with the Atlanta distribution facility we acquired in
connection with the purchase of the neurosciences division of NMT Medical, Inc.
and shut down during the third quarter.
The Integra NeuroSciences division reported an operating profit of $1.7 million
for the third quarter of 2002, a $2.7 million decrease from the $4.4 million
profit reported for the prior year period.
INTEGRA LIFESCIENCES DIVISION
Quarter Ended September 30,
2002 2001
-------- --------
(in thousands)
Product sales:
- Tissue repair products ..................... $ 2,583 $ 2,497
- Other medical devices ...................... 3,543 2,588
-------- --------
Total product sales ............................. 6,126 5,085
Other revenue ................................... 1,010 1,153
-------- --------
Total revenue ................................... 7,136 6,238
Cost of product sales ........................... 3,147 2,589
Gross margin as a percentage of product sales ... 49% 49%
Research and development expenses ............... 884 1,355
Sales and marketing expenses .................... 200 373
General and administrative expenses ............. 296 390
-------- --------
Operating income ................................ $ 2,609 $ 1,531
Product sales in the Integra LifeSciences division increased $1.0 million in the
third quarter of 2002 to $6.1 million, a 20% increase over the prior year
quarter. This increase is primarily attributable to $0.7 million in sales of
products acquired from Signature Technologies, Inc. in July 2002 and increased
sales to Wyeth of Absorbable Collagen Sponges used as a component in Medtronic's
recently approved INFUSE(TM) Bone Graft.
Gross margin on product sales in the Integra LifeSciences division was 49% in
the third quarter of 2002, consistent with the gross margin realized in the
prior year quarter, as sales of lower-margin products acquired from Signature
Technologies offset the improved mix in sales among the division's existing
products.
Research and development expenses fell by $0.5 million from the prior year
period to $0.9 million in the third quarter of 2002, as the Integra LifeSciences
division reduced spending on research programs with its alliance partners. Sales
and marketing expenses decreased $0.2 million in the third quarter of 2002
primarily due to a decrease in marketing efforts directed to Integra
LifeSciences products not sold by strategic partners.
CORPORATE EXPENSES AND AMORTIZATION
Quarter Ended September 30,
2002 2001
-------- --------
(in thousands)
Total divisional operating costs and expenses ....... $ 25,891 $ 17,808
Corporate general and administrative expenses ....... 2,296 1,422
Amortization ........................................ 425 784
-------- --------
Consolidated total operating expenses ............... $ 28,612 $ 20,014
Corporate general and administrative expenses increased $0.9 million in the
third quarter of 2002 primarily related to expenses associated with terminated
distribution agreements, to increases over the prior year period in spending
on the Merck KGaA litigation, and to expenses related to abandoned acquisitions.
Amortization expense decreased $0.4 million in the third quarter of 2002 to $0.4
million as a result of the full implementation of Statement of Financial
Accounting Standard No 142 in January 2002. The reduction in goodwill
amortization related to the implementation of Statement 142 had a favorable
impact on earnings of approximately $0.01 per share in the third quarter of
2002.
We reported operating EBITDA, representing operating income before depreciation
and amortization, of $3.0 million ($5.3 million excluding the effect of the $2.3
million of IPR&D charges) in the third quarter of 2002, as compared to $5.4
million in the prior year quarter.
NON-OPERATING INCOME AND EXPENSES
We raised $113.4 million in a follow-on public offering of 4.7 million shares of
common stock in August 2001 and subsequently used $9.3 million to repay all
outstanding indebtedness. We recorded an extraordinary loss of $0.2 million on
the early retirement of this debt in the third quarter of 2001. Accordingly,
net interest income increased $0.3 million in the third quarter of 2002 to $0.8
million.
INCOME TAXES
Income tax expense was approximately 35% and 8% of income before income taxes
for the third quarter of 2002 and 2001, respectively. Income tax expense for the
third quarter of 2002 included a deferred income tax provision of $0.6 million,
or 25% of income before income taxes.
Nine Month Period Ended September 30, 2002 Compared to Nine Month Period Ended
September 30, 2001
For the nine month period ended September 30, 2002, total revenues increased 21%
over the nine month period ended September 30, 2001 to $82.6 million, led by an
22% increase in product sales to $78.3 million. Domestic product sales increased
$13.1 million in the nine month period ended September 30, 2002 to $62.8
million, or 80% of product sales, as compared to 78% of product sales in the
prior year period.
The Integra NeuroSciences division, which reported a $12.1 million increase in
total revenues to $63.0 million in the nine month period ended September 30,
2002, a 24% increase over the prior year period, led growth in total revenues
and product sales in 2002. The Integra LifeSciences division reported a $2.1
million increase in total revenues to $19.6 million, a 12% increase over the
prior year period.
Net income for the nine month period ended September 30, 2002 was $9.9 million,
or $0.32 per share, as compared to net income of $8.5 million, or $0.31 per
share, reported in the prior year period. In addition
to the increase in revenues, results for the nine month period ended September
30, 2002 benefited from a one percentage point improvement in consolidated
gross margin on product sales to 60%. The improvement in gross margins reflects
a greater proportion of sales of higher margin products in 2002, increased
direct sales in Europe, and an increase in capacity utilization, offset by lower
gross margins from our Integra NeuroSupplies business.
Offsetting the improved gross margin results in 2002 was an increase in our
effective tax rate from 11% in the nine month period ended September 30, 2001 to
a 35% rate recorded in the nine month period ended September 30, 2002. Had our
effective tax rate been 35% in 2001, reported earnings would have been $0.22 per
share in the nine month period ended September 30, 2001.
The following discussion of divisional financial results excludes corporate
general and administrative expenses and amortization of intangible assets, which
are not included in the measurement of divisional operating results.
INTEGRA NEUROSCIENCES DIVISION
Nine Month Period Ended September 30,
2002 2001
-------- --------
(in thousands)
Product sales:
- Neuro intensive care unit .................. $ 22,607 $ 20,449
- Neuro operating room ....................... 32,919 26,585
- Other NeuroSciences products ............... 7,371 3,018
-------- --------
Total product sales ............................. 62,897 50,052
Other revenue ................................... 84 834
-------- --------
Total revenue ................................... 62,981 50,886
Cost of product sales ........................... 23,886 18,690
Gross margin as a percentage of product sales ... 62% 63%
Research and development expenses ............... 3,102 2,217
In process research and development charge ...... 2,322 --
Sales and marketing expenses .................... 17,743 13,930
General and administrative expenses ............. 3,735 2,921
-------- --------
Operating income ................................ $ 12,193 $ 13,128
Product sales in the Integra NeuroSciences division increased $12.8 million in
the nine month period ended September 30, 2002 to $62.9 million, a 26% increase
over the prior year period. Sales in the nine month periods ended September 30,
2002 and 2001 included $7.7 million and $1.0 million, respectively, in sales of
products acquired since January 1, 2001.
Sales of neuro intensive care unit products increased $2.2 million to $22.6
million in the nine month period ended September 30, 2002. Neuro intensive care
unit sales in the nine month periods ended September 30, 2002 and 2001 included
$0.8 million and $0.4 million, respectively, in sales of products acquired since
January 1, 2001. Neuro operating room product sales increased $6.3 million to
$32.9 million, led by increased sales of our DuraGen(R) Dural Graft Matrix
product. Neuro operating room product sales in the nine month periods ended
September 30, 2002 and 2001 included $2.9 million and $0.6 million,
respectively, in sales of products acquired since January 1, 2001. The $4.4
million increase in other Integra NeuroSciences products to $7.4 million was
primarily related to $4.0 million in sales of
acquired products. The $0.8 million decrease in other revenues was the result
of decreased royalty revenues from an agreement that expired.
Research and development expenses increased $0.9 million related to continuing
research and development activities of acquired businesses, and increases in
existing product development programs, including the completion of the
development of the Helitene(R) pad product, a new collagen hemostatic device
for use in neurosurgical procedures. Sales and marketing spending in the nine
month period ended September 30, 2002 increased $3.8 million as a result of the
continued expansion in the domestic and international sales force. General and
administrative expenses in the nine month period ended September 30, 2002
increased $0.8 million due to additional general and administrative expenses for
acquired companies.
INTEGRA LIFESCIENCES DIVISION
Nine Month Period Ended September 30,
2002 2001
-------- --------
(in thousands)
Product sales:
- Tissue repair products ..................... $ 7,037 $ 6,123
- Other medical devices ...................... 8,365 7,813
-------- --------
Total product sales ............................. 15,402 13,936
Other revenue ................................... 4,178 3,532
-------- --------
Total revenue ................................... 19,580 17,468
Cost of product sales ........................... 7,718 7,367
Gross margin as a percentage of product sales ... 50% 47%
Research and development expenses ............... 2,953 3,865
Sales and marketing expenses .................... 577 1,238
General and administrative expenses ............. 698 1,097
-------- --------
Operating income ................................ $ 7,634 $ 3,901
Product sales in the Integra LifeSciences division increased $1.5 million in the
nine month period ended September 30, 2002 to $15.4 million, an 11% increase
over the prior year period. This growth was generated primarily by a $0.9
million increase in sales of tissue repair products, or 15% growth over the
prior year period, along with a $0.6 million increase in sales of other medical
devices. The increase in sales of tissue repair products was primarily related
to increased sales to Wyeth of our Absorbable Collagen Sponges. The increase in
sales of other medical devices was primarily attributable to sales of products
by Integra Signature Technologies, Inc.
Gross margin on product sales in the LifeSciences division increased three
percentage points to 50% in the nine month period ended September 30, 2002,
primarily as a result of increased sales of higher margin products and increased
capacity utilization.
The $0.6 million increase in other revenue in the nine month period ended
September 30, 2002 was primarily related to $1.0 million in event payments
received from Johnson & Johnson, offset by a decrease in grant revenue.
The $0.9 million decrease in research and development expenses in the nine month
period ended September 30, 2002 was primarily related to the completion of a
grant program in the first quarter of 2001, and is consistent with the decrease
in grant revenue. Sales and marketing activities decreased $0.7 million in the
nine month period ended September 30, 2002, primarily due to the termination of
distributors who had been paid commissions during the prior year period.
CORPORATE EXPENSES AND AMORTIZATION
Nine Month Period Ended September 30,
2002 2001
-------- --------
(in thousands)
Total divisional operating costs and expenses ....... $ 62,734 $ 51,325
Corporate general and administrative expenses ....... 6,281 5,262
Amortization ........................................ 1,139 2,193
-------- --------
Consolidated total operating expenses ............... $ 70,154 $ 58,780
Amortization expense decreased $1.1 million in the nine month period ended
September 30, 2002 to $1.1 million as a result of the full implementation of
Statement of Financial Accounting Standard No 142 in January 2002. The
eduction in goodwill amortization related to the implementation of Statement 142
had a favorable impact on earnings of approximately $0.02 per share in the nine
month period ended September 30, 2002.
We reported operating EBITDA of $16.1 million in the nine month period ended
September 30, 2002, as compared to $14.1 million in the prior year period.
NON-OPERATING INCOME AND EXPENSES
Net interest income increased $2.4 million in the nine month period ended
September 30, 2002 to $2.8 million primarily as a result of the $113.4 million
raised in the August 2001 follow-on public offering and the subsequent repayment
of all outstanding indebtedness.
INCOME TAXES
Income tax expense was approximately 35% and 11% of income before income taxes
for the nine month periods ended September 30, 2002 and 2001, respectively.
Income tax expense for the nine month period ended September 30, 2002 included a
deferred income tax provision of $4.2 million, or 28% of income before income
taxes.
International Product Sales and Operations
Product sales by major geographic area are summarized below:
United Asia Other
States Europe Pacific Foreign Total
-------- -------- -------- -------- --------
(in thousands)
Nine months ended September 30, 2002..$ 62,844 $ 9,809 $ 3,220 $ 2,426 $ 78,299
Nine months ended September 30, 2001.. 49,722 7,648 3,691 2,927 63,988
In the nine month period ended September 30, 2002, sales to customers outside
the United States totaled $15.5 million, or 20% of consolidated product sales,
of which approximately 63% were to European customers. Of this amount, $8.5
million of these sales were generated in foreign currencies from our
foreign-based subsidiaries in the United Kingdom, Germany and France. In the
nine month period ended September 30, 2001, sales to customers outside the
United States totaled $14.3 million, or 22% of consolidated product sales, of
which approximately 54% were to European customers. Of this amount, $4.8 million
of these sales were generated in foreign currencies from our subsidiaries.
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. We expect that our recent
establishment of direct sales and marketing activities in portions of Western
Europe, the recent transfer of certain distributor accounts to our European
operations, and the recent acquisition of the NMT
Neurosciences business will cause our sales generated in countries outside the
United States and sales denominated in foreign currencies, particularly the
Euro and the British pound, to increase as a percentage of total sales in the
future. Approximately 55% of sales of the acquired NMT neurosciences products
were generated outside the United States during the year ended December 31,
2001.
We do not currently use any financial instruments to hedge foreign currency
fluctuations.
Liquidity and Capital Resources
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. Since 1999, we have
substantially reduced our net use of cash from operations and, in 2001, we
generated positive operating cash flows on an annual basis for the first time.
For the nine month period ended September 30, 2002, we generated $20.5 million
in cash flows from operations.
Our principal uses of funds during the nine month period ended September 30,
2002 were $11.3 million for acquisition consideration, $3.6 million for
repayment of indebtedness, and $1.6 million for purchases of property and
equipment. Principal sources of funds were approximately $20.5 million in
operating cash flows and $2.0 million from the issuance of common stock through
the exercise of stock options.
At September 30, 2002, we had cash, cash equivalents and current and non-current
investments totaling approximately $136.0 million and no outstanding debt. In
October 2002 we used approximately $9.7 million of cash to acquire Padgett
Instruments, Inc. (see Note 11).
Investments consist almost entirely of highly-liquid, interest bearing debt
securities. Our financial position and future financial results could change
significantly if we were to use a large portion of our liquid assets to complete
one or more business acquisitions.
In February 2002, our Board of Directors reauthorized our share repurchase
program. Under the program, we may repurchase up to 500,000 shares of our common
stock for an aggregate purchase price not to exceed $15 million. Shares may be
repurchased under this program through December 31, 2002 either in the open
market or in privately negotiated transactions. Although we have not repurchased
any shares of our common stock under this program in 2001 or in the nine month
period ended September 30, 2002, we have authorized a broker to make open market
purchases of our stock on our behalf if certain conditions are met.
Other Matters
A valuation allowance of $34.4 million is recorded against net deferred tax
assets. However, we may recognize a deferred income tax benefit in future
periods if we determine that all or a portion of the remaining deferred tax
assets can be realized.
FORWARD-LOOKING STATEMENTS
We have made statements in this report, including statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" 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 the Company, including those described under "Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended December
31, 2001 filed with the Securities and Exchange Commission. In light of these
risks and uncertainties, the forward-looking events and circumstances discussed
in this report may not occur and actual results could differ materially from
those anticipated or implied in the forward-looking statements.
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 report.
Item 4 - CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES
Disclosure controls and procedures. Within 90 days before filing this report,
the Chief Executive Officer and Senior Vice President, Finance and Treasurer
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures. The Company's disclosure controls and procedures are
the controls and other procedures that the Chief Executive Officer and Senior
Vice President, Finance and Treasurer have designed to ensure that it records,
processes, summarizes and reports in a timely manner the information the
Company must disclose in its reports filed under the Securities Exchange Act.
Stuart M. Essig, Chief Executive Officer, and David B. Holtz, Senior Vice
President, Finance and Treasurer, reviewed and participated in this evaluation.
Based on this evaluation, Messrs. Essig and Holtz concluded that, as of the
date of their evaluation, the Company's disclosure controls and procedures were
effective.
Internal controls. Since the date of the evaluation described above, there have
not been any significant changes in the Company's internal controls or in other
factors that could significantly affect those controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LITIGATION
See Note 10 to the Unaudited Consolidated Financial Statements.
ITEM 5. OTHER INFORMATION
Board of Directors
On October 31, 2002, we increased the size of our board of directors to six and
appointed David C. Auth, an expert in bioengineering, with particular expertise
in least invasive surgery and energy interactions in biological tissue, to fill
the newly created vacancy. Dr. Auth has several widely distributed inventions in
the fields of gastrointestinal endoscopy and interventional cardiology and is
the primary inventor of the contact laser scalpel. Dr. Auth is an independent
investor and serves on the Boards of Directors of several other companies
including Novacept, Inc., Pathway Medical Technologies, Inc., AcousTx, and until
its acquisition by Boston Scientific in 2001, RadioTherapeutics, Inc. Dr. Auth
holds a Ph.D. in physics from Georgetown University.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement of David B. Holtz dated as of September 10, 2002
10.2 Employment Agreement of John B. Henneman, III, dated as of September
10, 2002
99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as created by
Section 302 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On August 30, 2002, we filed with the Securities and Exchange Commission a
Report on Form 8-K with respect to the execution of sales
plans pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as
amended, by certain Executive Officers of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
Date: November 14, 2002 /s/ Stuart M. Essig
-------------------
Stuart M. Essig
President and Chief Executive Officer
Date: November 14, 2002 /s/ David B. Holtz
-------------------
David B. Holtz
Senior Vice President, Finance and Treasurer
EMPLOYMENT AGREEMENT
This employment agreement (this "Agreement") is made as of the 10th day
of September, 2002 by and between Integra LifeSciences Holdings Corporation, a
Delaware Corporation (the "Company") and David B. Holtz ("Executive").
Background
Executive is currently the Senior Vice President, Finance, of Company.
Company desires to continue to employ Executive, and Executive desires to remain
in the employ of Company, on the terms and conditions contained in this
Agreement. Executive will be substantially involved with Company's operations
and management and will learn trade secrets and other confidential information
relating to Company and its customers; accordingly, the noncompetition covenant
and other restrictive covenants contained in Section 14 of this Agreement
constitute essential elements hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and intended to be legally bound hereby, the parties
hereto agree as follows:
Terms
1. Definitions. The following words and phrases shall have the meanings
set forth below for the purposes of this Agreement (unless the context clearly
indicates otherwise):
(a) "Base Salary" shall have the meaning set forth in Section 5.
(b) "Board" shall mean the Board of Direcetors of Company, or
any successor thereto.
(c) "Cause," as determined by the Board in good faith,
shall mean Executive has --
(1) failed to perform his stated duties in all material
respects, which failure continues for 15 days after
his receipt of written notice of the failure;
(2) intentionally and materially breached any provision
of this Agreement and not cured such breach (if
curable) within 15 days of his receipt of written
notice of the breach;
(3) demonstrated his personal dishonesty in connection
with his employment by Company;
(4) engaged in willful misconduct in connection with his
employment with the Company;
(5) engaged in a breach of fiduciary duty in connection
with his employment with the Company; or
(6) willfully violated any law, rule or regulation, or
final cease-and-desist order (other than traffic
violations or similar offenses) or engaged in other
serious misconduct of such a nature that his
continued employment may reasonably be expected to
cause the Company substantial economic or
reputational injury.
(d) A "Change in Control" of Company shall be deemed to
have occurred:
(1) if the "beneficial ownership" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of
securities representing more than fifty percent
(50%) of the combined voting power of Company Voting
Securities (as herein defined) is acquired by any
individual, entity or group (a "Person"), other than
Company, any trustee or other fiduciary holding
securities under any employee benefit plan of
Company or an affiliate thereof, or any corporation
owned, directly or indirectly, by the stockholders
of Company in substantially the same proportions as
their ownership of stock of Company (for purposes of
this Agreement, "Company Voting Securities" shall
mean the then outstanding voting securities of
Company entitled to vote generally in the election
of directors); provided, however, that any
acquisition from Company or any acquisition pursuant
to a transaction which complies with clauses
(i), (ii) and (iii) of paragraph (3) of this
definition shall not be a Change in Control under
this paragraph (1); or
(2) if individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a
majority of the Board; provided, however, that
any individual becoming a director subsequent to
the date hereof whose election, or nomination for
election by Company's stockholders, was approved
by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a member
of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial
assumption of office occurs as a result of an actual
or threatened election contest with respect to the
election or removal of directors
or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than
the Board; or
(3) upon consummation by Company of a reorganization,
merger or consolidation or sale or other
disposition of all or substantially all of the
assets of Company or the acquisition of assets or
stock of any entity (a "Business Combination"),
in each case, unless immediately following such
Business Combination: (i) Company Voting
Securities outstanding immediately prior to
such Business Combination (or if such Company
Voting Securities were converted pursuant to
such Business Combination, the shares into which
such Company Voting Securitie were converted) (x)
represent, directly or indirectly, more than 50%
of the combined voting power of the then outstanding
voting securities entitled to vote generally in the
election of directors of the corporation resulting
from such Business Combination (the "Surviving
Corporation"), or, if applicable, a corporation
which as a result of such transaction owns
Company or all or substantially all of Company's
assets either directly or through one or more
subsidiaries (the "Parent Corporation") and (y)
are held in substantially the same proportions after
such Business Combination as they were immediately
prior to such Business Combination; (ii) no Person
(excluding any employee benefit plan (or related
trust) of Company or such corporation resulting
from such Business Combination) beneficially owns,
directly or indirectly, 50% or more of the combined
voting power of the then outstanding voting
securities eligible to elect directors of the
Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation)
except to the extent that such ownership of Company
existed prior to the Business Combination; and
(iii) at least a majority of the members of the
board of directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving
Corporation) were members of the Incumbent Board at
the time of the execution of the initial agreement,
or the action of the Board, providing for such
Business Combination; or
(4) upon approval by the stockholders of Company of a
complete liquidation or dissolution of Company.
(e) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(f) "Company" shall mean Integra LifeSciences Holdings
Corporation and any corporation, partnership or other
entity owned directly or indirectly, in whole or in
part, by Integra LifeSciences Holdings Corporation.
(g) "Disability" shall mean Executive's inability to
perform his duties hereunder by reason of any
medically determinable physical or mental impairment
which is expected to result in death or which has
lasted or is expected to last for a continuous period
of not fewer than six months.
(h) "Good Reason" shall mean:
(1) a material breach of this Agreement by Company
which is not cured by Company within 15 days of
its receipt of written notice of the breach;
(2) without Executive's express written consent, the
Company reduces Executive's Base Salary or the
aggregate fringe benefits provided to Executive
(except to the extent permitted by Section 5 or
Section 6, respectively) or substantially alters
the Executive's authority and/or title as set
forth in Section 2 hereof in a manner reasonably
construed to constitute a demotion; provided,
Executive resigns within 90 days after the change
objected to; and provided further that neither (i)
` the appointment of a Chief Financial Officer to
whom Executive will report nor (ii) the appointment
of Executive as president of European operations
or similar positions shall be deemed to constitute a
demotion hereunder; or
(3) without Executive's express written consent,
Executive fails at any point during the one-year
period following a Change in Control to hold the
title and authority (as set forth in Section 2
hereof) with the Parent Corporation (or if there is
no Parent Corporation, the Surviving Corporation)
that Executive held with the Company immediately
prior to the Change of Control, provided Executive
resigns within one year of the Change in Control;
(4) Company fails to obtain the assumption of this
Agreement by any successor to Company.
(i) "Principal Executive Office" shall mean Company's
principal office for executives, presently located at
311 Enterprise Drive, Plainsboro, New Jersey 08536.
(j) "Retirement" shall mean the termination of
Executive's employment with Company in accordance
with the retirement policies, including early
retirement policies, generally applicable to
Company's salaried employees.
(k) "Termination Date" shall mean the date specified in
the Termination Notice.
(l) "Termination Notice" shall mean a dated notice which:
(i) indicates the specific termination provision in
this Agreement relied upon (if any); (ii) sets forth
in reasonable detail the facts and circumstances
claimed to provide a basis for the termination of
Executive's employment under such provision; (iii)
specifies a Termination Date; and (iv) is given in
the manner specified in Section 15(h).
2. Employment. Company hereby employs Executive as Senior Vice
President, Finance, responsible for the Finance Department of the Company, and
Executive hereby agrees to accept such employment and agrees to render services
to Company in such capacity (or in such other capacity in the future as the
Board may reasonably deem equivalent to such position) on the terms and
conditions set forth in this Agreement. Executive's primary place of employment
shall be at the Principal Executive Office and Executive shall report to the
Chief Executive Officer.
3. Term.
(a) Term and Renewal of Agreement. Unless earlier
terminated by Executive or Company as provided in
Section 10 hereof, the term of Executive's employment
under this Agreement shall commence on the date of
this Agreement and terminate on December 31, 2003.
Subject to subsection 3(b), this Agreement shall be
deemed automatically, without further action, to
extend for an additional year on December 31, 2003
and each anniversary thereof.
(b) Annual Review. Prior to December 31, 2003 and each
anniversary thereof, the Board shall consider
extending the term of this Agreement. The term shall
continue to extend in the manner set forth in
subsection 3(a) unless either the Board does not
approve the extension and provides written notice to
Executive of such event, or Executive gives written
notice to Company of Executive's election not to
extend the term. In either case, the written notice
shall be given not fewer than 30 days prior to any
such renewal date. References herein to the term of
this Agreement shall refer both to the initial term
and successive terms.
4. Duties. Executive shall:
(a) faithfully and diligently do and perform all such
acts and duties, and furnish such services as are
assigned to Executive as of the date this Agreement
is signed, and (subject to Section 2) such
additional acts, duties and services as the Board
may assign in the future; and
(b) devote his full professional time, energy, skill
and best efforts to the performance of his duties
hereunder, in a manner that will faithfully and
diligently further the business and interests of
Company, and shall not be employed by or participate
or engage in or in any manner be a part of the
management or operations of any business enterprise
other than Company without the prior consent of the
Chief Executive Officer or the Board, which consent
may be granted or withheld in his or its sole
discretion; provided, however, that notwithstanding
the foregoing, Executive may serve on civic or
charitable boards or committees so long as such
service does not materially interfere with
Executive's obligations pursuant to this Agreement.
5. Compensation. Company shall compensate Executive for his services at
a minimum base salary of $185,000 per year ("Base Salary"), payable in periodic
installments in accordance with Company's regular payroll practices in effect
from time to time. Executive's Base Salary shall be subject to annual reviews,
but may not be decreased without Executive's express written consent (unless the
decrease is pursuant to a general compensation reduction applicable to all, or
substantially all, executive officers of Company). Bonus payments may be made as
determined appropriate by the Board in its sole discretion.
6. Benefit Plans. Executive shall be entitled to participate in and
receive benefits under any employee benefit plan or stock-based plan of Company,
and shall be eligible for any other plans and benefits covering executives of
Company, to the extent commensurate with his then duties and responsibilities
fixed by the Board. Company shall not make any change in such plans or benefits
that would adversely affect Executive's rights thereunder, unless such change
affects all, or substantially all, executive officers of the Company.
7. Vacation. Executive shall be entitled to paid annual vacation in
accordance with the policies established from time to time by the Board, which
shall in no event be fewer than three weeks per annum.
8. Business Expenses. Company shall reimburse Executive or otherwise
pay for all reasonable expenses incurred by Executive in furtherance of or in
connection with the business of Company, including, but not limited to,
automobile and traveling expenses and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Company.
9. Disability. In the event Executive incurs a Disability, Executive's
obligation to perform services under this Agreement will terminate, and the
Board may terminate this Agreement upon written notice to Executive.
10. Termination.
(a) Termination without Salary Continuation. In the
event(i)Executive terminates his employment hereunder
other than for Good Reason, or (ii) Executive's
employment is terminated by Company due to his
Retirement, or death, or for Cause, Executive shall
have no right to compensation or other benefits
pursuant to this Agreement for any period after his
last day of active employment.
(b) Termination with Salary Continuation (No Change in
Control). Except as provided in subsection 10(c) in
the event of a Change in Control, in the event (i)
Executive's employment is terminated by Company for a
reason other than Retirement, death or Cause, or (ii)
Executive terminates his employment for Good Reason,
or (iii) Company shall fail to extend this Agreement
pursuant to the provisions of Section 3, then Company
shall:
(1) pay Executive a severance amount equal to
Executive's Base Salary (determined without regard to
any reduction in violation of Section 5) as of his
last day of active employment; the severance amount
shall be paid in a single sum on the first business
day of the month following the Termination Date; and
(2) maintain and provide to Executive, at no cost to
Executive, for a period ending at the earliest of (i)
the first anniversary of the Termination Date; (ii)
the date of Executive's full-time employment by
another employer; or (iii) Executive's death,
continued participation in all group insurance, life
insurance, health and accident, disability, and other
employee benefit plans in which Executive would have
been entitled to participate had his employment with
Company continued throughout such period, provided
that such participation is not prohibited by the
terms of the plan or by Company for legal reasons.
(c) Termination with Salary Continuation (Change in
Control). Notwithstanding anything to the contrary
set forth in subsection 10(b), in the event within
twelve months of a Change in Control: (i) Executive
terminates his employment for Good Reason, or (ii)
Executive's employment is terminated by Company for a
reason other than Retirement, death or Cause, or
(iii) Company shall fail to extend this Agreement
pursuant to Section 3, then Company shall:
(1) pay Executive a severance amount equal to 2.99
times Executive's Base Salary (determined without
regard to any reduction in violation of Section 5)
as of his last day of active employment; the
severance amount shall be paid in a single sum on the
first business day of the month following the
Termination Date;
(2) maintain and provide to Executive, at no cost to
Executive, for a period ending at the earliest of (i)
the fifth anniversary of the date of this Agreement;
or (ii) Executive's death, continued participation in
all group insurance, life insurance, health and
accident, disability, and other employee benefit
plans in which Executive would have been entitled to
participate had his employment with Company continued
throughout such period, provided that such
participation is not prohibited by the terms of the
plan or by Company for legal reasons; and
(3) pay to Executive all reasonable legal fees and
expenses incurred by Executive as a result of such
termination of employment (including all fees and
expenses, if any, incurred by Executive in contesting
or disputing any such termination or in seeking to
obtain to enforce any right or benefit provided to
Executive by this Agreement whether by arbitration or
otherwise).
(d) Termination Notice. Except in the event of
Executive's death, a termination under this Agreement
shall be effected by means of a Termination Notice.
11. Withholding. Company shall have the right to withhold from all
payments made pursuant to this Agreement any federal, state, or local taxes and
such other amounts as may be required by law to be withheld from such payments.
12. Assignability. Company may assign this Agreement and its rights and
obligations hereunder in whole, but not in part, to any entity to which Company
may transfer all or substantially all of its assets, if in any such case said
entity shall expressly in writing assume all obligations of Company hereunder as
fully as if it had been originally made a party hereto. Company may not
otherwise assign this Agreement or its rights and obligations hereunder. This
Agreement is personal to Executive and his rights and duties hereunder shall not
be assigned except as expressly agreed to in writing by Company.
13. Death of Executive. Any amounts due Executive under this Agreement
(not including any Base Salary not yet earned by Executive) unpaid as of the
date of Executive's death shall be paid in a single sum as soon as practicable
after Executive's
death to Executive's surviving spouse, or if none, to the duly appointed
personal representative of his estate.
14. Restrictive Covenants.
(a) Covenant Not to Compete. During the term of this Agreement
and for a period of one (1) year following the Termination
Date, Executive shall not directly or indirectly:(i) engage,
anywhere within the geographical areas in which Company
is conducting business operations or providing services
as of the date of Executive's termination of employment, in
the development, manufacturing or selling of medical devices
for use by neurosurgeons, or any other business the revenues
of which constituted at least 30% of Company's revenues
during the six (6) month period prior to the Termination Date
(the "Business"); (ii) be or become a stockholder, partner,
owner, officer, director or employee or agent of, or a
consultant to or give financial or other assistance to,
any person or entity engaged in the Business; (iii) seek in
competition with the business of the Company to procure
orders from or do business with any customer of Company; (iv)
solicit or contact with a view to the engagement or
employment by any person or entity of any person who is an
employee of Company; (v) seek to contract with or engage (in
such a way as to adversely affect or interfere with the
business of Company) any person or entity who has been
contracted with or engaged to manufacture, assemble,
supply or deliver products, goods, materials or services to
Company; or (vi) engage in or participate in any effort or
act to induce any of the customers, associates, consultants,
or employees of Company to take any action which might be
disadvantageous to Company; provided, however, that nothing
herein shall prohibit Executive and his affiliates from
owning, as passive investors, in the aggregate not more than
5% of the outstanding publicly traded stock of any
corporation so engaged.
(b) Confidentiality. Executive acknowledges a duty of
confidentiality owed to Company and shall not, at any time
during or after his employment by Company, retain in writing,
use, divulge, furnish, or make accessible to anyone, without
the express authorization of the Board, any trade
secret, private or confidential information or knowledge
of Company obtained or acquired by him while so employed.
All computer software, business cards, telephone lists,
customer lists, price lists, contract forms, catalogs,
Company books, records, files and know-how acquired while an
employee of Company are acknowledged to be the property of
Company and shall not be duplicated, removed from Company's
possession or
premises or made use of other than in pursuit of Company's
business or as may otherwise be required by law or any legal
process, or as is necessary in connection with any adversarial
proceeding against Company and, upon termination of employment
for any reason, Executive shall deliver to Company all copies
thereof which are then in his possession or under his control.
No information shall be treated as "confidential information"
if it is generally available public knowledge at the time of
disclosure or use by Executive.
(c) Inventions and Improvements. Executive shall promptly
communicate to Company all ideas, discoveries and inventions
which are or may be useful to Company or its business.
Executive acknowledges that all such ideas, discoveries,
inventions, and improvements which heretofore have been or
are hereafter made, conceived, or reduced to practice by him
at any time during his employment with Company heretofore
or hereafter gained by him at any time during his employment
with Company are the property of Company, and Executive
hereby irrevocably assigns all such ideas, discoveries,
inventions and improvements to Company foR its sole use and
benefit, without additional compensation. The provisions
of this Section 14(c) shall apply whether such ideas,
discoveries, inventions, or improvements were or are
conceived, made or gained by him alone or with others,
whether during or after usual working hours, whether on or
off the job, whether applicable to matters directly or
indirectly related to Company's business interests
(including potential business interests), and whether or
not within the specific realm of his duties. Executive shall,
upon request of Company, but at no expense to Executive,
at any time during or after his employment with Company,
sign all instruments and documents reasonably requested by
Company and otherwise cooperate with Company to protect
its right to such ideas, discoveries, inventions,
or improvements including applying for, obtaining and
enforcing patents and copyrights thereon in such
countries as Company shall determine.
(d) Breach of Covenant. Executive expressly
acknowledges that damages alone will be an inadequate
remedy for any breach or violation of any of the
provisions of this Section 14 and that Company, in
addition to all other remedies, shall be entitled as
a matter of right to equitable relief, including
injunctions and specific performance, in any court
of competent jurisdiction. If any of the provisions
of this Section 14 are held to be in any respect
unenforceable, then they shall be deemed to extend
only over the maximum period of time, geographic
area, or range of activities as to which they may be
enforceable.
15. Miscellaneous.
(a) Amendment. No provision of this Agreement may be
amended unless such amendment is signed by Executive
and such officer as may be specifically designated by
the Board to sign on Company's behalf.
(b) Nature of Obligations. Nothing contained herein
shall create or require Company to create a trust of
any kind to fund any benefits which may be payable
hereunder, and to the extent that Executive acquires
a right to receive benefits from Company hereunder,
such right shall be no greater than the right of any
unsecured general creditor of the Company.
(c) Prior Employment. Executive represents and warrants
that his acceptance of employment with Company has
not breached, and the performance of his duties
hereunder will not breach, any duty owed by him to
any prior employer or other person.
(d) Headings. The Section headings contained in this
Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation
or this Agreement. In the event of a conflict between
a heading and the content of a Section, the content
of the Section shall control.
(e) Gender and Number. Whenever used in this
Agreement, a masculine pronoun is deemed to include
the feminine and a neuter pronoun is deemed to
include both the masculine and the feminine, unless
the context clearly indicates otherwise. The
singular form, whenever used herein, shall mean or
include the plural form where applicable.
(f) Severability. If any provision of this Agreement or
the application thereof to any person or circumstance
shall be invalid or unenforceable under any
applicable law, such event shall not affect or render
invalid or unenforceable any other provision of this
Agreement and shall not affect the application of any
provision to other persons or circumstances.
(g) Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the parties hereto
and their respective successors, permitted assigns,
heirs, executors and administrators.
(h) Notice. For purposes of this Agreement, notices and
all other communications provided for in this
Agreement shall be in writing
and shall be deemed to have been duly given if
hand-delivered, sent by documented overnight delivery
service or by certified or registered mail, return
receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Company:
Integra LifeSciences Holdings Corporation
311 Enterprise Drive
Plainsboro, New Jersey 08536
Attn: President
With a copy to:
The Company's General Counsel
To the Executive:
David B. Holtz
Chez Richard Carossi
46 Chemin St. Jean
06130 Grasse, France
(i) Entire Agreement. This Agreement sets forth the
entire understanding of the parties and supersedes
all prior agreements, arrangements and
communications, whether oral or written, pertaining
to the subject matter hereof.
(j) Governing Law. The validity, interpretation,
construction and performance of this Agreement shall
be governed by the laws of the United States where
applicable and otherwise by the laws of the State of
New Jersey.
IN WITNESS WHEREOF, this Agreement has been executed as of the
date first above written.
INTEGRA LIFESCIENCES HOLDINGS EXECUTIVE
CORPORATION
By: /s/ Stuart M. Essig /s/ David B. Holtz
Its: President and Chief Executive Officer
EMPLOYMENT AGREEMENT
This employment agreement (this "Agreement") is made as of the 10th day
of September, 2002 by and between Integra LifeSciences Holdings Corporation, a
Delaware Corporation (the "Company") and John B. Henneman, III ("Executive").
Background
Executive is currently the Chief Administrative Officer of Company.
Company desires to continue to employ Executive, and Executive desires to remain
in the employ of Company, on the terms and conditions contained in this
Agreement. Executive will be substantially involved with Company's operations
and management and will learn trade secrets and other confidential information
relating to Company and its customers; accordingly, the noncompetition covenant
and other restrictive covenants contained in Section 14 of this Agreement
constitute essential elements hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and intended to be legally bound hereby, the parties
hereto agree as follows:
Terms
1. Definitions. The following words and phrases shall have the meanings
set forth below for the purposes of this Agreement (unless the context clearly
indicates otherwise):
(a) "Base Salary" shall have the meaning set forth in Section 5.
(b) "Board" shall mean the Board of Direcetors of Company, or
any successor thereto.
(c) "Cause," as determined by the Board in good faith,
shall mean Executive has --
(1) failed to perform his stated duties in all material
respects, which failure continues for 15 days after
his receipt of written notice of the failure;
(2) intentionally and materially breached any provision
of this Agreement and not cured such breach (if
curable) within 15 days of his receipt of written
notice of the breach;
(3) demonstrated his personal dishonesty in connection
with his employment by Company;
(4) engaged in willful misconduct in connection with his
employment with the Company;
(5) engaged in a breach of fiduciary duty in connection
with his employment with the Company; or
(6) willfully violated any law, rule or regulation, or
final cease-and-desist order (other than traffic
violations or similar offenses) or engaged in other
serious misconduct of such a nature that his
continued employment may reasonably be expected to
cause the Company substantial economic or
reputational injury.
(d) A "Change in Control" of Company shall be deemed to
have occurred:
(1) if the "beneficial ownership" (as defined in
Rule 13d-3 under the Securities Exchange Act
of 1934) of securities representing more than
fifty percent (50%) of the combined voting power
of Company Voting Securities (as herein defined)
is acquired by any individual, entity or group
(a "Person"), other than Company, any trustee or
other fiduciary holding securities under any
employee benefit plan of Company or an affiliate
thereof, or any corporation
owned, directly or indirectly, by the stockholders
of Company in substantially the same proportions
as their ownership of stock of Company (for
purposes of this Agreement, "Company Voting
Securities" shall mean the then outstanding
voting securities of Company entitled to vote
generally in the election of directors); provided,
however, that any acquisition from Company or any
acquisition pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of
paragraph (3) of this definition shall not be a
Change in Control under this paragraph (1); or
(2) if individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of
the Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by
Company's stockholders, was approved by a vote of
at least a majority of the directors then
comprising the Incumbent Board shall be considered
as though such individual were a member of the
Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of
office occurs as a result of an actual or
threatened election contest with respect to the
election or removal of directors
or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person
other than the Board; or
(3) upon consummation by Company of a reorganization,
merger or consolidation or sale or other
disposition of all or substantially all of the
assets of Company or the acquisition of assets or
stock of any entity (a "Business Combination"), in
each case, unless immediately following such
Business Combination: (i) Company Voting Securities
outstanding immediately prior to such Business
Combination (or if such Company Voting Securities
were converted pursuant to such Business
Combination, the shares into which such Company
Voting Securities were converted) (x) represent,
directly or indirectly, more than 50% of the
combined voting power of the then outstanding
voting securities entitled to vote generally in the
election of directors of the corporation resulting
from such Business Combination (the "Surviving
Corporation"), or, if applicable, a corporation
which as a result of such transaction owns Company
or all or substantially all of Company's assets
either directly or through one or more
subsidiaries (the "Parent Corporation") and
(y) are held in substantially the same
proportions after such Business Combination as
they were immediately prior to such Business
Combination;(ii) no Person (excluding any employee
benefit plan (or related trust) of Company
or such corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, 50% or more of the combined voting
power of the then outstanding voting securities
eligible to elect directors of the Parent
Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) except to
the extent that such ownership of Company existed
prior to the Business Combination; and (iii) at
least a majority of the members of the board of
directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation)
were members of the Incumbent Board at the time of
the execution of the initial agreement, or the
action of the Board, providing for such Business
Combination; or
(4) upon approval by the stockholders of Company of a
complete liquidation or dissolution of Company.
(e) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(f) "Company" shall mean Integra LifeSciences Holdings
Corporation and any corporation, partnership or other
entity owned directly or indirectly, in whole or in
part, by Integra LifeSciences Holdings Corporation.
(g) "Disability" shall mean Executive's inability to
perform his duties hereunder by reason of any
medically determinable physical or mental impairment
which is expected to result in death or which has
lasted or is expected to last for a continuous period
of not fewer than six months.
(h) "Good Reason" shall mean:
(1) a material breach of this Agreement by Company
which is not cured by Company within 15 days
of its receipt of written notice of the breach;
(2) the relocation by the Company of the Executive's
office location to a location more than thirty (30)
miles from Princeton, New Jersey;
(3) without Executive's express written consent, the
Company reduces Executive's Base Salary or the
aggregate fringe benefits provided to Executive
(except to the extent permitted by Section 5 or
Section 6, respectively) or substantially alters the
Executive's authority and/or title as set forth in
Section 2 hereof in a manner reasonably construed to
constitute a demotion, provided, Executive resigns
within 90 days after the change objected to; or
(4) without Executive's express written consent,
Executive fails at any point during the one-year
period following a Change in Control to hold the
title and authority (as set forth in Section 2
hereof) with the Parent Corporation (or if there is
no Parent Corporation, the Surviving Corporation)
that Executive held with the Company immediately
prior to the Change of Control, provided Executive
resigns within one year of the Change in Control;
(5) Company fails to obtain the assumption of this
Agreement by any successor to Company.
(i) "Principal Executive Office" shall mean Company's
principal office for executives, presently located at
311 Enterprise Drive, Plainsboro, New Jersey 08536.
(j) "Retirement" shall mean the termination of
Executive's employment with Company in accordance
with the retirement policies, including early
retirement policies, generally applicable to
Company's salaried employees.
(k) "Termination Date" shall mean the date specified in
the Termination Notice.
(l) "Termination Notice" shall mean a dated notice which:
(i) indicates the specific termination provision in
this Agreement relied upon (if any); (ii) sets forth
in reasonable detail the facts and circumstances
claimed to provide a basis for the termination of
Executive's employment under such provision; (iii)
specifies a Termination Date; and (iv) is given in
the manner specified in Section 15(h).
2. Employment. Company hereby employs Executive as Chief Administrative
Officer, responsible for the business development department, the law
department, the regulatory affairs and quality assurance department, and the
human resources department of the Company, and Executive hereby agrees to accept
such employment and agrees to render services to Company in such capacity (or in
such other capacity in the future as the Board may reasonably deem equivalent to
such position) on the terms and conditions set forth in this Agreement.
Executive's primary place of employment shall be at the Principal Executive
Office and Executive shall report to the Chief Executive Officer.
3. Term.
(a) Term and Renewal of Agreement. Unless earlier
terminated by Executive or Company as provided in
Section 10 hereof, the term of Executive's employment
under this Agreement shall commence on the date of
this Agreement and terminate on December 31, 2003.
Subject to subsection 3(b), this Agreement shall be
deemed automatically, without further action, to
extend for an additional year on December 31, 2003
and each anniversary thereof.
(b) Annual Review. Prior to December 31, 2003 and each
anniversary thereof, the Board shall consider
extending the term of this Agreement. The term shall
continue to extend in the manner set forth in
subsection 3(a) unless either the Board does not
approve the extension and provides written notice to
Executive of such event, or Executive gives written
notice to Company of Executive's election not to
extend the term. In either case, the written notice
shall be given not fewer than 30 days prior to any
such renewal date. References herein to the term of
this Agreement shall refer both to the initial term
and successive terms.
4. Duties. Executive shall:
(a) faithfully and diligently do and perform all such
acts and duties, and furnish such services as are
assigned to Executive as of the
date this Agreement is signed, and (subject to
Section 2) such additional acts, duties and services
as the Board may assign in the future; and
(b) devote his full professional time, energy, skill and
best efforts to the performance of his duties
hereunder, in a manner that will faithfully and
diligently further the business and interests of
Company, and shall not be employed by or participate
or engage in or in any manner be a part of the
management or operations of any business enterprise
other than Company without the prior consent of the
Chief Executive Officer or the Board, which consent
may be granted or withheld in his or its sole
discretion; provided, however, that notwithstanding
the foregoing, Executive may serve on civic or
charitable boards or committees so long as such
service does not materially interfere with
Executive's obligations pursuant to this Agreement.
5. Compensation. Company shall compensate Executive for his services at
a minimum base salary of $270,000 per year ("Base Salary"), payable in periodic
installments in accordance with Company's regular payroll practices in effect
from time to time. Executive's Base Salary shall be subject to annual reviews,
but may not be decreased without Executive's express written consent (unless the
decrease is pursuant to a general compensation reduction applicable to all, or
substantially all, executive officers of Company). Bonus payments may be made as
determined appropriate by the Board in its sole discretion.
6. Benefit Plans. Executive shall be entitled to participate in and
receive benefits under any employee benefit plan or stock-based plan of Company,
and shall be eligible for any other plans and benefits covering executives of
Company, to the extent commensurate with his then duties and responsibilities
fixed by the Board. Company shall not make any change in such plans or benefits
that would adversely affect Executive's rights thereunder, unless such change
affects all, or substantially all, executive officers of the Company.
7. Vacation. Executive shall be entitled to paid annual vacation in
accordance with the policies established from time to time by the Board, which
shall in no event be fewer than three weeks per annum.
8. Business Expenses. Company shall reimburse Executive or otherwise
pay for all reasonable expenses incurred by Executive in furtherance of or in
connection with the business of Company, including, but not limited to,
automobile and traveling expenses and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Company.
9. Disability. In the event Executive incurs a Disability, Executive's
obligation to perform services under this Agreement will terminate, and the
Board may terminate this Agreement upon written notice to Executive.
10. Termination.
(a) Termination without Salary Continuation. In the event
(i) Executive terminates his employment hereunder
other than for Good Reason, or (ii) Executive's
employment is terminated by Company due to his
Retirement, or death, or for Cause, Executive shall
have no right to compensation or other benefits
pursuant to this Agreement for any period after his
last day of active employment.
(b) Termination with Salary Continuation (No Change in
Control). Except as provided in subsection 10(c) in
the event of a Change in Control, in the event (i)
Executive's employment is terminated by Company for a
reason other than Retirement, death or Cause, or (ii)
Executive terminates his employment for Good Reason,
or (iii) Company shall fail to extend this Agreement
pursuant to the provisions of Section 3, then Company
shall:
(1) pay Executive a severance amount equal to
Executive's Base Salary (determined without regard
to any reduction in violation of Section 5) as of
his last day of active employment; the severance
amount shall be paid in a single sum on the first
business day of the month following the Termination
Date; and
(2) maintain and provide to Executive, at no cost to
Executive, for a period ending at the earliest of
(i) the first anniversary of the Termination Date;
(ii) the date of Executive's full-time employment
by another employer; or (iii) Executive's death,
continued participation in all group insurance, life
insurance, health and accident, disability, and
other employee benefit plans in which Executive
would have been entitled to participate had his
employment with Company continued throughout such
period, provided that such participation is not
prohibited by the terms of the plan or by Company
for legal reasons.
(c) Termination with Salary Continuation (Change in
Control). Notwithstanding anything to the contrary
set forth in subsection 10(b), in the event within
twelve months of a Change in Control: (i) Executive
terminates his employment for Good Reason, or (ii)
Executive's employment is terminated by Company for a
reason other than Retirement, death or Cause, or
(iii) Company shall fail
to extend this Agreement pursuant to Section 3, then
Company shall:
(1) pay Executive a severance amount equal to 2.99 times
Executive's Base Salary (determined without regard to
any reduction in violation of Section 5) as of his
last day of active employment; the severance amount
shall be paid in a single sum on the first business
day of the month following the Termination Date;
(2) maintain and provide to Executive, at no cost to
Executive, for a period ending at the earliest of (i)
the fifth anniversary of the date of this Agreement;
or (ii) Executive's death, continued participation in
all group insurance, life insurance, health and
accident, disability, and other employee benefit
plans in which Executive would have been entitled to
participate had his employment with Company continued
throughout such period, provided that such
participation is not prohibited by the terms of the
plan or by Company for legal reasons; and
(3) pay to Executive all reasonable legal fees and
expenses incurred by Executive as a result of such
termination of employment (including all fees and
expenses, if any, incurred by Executive in contesting
or disputing any such termination or in seeking to
obtain to enforce any right or benefit provided to
Executive by this Agreement whether by arbitration or
otherwise).
(d) Termination Notice. Except in the event of
Executive's death, a termination under this Agreement
shall be effected by means of a Termination Notice.
11. Withholding. Company shall have the right to withhold from all
payments made pursuant to this Agreement any federal, state, or local taxes and
such other amounts as may be required by law to be withheld from such payments.
12. Assignability. Company may assign this Agreement and its rights and
obligations hereunder in whole, but not in part, to any entity to which Company
may transfer all or substantially all of its assets, if in any such case said
entity shall expressly in writing assume all obligations of Company hereunder as
fully as if it had been originally made a party hereto. Company may not
otherwise assign this Agreement or its rights and obligations hereunder. This
Agreement is personal to Executive and his rights and duties hereunder shall not
be assigned except as expressly agreed to in writing by Company.
13. Death of Executive. Any amounts due Executive under this Agreement
(not including any Base Salary not yet earned by Executive) unpaid as of the
date of Executive's death shall be paid in a single sum as soon as practicable
after Executive's death to Executive's surviving spouse, or if none, to the duly
appointed personal representative of his estate.
14. Restrictive Covenants.
(a) Covenant Not to Compete. During the term of this
Agreement and for a period of one (1) year following
the Termination Date, Executive shall not directly or
indirectly: (i) engage, anywhere within the
geographical areas in which Company is conducting
business operations or providing services as of the
date of Executive's termination of employment, in the
development, manufacturing or selling of medical
devices for use by neurosurgeons, or any other
business the revenues of which constituted at least
30% of Company's revenues during the six (6) month
period prior to the Termination Date (the
"Business"); (ii) be or become a stockholder, partner,
owner, officer, director or employee or agent of,
or a consultant to or give financial or other
assistance to, any person or entity engaged in the
Business; (iii) seek in competition with the business
of the Company to procure orders from or do business
with any customer of Company; (iv) solicit or contact
with a view to the engagement or employment by any
person or entity of any person who is an employee
of Company; (v) seek to contract with or engage (in
such a way as to adversely affect or interfere with
the business of Company) any person or entity who has
been contracted with or engaged to manufacture,
assemble, supply or deliver products, goods, materials
or services to Company; or (vi) engage in or
participate in any effort or act to induce any of the
customers, associates, consultants, or employees of
Company to take any action which might be
disadvantageous to Company; provided, however, that
nothing herein shall prohibit Executive and
his affiliates from owning, as passive investors,
in the aggregate not more than 5% of the outstanding
publicly traded stock of any corporation so engaged.
(b) Confidentiality. Executive acknowledges a duty of
confidentiality owed to Company and shall not, at any
time during or after his employment by Company, retain
in writing, use, divulge, furnish, or make accessible
to anyone, without the express authorization of the
Board, any trade secret, private or confidential
information or knowledge of Company obtained or
acquired by him while so employed. All computer
software, business cards, telephone lists, customer
lists, price lists, contract forms, catalogs, Company
books, records, files and know-how acquired while an
employee of Company are acknowledged to be the property
of Company and shall not be duplicated, removed from
Company's possession or premises or made use of other
than in pursuit of Company's business or as may
otherwise be required by law or any legal process, or
as is necessary in connection with any adversarial
proceeding against Company and, upon termination of
employment for any reason, Executive shall deliver to
Company all copies thereof which are then in his
possession or under his control. No information shall
be treated as "confidential information" if it is
generally available public knowledge at the time of
disclosure or use by Executive.
(c) Inventions and Improvements. Executive shall promptly
communicate to Company all ideas, discoveries and
inventions which are or may be useful to Company or
its business. Executive acknowledges that all such
ideas, discoveries, inventions, and improvements which
heretofore have been or are hereafter made, conceived,
or reduced to practice by him at any time during his
employment with Company heretofore or hereafter
gained by him at any time during his employment with
Company are the property of Company, and Executive
hereby irrevocably assigns all such ideas,
discoveries, inventions and improvements to Company
for its sole use and benefit, without additional
compensation. The provisions of this Section 14(c)
shall apply whether such ideas, discoveries,
inventions, or improvements were or are conceived,
made or gained by him alone or with others, whether
during or after usual working hours, whether on or
off the job, whether applicable to matters directly or
indirectly related to Company's business interests
(including potential business interests), and
whether or not within the specific realm of his duties.
Executive shall, upon request of Company, but at no
expense to Executive, at any time during or after
his employment with Company, sign all instruments
and documents reasonably requested by Company and
otherwise cooperate with Company to protect its right
to such ideas, discoveries, inventions, or improvements
including applying for, obtaining and enforcing
patents and copyrights thereon in such countries as
Company shall determine.
(d) Breach of Covenant. Executive expressly acknowledges
that damages alone will be an inadequate remedy for
any breach or violation of any of the provisions of
this Section 14 and that Company, in addition to all
other remedies, shall be entitled as a matter of
right to equitable relief, including injunctions and
specific performance, in any court of competent
jurisdiction. If any of the provisions of this
Section 14 are held to be in any
respect unenforceable, then they shall be deemed to
extend only over the maximum period of time, geographic
area, or range of activities as to which they may be
enforceable.
15. Miscellaneous.
(a) Amendment. No provision of this Agreement may be
amended unless such amendment is signed by Executive
and such officer as may be specifically designated by
the Board to sign on Company's behalf.
(b) Nature of Obligations. Nothing contained herein shall
create or require Company to create a trust of any
kind to fund any benefits which may be payable
hereunder, and to the extent that Executive acquires
a right to receive benefits from Company hereunder,
such right shall be no greater than the right of any
unsecured general creditor of the Company.
(c) Prior Employment. Executive represents and warrants
that his acceptance of employment with Company has
not breached, and the performance of his duties
hereunder will not breach, any duty owed by him to
any prior employer or other person.
(d) Headings. The Section headings contained in this
Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation
or this Agreement. In the event of a conflict between
a heading and the content of a Section, the content
of the Section shall control.
(e) Gender and Number. Whenever used in this Agreement, a
masculine pronoun is deemed to include the feminine
and a neuter pronoun is deemed to include both the
masculine and the feminine, unless the context
clearly indicates otherwise. The singular form,
whenever used herein, shall mean or include the
plural form where applicable.
(f) Severability. If any provision of this Agreement or
the application thereof to any person or circumstance
shall be invalid or unenforceable under any
applicable law, such event shall not affect or render
invalid or unenforceable any other provision of this
Agreement and shall not affect the application of any
provision to other persons or circumstances.
(g) Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and
their respective successors, permitted assigns,
heirs, executors and administrators.
(h) Notice. For purposes of this Agreement, notices and
all other communications provided for in this
Agreement shall be in writing and shall be deemed to
have been duly given if hand-delivered, sent by
documented overnight delivery service or by certified
or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set
forth below:
To the Company:
Integra LifeSciences Holdings Corporation
311 Enterprise Drive
Plainsboro, New Jersey 08536
Attn: President
With a copy to:
The Company's General Counsel
To the Executive:
John B. Henneman, III
78 Shady Brook Lane
Princeton, NJ 08540
(i) Entire Agreement. This Agreement sets forth the
entire understanding of the parties and supersedes
all prior agreements, arrangements and
communications, whether oral or written, pertaining
to the subject matter hereof.
(j) Governing Law. The validity, interpretation,
construction and performance of this Agreement shall
be governed by the laws of the United States where
applicable and otherwise by the laws of the State of
New Jersey.
IN WITNESS WHEREOF, this Agreement has been executed as of the
date first above written.
INTEGRA LIFESCIENCES HOLDINGS EXECUTIVE
CORPORATION
By:_/s/ Stuart M. Essig______________ /s/John B. Henneman, III
Its: President and Chief Executive Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT
OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stuart M. Essig, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Integra LifeSciences
Holdings Corporation;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002
By: /s/ Stuart M. Essig
- -----------------------
Stuart M. Essig
President and Chief Executive Officer
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT
OF 1934, AS ADOPTED PURANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David B. Holtz, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Integra LifeSciences
Holdings Corporation;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002
By: /s/ David B. Holtz
- -----------------------
David B. Holtz
Senior Vice President, Finance and Treasurer
Exhibit 99.2
INTEGRA LIFESCIENCES HOLDINGS CORPORATION CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Quarterly Report of Integra LifeSciences Holdings
Corporation (the "Company") on Form 10-Q for the period ending September 30,
2002 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Stuart M. Essig, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the
Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Stuart M. Essig
- -------------------------------------
Stuart M. Essig
Chief Executive Officer
November 14, 2002
INTEGRA LIFESCIENCES HOLDING CORPORATION CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Quarterly Report of Integra LifeSciences Holding
Corporation (the "Company") on Form 10-Q for the period ending September 30,
2002 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, David B. Holtz, Senior Vice President, Finance and
Treasurer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ David B. Holtz
David B. Holtz
Senior Vice President, Finance and Treasurer
November 14, 2002
