wright medical group, inc. 8-k filed may 4, 2011

8/6/2019 Wright Medical Group, Inc. 8-K Filed May 4, 2011

1/10

WRIGHT MEDICAL GROUP INC(WMGI)

8-K Current report filingFiled on 05/04/2011Filed Period 05/03/2011
http://westlawbusiness.com/http://thomsonreuters.com/


2/10

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORTPursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): May 3, 2011

WRIGHT MEDICAL GROUP, INC

(Exact Name of Registrant as Specified in Charter)

Delaware 000-32883 13-4088127

(State or Other Jurisdictionof Incorporation

(CommissionFile Number)

(IRS EmployerIdentification No.)

5677 Airline Road,

Arlington, Tennessee 38002

(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (901) 867-9971

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of thefollowing provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


3/10

Item 2.02. Results of Operations and Financial Condition.

On May 4, 2011, Wright Medical Group, Inc. issued a press release announcing, among other things, preliminary financial results for the first quarter endedMarch 31, 2011 and containing information concerning a conference call to discuss such results. A copy of the press release is set forth in Exhibit 99.1 heretoand is incorporated herein by reference.

The information in this Current Report, including exhibits attached hereto, is being furnished and shall not be deemed filed for the purposes of Section 18 ofthe Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report, includingexhibits attached hereto, shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933,except as may otherwise be expressly stated in such filing.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements ofCertain Officers.

On May 4, 2011, the Company announced that Thomas L. McAllister has been appointed interim General Counsel and Secretary by the Board of Directors,replacing Raymond C. Kolls, Senior Vice President, General Counsel and Secretary, effective May 4, 2011.

Mr. McAllister, age 44, has been our Assistant General Counsel since 2005 and held various other legal positions from 2002 2005. Prior to joining us,Mr. McAllister practiced law for approximately ten years. The Board has not yet established any compensation arrangements for Mr. McAllister's service asinterim General Counsel and Secretary.

Mr. Kolls resigned from the Company without good reason effective May 3, 2011. Because Mr. Kolls' resignation was without good reason the Company hasno obligations to him other than payment of accrued obligations. In general, the Company will be obligated to pay Mr. Kolls accrued salary earned throughMay 3, 2011 and the value of accrued but untaken vacation, and to reimburse him for unreimbursed business expenses, but Mr. Kolls is not entitled toseverance pay under any employment or separation pay agreement or otherwise.

In addition, Alicia M. Napoli, Vice President, Clinical & Regulatory Affairs, and Cary P. Hagan, Sr. Vice President, Commercial Operations Europe,Middle East and Africa, also resigned from the Company without good reason effective May 3 and 4, 2011, respectively.

Item 8.01. Other Information

In December 2007, we received a subpoena from the United States Department of Justice (DOJ) through the United States Attorney's Office for the District ofNew Jersey (USAO) requesting documents for the period January 1998 through the present related to any consulting and professional service agreements withorthopaedic surgeons in connection with hip or knee joint replacement procedures or products. This subpoena was served shortly after several of our knee andhip competitors agreed to resolutions with the DOJ after being subjects of investigations involving the same subject matter.

On September 29, 2010, our wholly-owned subsidiary, Wright Medical Technology, Inc. (WMT) entered into a 12-month Deferred Prosecution Agreement(DPA) with the USAO and a Civil Settlement Agreement (CSA) with the United States. Under the DPA, the USAO agreed not to prosecute WMT inconnection with the matter if WMT satisfies its obligations during the 12 month term of the DPA. Pursuant to the CSA, WMT settled civil and administrativeclaims relating to the matter for a payment of $7.9 million without any admission by WMT. In conjunction with the CSA, WMT also entered into a five yearCorporate Integrity Agreement (CIA) with the Office of the Inspector General of the United States Department of Health and Human Services (OIG). TheDPA and the CIA were filed as Exhibits 10.27 and 10.26, respectively, to the Company's quarterly report filed on October 29, 2010. The DPA has also beenposted to the Company's website.

Pursuant to the DPA, an independent monitor has been retained to review and evaluate WMT's compliance with its obligations under the DPA. As a result ofthe work of the independent monitor and WMT's compliance program, the Board of Directors became aware of facts indicative of possible compliance issues.At the direction of the Nominating, Compliance and Governance Committee of the Board of Directors of WMT's parent, Wright Medical Group, Inc.

("WMGI"), WMGI and WMT have conducted an internal investigation with the assistance of outside counsel. The Board of Directors of WMGI received areport from outside counsel. On May 4, 2011, pursuant to Paragraph 20 of the DPA, WMT provided written notice to the independent monitor and the USAOof "credible evidence of serious wrongdoing." The same notice was also provided to OIG. The Board of WMGI also took a number of measures to enhanceWMT's compliance environment. WMT and the independent monitor continue their investigative activities pursuant to the DPA, and communicationsbetween WMT, the independent monitor, the USAO and OIG are ongoing.

WMT could receive a letter pursuant to Paragraph 50 of the DPA stating that the USAO believes that WMT has knowingly and willfully breached one ormore material provisions of the DPA. Pursuant to the DPA WMT would have the opportunity to make a presentation within three weeks of receipt of such aletter that could address whether any breach has occurred, whether any breach was knowing or willful, materiality, and whether any breach has been cured.

- 2 -


4/10

Pursuant to the DPA, we expect that the USAO would not take any further action until consideration of WMT's presentation.

The DPA and CIA impose certain obligations on WMT to maintain compliance with U.S. healthcare regulatory laws. Our failure to do so could expose us tosignificant liability including, but not limited to, extension of the term of the DPA by up to 6 months, exclusion from federal healthcare program participationincluding Medicaid and Medicare, which would have a material adverse effect on our financial condition, results of operations and cash flows, potentialprosecution, including under the previously-filed criminal complaint, civil and criminal fines or penalties, and additional litigation cost and expense. If notextended, our obligations under the DPA expire as of September 29, 2011, while our obligations under the CIA expire as of September 29, 2015.

In addition to the USAO and OIG, other governmental agencies, including state authorities, could conduct investigations or institute proceedings that are notprecluded by the terms of the settlements reflected by the DPA and the CIA. In addition, the settlement with the USAO and OIG could increase our exposureto lawsuits by potential whistleblowers under the federal false claims acts, based on new theories or allegations arising from the allegations made by theUSAO. The costs of defending or resolving any such investigations or proceedings could have a material adverse effect on our financial condition, results ofoperations and cash flows.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.Exhibit No. Description99.1

Press release titled "Wright Medical Group, Inc. Announces Preliminary First Quarter Financial Results and Management Changes" issued by theCompany on May 4,2011.

Cautionary Note Regarding Forward-Looking Statements:

This current report contains "forward-looking statements" as defined under U.S. federal securities laws, including statements regarding potentialactions by the USAO, independent monitor, OIG and other agencies or their potential impact, and statements about expected financial results for the quarterended March 31, 201 1. These statements reflect management's current knowledge, assumptions, beliefs, estimates, and expectations and expressmanagement's current views of future performance, results, and trends and may be identified by their use of terms such as "anticipate," "believe," "could,""estimate," "expect," "intend," "may," "plan," "predict," "project," "will," and other similar terms. Forward-looking statements are subject to a number of

risks and uncertainties that could cause our actual results to materially differ from those described in the forward-looking statements. Readers should notplace undue reliance on forward looking statements. Such statements are made as of the date of this Current Report on Form 8-K, and we undertake noobligation to update such statements after this date. Risks and uncertainties that could cause our actual results to materially differ from those described in

forward-looking statements include those discussed in our filings with the Securities and Exchange Commission (including those described in Item 1A of ourAnnual Report on Form 10-K for the year ended December 31, 2010, under the heading, "Risk Factors" and elsewhere), and the impact of our settlement ofthe federal investigation into our consulting arrangements with orthopaedic surgeons relating to our hip and knee products in the United States, including ourcompliance with the Deferred Prosecution Agreement through September 2011 (which could, by its terms, be extended for a further six months) and theCorporate

- 3 -


5/10

Integrity Agreement through September 2015, and any items identified during the course of the Company's quarter-end accounting close processes. Ourfailure to comply with the Deferred Prosecution Agreement or the Corporate Integrity Agreement could expose us to significant liability including, but notlimited to, extension of the term of the DPA by up to 6 months, exclusion from federal healthcare program participation, including Medicaid and Medicare,which would have a material adverse effect on our financial condition, results of operations and cash flows, potential prosecution, including under the

previously-filed criminal complaint, civil and criminal fines or penalties, and additional litigation cost and expense. Readers should not place undue relianceon forward-looking statements. Such statements are made as of the date of this press release, and we undertake no obligation to update such statements afterthis date.

- 4 -


6/10

SIGNATURE

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 undersignedhereunto duly authorized.

WRIGHT MEDICAL GROUP, INC.

Date: May 4, 2011 By: /s/ Lance A. BerryName: Lance A. Berry

Title: Senior Vice President & ChiefFinancial Officer

- 5 -


7/10

EXHIBIT INDEXExhibit No. Description99.1

Press release titled "Wright Medical Group, Inc. Announces Preliminary First Quarter Financial Results and Management Changes" issued by theCompany on May 4, 2011.

- 6 -


8/10

Exhibit 99.1

FOR RELEASE 3:30 P.M. CENTRALWednesday, May 4, 2011

Contact: Lance Berry(901) 867-4607

Wright Medical Group, Inc. Announces Preliminary First Quarter Financial Results and Management Changes

Affirms Commitment to Compliance and the Highest Standards of Ethical Conduct

Reports First Quarter Net Sales of $135.4 Million, an Increase of 3% Year-Over-Year,and As-Adjusted EPS of $0.24, an increase of 14% Year-Over-Year

Reiterates 2011 Net Sales Guidance; Raises 2011 EPS Guidance

ARLINGTON, TN May 4, 2011 Wright Medical Group, Inc. (NASDAQ: WMGI), a global orthopaedic medical device company and a leading providerof surgical solutions for the foot and ankle market, today announced certain management changes, effective immediately, following the resignations of threeexecutives:

Thomas L. McAllister has been appointed interim General Counsel and Secretary, replacing Raymond C. Kolls, Senior Vice President, GeneralCounsel and Secretary;

Aurelio Sahagun is serving as Vice President, EMEA Commercial Operations, succeeding Cary P. Hagan, formerly Senior Vice President, EMEACommercial Operations. Mr. Sahagun's appointment was planned, implemented two weeks ago and was already announced internally; and

Max K. Mortensen will serve as Vice President, Quality, Clinical & Regulatory Affairs, replacing Alicia M. Napoli, Vice President, Clinical &Regulatory Affairs.

Mr. Kolls, Mr. Hagan and Ms. Napoli resigned without "good reason." Wright Medical noted that these management changes are not related to the Company's

operational performance, financial condition or financial reporting.

Update on Status of Internal Investigation

The Company also announced that, at the direction of the Wright Medical Board, it conducted an internal investigation with the assistance of outside counsel.The Board received a report on the investigation and notified the independent monitor and the U.S. Attorney's Office for the District of New Jersey(USAO) pursuant to the Deferred Prosecution Agreement (DPA). The same notice was also provided to the Office of the Inspector General of the U.S.Department of Health and Human Services (OIG). The Board also took a number of measures to enhance the Company's compliance environment. TheCompany and the independent monitor continue their investigative activities pursuant to the DPA, and communications between the Company, theindependent monitor, the USAO and OIG are ongoing.

David D. Stevens, Chairman of the Board and interim Chief Executive Officer, said, "The Board is committed to maintaining the highest standards of ethicalconduct and we remain diligent in ensuring that Wright Medical complies with all applicable laws and regulations. Wright Medical has dedicated employeesand a deep bench of senior-level talent, and our priority as always is to support our customers and partners while creating value for our shareholders."

Additional information is available in Wright Medical's Form 8-K filed today with the U.S. Securities and Exchange Commission and can be found onwww.sec.gov or in the "Corporate Investor Information" section of the Company's website at www.wmt.com.

Preliminary First Quarter Results and 2011 Guidance

Wright Medical also announced today preliminary results for the first quarter ended March 31, 2011, reiterated full year sales guidance and raised full year as-adjusted earnings per share (EPS) guidance. A reconciliation of U.S. GAAP to "as adjusted" results included herein is included in the attached financial tables

For the first quarter of 2011, the Company reported net sales of $135.4 million, a 3% increase over net sales of $131.2 million during the first quarter of 2010.The Company's first quarter 2011 EPS was $0.09 per diluted share, compared to a loss of ($0.01) per diluted share in the first quarter of 2010. WrightMedical's diluted earnings per share for the first quarter of 2011, as adjusted, was $0.24, an increase of 14% compared to $0.21 in the first quarter of 2010.


9/10

The Company is reiterating its previously-communicated 2011 net sales outlook of $517 million to $535 million. The Company is also upwardly revising its2011 as-adjusted earnings per share outlook* to a target range for the full year 2011 of $0.89 to $0.97 per diluted share, from $0.88 to $0.95 per diluted share,which was previously communicated on February 10, 2011. The Company anticipates full year 2011 as-adjusted earnings per diluted share including stock-based compensation to be in the range of $0.70 to $0.78, which represents annualized growth expectations of 0% to 11%.

Lance Berry, Senior Vice President and Chief Financial Officer, added, "Wright Medical continues to perform well, and we remain dedicated to achieving ourbusiness objectives and delivering value to all of our stakeholders through the continued execution of our strategic plan."

The Company will provide further information when it releases its first quarter 2011 results at 3:00 p.m. Central Time on Thursday, May 5, 2011.

Conference Call and Webcast DetailsAs previously announced, Wright Medical will host a conference call on Thursday, May 5, 2011 at 3:30 p.m. Central Time to discuss the Company'soperating results for its first quarter ended March 31, 2011. The live dial-in number for the call is 866-788-0538 (domestic) or 85 7-350-1676 (international).The participant passcode for the call is "Wright." To access a simultaneous webcast of the conference call via the internet, go to the "Corporate InvestorInformation" section of the Company's website located at www.wmt.com.

* The Company's earnings target excludes the transaction costs and non-cash deferred financing fees associated with the recently completed tender offer forthe Company's 2.625% Convertible Senior Notes due 2014 (Convertible Notes), possible future acquisitions, other material future business developments, andcosts associated with the Company's DPA (including the associated independent monitor).

Non-GAAP Financial Measures

The Company uses non-GAAP financial measures, such as net sales, excluding the impact of foreign currency; operating income, as adjusted; net income, asadjusted; net income, as adjusted, per diluted share; effective tax rate, as adjusted; and free cash flow. The Company's management believes that thepresentation of these measures provides useful information to investors. These measures may assist investors in evaluating the Company's operations, periodover period. The measures exclude such items as costs related to the U.S. governmental inquiries and DPA, restructuring charges, transaction costs and non-cash deferred financing fees associated with the Convertible Notes tendered and non-cash stock-based expense, all of which may be highly variable, difficultto predict and of a size that could have substantial impact on the Company's reported results of operations for a period. Management uses these measuresinternally for evaluation of the performance of the business, including the allocation of resources and the evaluation of results relative to employeeperformance compensation targets. Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for or as superior to,measures of financial performance prepared in accordance with GAAP.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release contains "forward-looking statements" as defined under U.S. federal securities laws, including statements about expected financial resultsfor the quarter ended March 31, 2011. These statements reflect management's current knowledge, assumptions, beliefs, estimates, and expectations andexpress management's current views of future performance, results, and trends and may be identified by their use of terms such as "anticipate," "believe,""could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," and other similar terms. Forward-looking statements , such as statementsregarding potential actions by the USAO, independent monitor, OIG and other agencies or their potential impact are subject to a number of risks anduncertainties that could cause our actual results to materially differ from those described in the forward-looking statements. Risks and uncertainties thatcould cause our actual results to materially differ from those described in forward-looking statements include those discussed in our filings with the Securitiesand Exchange Commission (including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with theSEC under the heading "Risk Factors"), and the following: the impact of our settlement of the federal investigation into our consulting arrangements withorthopaedic surgeons relating to our hip and knee products in the United States, including our compliance with the Deferred Prosecution Agreement throughSeptember 2011 (which could, by its terms, be extended for a further six months) and the Corporate Integrity Agreement through September 2015; and anyitems identified during the course of the Company's quarter-end accounting close processes. Readers should not place undue reliance on forward-lookingstatements. Such statements are made as of the date of this press release, and we undertake no obligation to update such statements after this date.

- 2 -


10/10

About Wright Medical Group, Inc.

Wright Medical Group, Inc. is a global orthopaedic medical device company specializing in the design, manufacture and marketing of devices and biologicproducts for the extremity, hip and knee repair and reconstruction. Wright Medical is a leading provider of surgical solutions for the foot and ankle market.Wright Medical has been in business for more than 60 years and markets its products in over 60 countries worldwide. For more information about WrightMedical, visit its website at www.wmt.com.

Table Follows

Wright Medical Group, Inc.Reconciliation of As Reported Net Income per Diluted Shareto Non-GAAP Net Income, as Adjusted, per Diluted Share

Three Months Ended

March 31, March 31, 2011 2010

Net Income per Diluted Share Net income (loss), as reported, per diluted share $ 0.09 $ (0.01)Interest expense on convertible notes 0.02 0.02Dilutive effect of convertible notes (0.01) 0.00U.S. governmental inquiries/DPA related 0.03 0.15Non-cash, stock-based compensation 0.05 0.05Restructuring charges 0.01Deferred financing fees and transaction costs associated with Convertible Notes Tender Offer 0.06

Net income, as adjusted, per diluted share $ 0.24 $ 0.21

- 3 -

wright medical group, inc. 8-k filed may 4, 2011

Documents